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Cross border ownership of real estate is a common practice today, as investments in real estate extend between the United States and Canada. The practice is so easy, you can forget to ask, “what is the process to transfer this property upon my death?”
For our Canadian neighbors, whether they’re dual citizens or not, owning property in the US should include a review of estate planning from both sides of the border to ensure their property can pass with the least tax consequences as well as avoiding probate.
For the best possible solution, you should consider consulting with an experienced estate planning attorney and tax advisor knowledgeable about both U.S. and Canadian taxes. You have some options to consider, including:
The “easiest to get into and most difficult to get out of” way to pass real estate outside of probate is to add a family member to your deed. This may be a taxable gift, and adding a family member is always advised against because this gives another individual legal rights in the sale, mortgage, and partition of your real estate. US citizens are granted lifetime gift exemptions, but this tax savings isn’t extended to Canadian citizens. This type of transfer may also trigger capital gains in Canada for the initial owner of the property.
A Limited Liability Company is a common business structure but has no equivalent in Canada. Since Canada doesn’t have LLCs, they’re treated as corporations and may trigger double taxation. Setting up a U.S. LLC is a complex process and it’s highly recommended that you consult a US-Canada cross border expert.
Revocable Living Trusts (RLT) are structures used by many Americans to avoid taxes, but these are treated differently in Canada. They’re subject to review by the Canada Revenue Agency (CRA) which may decide that transferring an RLT is a disposition of the property at its fair market value, which may mean that Canadian residents are taxed on unrealized gains upon the transfer. This is problematic to Canadian citizens and should not be utilized for wealth transfer.
An Irrevocable Trust is an option for Canadian residents, but unless you’re over the age of 65, taxes are complicated and more costly.
A Lady Bird Deed, also known as an Enhanced Life Estate Deed, is a transfer of real property to a grantee, that reserves a life estate and lifetime power to convey the property and unilaterally defeat the grantee’s interest. A Lady Bird Deed is a useful tool for transferring property outside of probate, especially real estate owned by a Canadian Citizen.
There are limitations for when this type of deed is useful. If you die leaving a sizeable unpaid lien on your property, this deed may not satisfy the intended bequest. If you wish to leave your property to multiple new owners, there’s always a chance the new owners may not get along and will tie up l the property due to disagreement as to how to proceed with the sale or ownership.
This type of transfer occurs at death and only requires presentation of a death certificate of Property Transfer Affidavit to the proper authorities to authenticate. The owner can continue to use the home, knowing the transfer will be outside of probate.
Regardless of your stage in life, consult an estate planning attorney in Ann Arbor to help you create an estate plan. * If you have questions regarding Cross border ownership of real estate, you should consult with a lawyer and tax advisor knowledgeable of both U.S. and Canadian taxes.
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