US Taxes – Don’t Pay Twice

June 25, 2007 Hull & Hull LLP Joint Accounts Tags: , , , , , 0 Comments

In “Will Planning for Canadian Residents with U.S. Connections”, presented at the 9th Annual Estates and Trusts Summit, Paula Ideias, Bryan McNulty and Beth Webel (PricewaterhouseCoopers LLP) provide a sobering summary of problems with cross-border joint tenancy assets:

For U.S. estate tax purposes, when there is a spousal joint tenancy and the surviving spouse is not a U.S. citizen, the entire value of jointly held property is included in the decedent’s gross estate unless the executor submits facts sufficient to show that the property was not acquired entirely with consideration furnished by the decedent, or was acquired by the decedent and the other joint owner by gift, bequest or inheritance.

Canadian income tax consequences should also not be ignored. If the joint tenancy is between spouses, the deemed disposition of the property at death will not occur until the death of the second spouse. This may result in foreign tax credit problems if U.S. estate tax is triggered on the first spouse’s death. If there is a gain on the property, it may be best to elect out of the spousal rollover at the time of the first spouse’s death.

[…]

As a result, joint ownership is not a recommended form of ownership for U.S. situs property or as a will substitute for property subject to U.S. estate and gift tax because the incidents of Canadian income tax and U.S. estate and gift tax may not apply at the same time or in the hands of the same taxpayer. In this case, it is very likely that double taxation will arise. Additionally, joint ownership may not allow the spouses to undertake effective will and estate planning for U.S. estate tax. (see pg. 4).

The planning process is becoming increasingly complex, particularly where there are cross-border assets involved. In almost any situation involving US assets, it may be worth obtaining specialist legal advice in the State in question.

Thanks for reading.

Sean Graham

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