When it comes to owning US real estate that minimizes both US and Canadian income and estate tax, there is no “one size fits all” solution. Before purchasing your vacation home south of the border, it’s important to meet with a tax professional to explore your options.
Cross-border US real estate trust
If properly constituted and administered, owning US property through a cross-border US real estate trust will exclude the value of the property from your US taxable estate and will not result in adverse US or Canadian income and estate tax consequences. It is important to ensure drafting, funding, titling, and operating the trust is done properly, or it will not produce the desired tax benefits.
Inheritance trust for your children who are US citizens
If you’re a Canadian resident (and not a US citizen), have kids who are US citizens or reside in the US, and possess a substantial amount of wealth, then a trust might be the key to sheltering your wealth from US estate tax. If your children will inherit money and/or property from you upon your death, an inheritance trust may be an ideal vehicle for your children to receive such wealth, and may assist in ensuring they avoid potentially steep inheritance tax.
Qualified Domestic Trust
If you’re a US citizen, but your spouse is Canadian, then he or she may be required to pay US estate taxes on the property transferred at your death. Establishing a will with a Qualified Domestic Trust (QDOT) allows your Canadian spouse access to the marital deduction that’s available to US citizens, permitting you to transfer the property to them and defer the estate tax until they die.
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