Americans Receiving An Inheritance From Canada

by Tax Guy - Burlington Accountant on January 13, 2010 Print This Post Print This Post

If you live in the U.S. and have family in Canada, you may be wondering what happens if you receive an inheritance from a Canadian estate. Here is a reader question that I recently answered on this topic:

Question: I live in the US (green card holder). My family lives in Canada. One Canadian family member will likely pass away this year (all assets are in Canada). I would like to understand how this impacts my taxes, but am having problems finding info on this. Do you know of any material I can read to help me understand how I will be taxed etc?

How A U.S. Resident Is Taxed On A Foreign Inheritance

As a resident of the US you can receive your inheritance tax free (at least federally). You may have to pay a state inheritance tax on amounts you receive.

Right now only 7 states have an inheritance tax: Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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{ 35 comments }

Clayton March 18, 2010 at 2:46 am

Tax Guy: I have 3 cousins who have all been American citizens for over 30 years. We have a common relation (our Canadian grandmother) whose estate is about to be distributed. Her will had a trust in it for us grandchildren. My cousins have asked me to find out if there’s anything they need to do in order to receive their shares of the trust. I tried looking through the Income Tax Act and I think that s.116 deals with this. Am I right? From what I can tell, it sounds like if my American cousins are to receive their shares, then they’ll have to either get or give something called a clearance certificate. What exactly is that and why is it necessary? Do (each of) my cousins have to ask for a certificate, or do they (each have to) give it? As I’ve said, I’ve tried reading s.116 and I simply can’t figure it out. I’ve even tried calling the CRA (is that the same as Revenue Canada?) and asked for help so that I can tell my cousins what to do or expect. Would you belief me that the person I spoke to there wasn’t much help? Anyways, what do you think? Can you help me? Thanks.

Tax Guy March 18, 2010 at 3:46 pm

Hello Clayton:

The trust doesn’t issues shares or even units. Rather each has an interest in the trust. The trust then owns assets from your grandmothers estate. The income (interest & dividends) are usually distributed according to the terms of the trust and included in the income of each of the beneficiaries.

For a resident of Canada, the income from the trust is included in their taxable income for the tax year. The same is trust for US residents. But US residents must report their interest in the trust under the US foreign Grantor Trust rules. This a disclosure of their interest in the trust. In addition, distributions from the trust would be subject to non-resident withholding tax and the trust must withhold and remit 15% of Canadian dividends paid to non-residents.

If the provisions of the trust allow it to be fully or partially dissolved, then a distribution of the assets in the trust to the U.S. beneficiaries may make sense.

I would suggest that you turn this over to an accountant to help you understand. Without the Will and knowing the exact terms of the trust, I simply cannot provide any specifics.

Carol June 27, 2010 at 7:21 pm

My mother is Canadian, lives in Canada. I am her only daughter, born Canadian, but has lived in USA since 1975. I am now an American Citizen. We have no other family. except a cousin, My mother has me on her will as “estate trustee” a term used in Ontario, meaning same as “executor”. Myname is on her bank accounts and house. Since I live in USA , should she change her will to executor being my Canadian cousin who resides in Canada, and me listed as only an “heir”. or does it matter. ?

Tax Guy June 28, 2010 at 1:11 pm

Hi Carol,
The executor should reside in the same location as the testator (your mother). When your mother passes away, Canada considers her to have sold her assets immediately before death. The tax bill is paid and the estate is distributed to the beneficiaries tax-free.

You would only be affected if your state has an inheritance tax.

Carol June 28, 2010 at 1:26 pm

Even tho I am only daughter of my mothers and a US citizen, my canadian cousin should be named “estate trustee” / “executor? we can do that. she’ll have to change her will. Name me the American daughter as just a heir or beneficiary? My name is on all her bank accounts and house? Should that be changed? or just give banks a letter, re: “right to survivorship only” ? please advise. Carol Pudlock

Carol June 28, 2010 at 1:29 pm

What is difference between “estate trustee” and executor? Her canadian will names me estate trustee? does it matter? So a resident should be named and me just heir? / beneficiary? My name is on all her bank accts, a GIC, and her house? is that ok?

Carol June 28, 2010 at 1:34 pm

also , when the day comes, how do I transfer funds from Canada to USA and what is the limit amount?

Tax Guy June 28, 2010 at 2:42 pm

The executor is also known as the estate trustee or liquidator. They all mean the same thing.

The problem having you as executor is that you will either have t hire someone in Canada to do the work for you or come up several times to sign documents and attend meetings. The estate get very complicated if the executor is in the US because then it adds an international dimension that would not have existed otherwise.

I would strongly suggest your mother speak with a lawyer with respect to the joint ownership arrangements. These do not change the income tax aspect and tax compliance may be an issue (the CRA can ask the IRS to collect unpaid taxes from an estate’s beneficiaries!).

If you are the joint owner, you simply attend the location and withdraw the money. Canada does not have a gift tax or limits.

Carol June 28, 2010 at 3:29 pm

My mom’s lawyer said my name should NOT be on accounts to do a power of attorney, giving me access to accounts to sign, pay bills, if she is unable and at death. I guess we should take my name off of the house too. ?? The lawyer didn’t seem to be bother that a us person is named estate trustee, as he added a clause in will about no bonds, etc as a non-resident. Does this sound right?

Carol June 28, 2010 at 3:32 pm

Also, she has no income, only canada pension, owes no income tax, and she has paid her property taxes in full for this year.

Carol Pudlock July 9, 2010 at 2:35 pm

We are leaving my name on accounts and house and will. my cousin, is getting a divorce right now and its too risky.There is no one else. Canadian attorney said to leave it alone, any problems with this? I am estate trustee on will, and have joint accts, at bank and my name is jointly owned also, with my name. My estate attorney in Canada, said to leave it just the way it is. No problem, as there is NO one else.

Tax Guy July 9, 2010 at 5:40 pm

Hello Carol,
Its difficult for me to say as I do not have all of the facts. As estate trustee you administer the estate and as joint owner, should assume ownership of joint property. I have to assume you have received valid advice.

Murray July 9, 2010 at 9:32 am

I am a US citizen (green card) and will be receving an inheritance from my Canadian mother Estate who recently passed away. I know that amounts under $100,00 do not have to be decalred to the IRS, but do I have to pay any Canadian Tax to the Candian Government for this inheritance.

Tax Guy July 9, 2010 at 2:17 pm

Murray,
Canada does not tax inheritances to beneficiaries. Your only U.S. liability would be a state inheritance tax, if your state has one. Federally, there is no inheritance tax.

tamara August 4, 2010 at 5:11 pm

As a Canadian Citizen and living solely in the US with permanent resident status for the last 29 years, would an inheritance from my family in Canada require any taxes to be paid in Canada?

Tax Guy August 4, 2010 at 7:43 pm

No!

tamara August 4, 2010 at 5:17 pm

oops I missed your last response :) Do you know of an official web reference that documents this?

Tax Guy August 4, 2010 at 7:44 pm

No. But an inheritance in Canada and the US (Federally) is not taxable.

Chris December 12, 2010 at 2:47 pm

Tax guy,

I am a Canadian Citizen who has a green card, and have lived in the US for the past 25 years. My mother lives in Canada and is reworking her will. She told me that her lawyer said that I shouldn’t be an executor to her will because I live in the US. What would be the reason for this? I assume that because I am still a Canadian Citizen there wouldn’t be an issue with me the executor? Your feedback would be appreciated.

Tax Guy December 13, 2010 at 10:32 am

The reason is that when your mother dies, the estate will become subject to probate in Canada and possibly in your state as well. You might, personally, be required to post a bond for the probate and income taxes owing to be permitted to settle the estate in Canada. You may have to file Canadian income taxes and US taxes because the estate will become subject to US law after her death. Having the executor out-of-country overly complicates the settlment.

As a general rule, the executor should reside in the same jurisdiction.

Eve January 8, 2011 at 2:17 pm

I am a US citizen and my mother (US citizen living in Canada) recently died. Her money is in Canada and I would like to know if there is any Canadian taxes other than the estate tax that will be due. Thanks

Tax Guy January 10, 2011 at 9:21 am

@Eve,
Canada does not have an estate tax but rather there is a deemed sale of assets at FMV on the date of death. Any accumulated gains or losses are realized for tax purposes and any income is taxed as normal. The executor will have to file the deceased’s final T1 tax return and obtain a clearance certificate from the CRA before distributing the assets to the beneficiaries.

If you are the executor, you are strongly urged to seek professional help from a lawyer (in Canada) as having an executor outside of the country highly complicates matters.

Eve January 10, 2011 at 5:21 pm

Who do I contact to get the T4A statements so that they get sent to me in the US? What documents will they require?
Thanks

Tax Guy January 10, 2011 at 5:22 pm

You contact your employer.

Eve January 10, 2011 at 5:30 pm

Yo Tax Guy, the person was not employed and rec’d income from her pension & OAS, so who would I contact and what documents will they require from the estate to get those forms mailed to the US?

Tax Guy January 10, 2011 at 6:04 pm

For the pension plan you would have to contact the pension provider. For OAS you would contact old age security you can find them at Service Canada: http://www.servicecanada.gc.ca/eng/sc/oas/pension/oldagesecurity.shtml

Julie October 18, 2012 at 6:56 pm

My daughter just received a substantial amount of money due to her being the named beneficiary of her uncles estate in canada. She is a dual citizen but claims her US citizenship and has lived in america since she was 1 year old. She is in the military.

Which citizenship should she claim for her inheiritance to get the lowest taxs possible on this.

Tax Guy - Burlington Accountant October 19, 2012 at 1:56 pm

There is no inheritance tax in either Canada or the US. So the the inheritance is tax-free.

Donna March 19, 2013 at 10:43 am

My daughter-in-law inherited under $100,000 from her Canadian mother. I have heard that she has to add a form “3500″ (or something like that) to her federal return here in the States. is this true?

Tax Guy - Burlington Accountant March 19, 2013 at 10:51 am

Yes. Its form 3520!

Cynthia April 29, 2013 at 9:27 am

My father lists me as Estate Trustee and I reside in the US on a green card. He owns some income properties. I could hire a lawyer to deal with the estate, but am worried I will personally have to put up a bond for his properties? I know it’s ‘best’ to have someone who resides in the country, but it’s not possible. What hurdles will I face if I take this on?

Joanne May 12, 2013 at 8:26 pm

My sister and I, dual US/Can citizens, live in the USA…ME and MA respectively. My Canadian mother recently passed away in Ontario, Canada and funds from her will are about to be disbursed. The monetary amount is well under the million or million and a half needed to be taxable so we are ok with that. I saw from a previous answer that we would each need to file tax form 3520 (next year?). athank you, good to know. What I do not know is how to actually bring the funds with me into the USA. I know…or think I know…that I may not bring more that $10,000 cash over the US border with me. This amount will be greater than that.
Should I open an American Funds account at a Canadian bank and have the executor in Ontario deposit the money in that account and I withdraw it from down here? Is there a better or more common way of acquiring the funds? How do people in my situation go about this? Thank you…I’d appreciate any guidance you can give me.

karen t July 12, 2013 at 10:54 pm

Hi Joanne, Did anyone reply to you? Just Interesting as we are in the same situation. If I had wrote a letter it would have looked exactly like yours.

Thank You.

Karen

Tax Guy - Burlington Accountant July 13, 2013 at 7:38 am

Hi Joanne
If your mother was a U.S. citizen the. The US estate tax may apply. Otherwise she is taxable on death only in Canada.

The 3520 may be required to report income earned in the estate after death and before distribution.

Finally, there is not limit whatsoever on what you can bring into the US. You are required to declare physical dollar bills in excess of $10,000 when crossing the border.

Joanne July 13, 2013 at 12:49 pm

Hi again, My mom was a Canadian citizen– living in Canada her entire life. Since I posted my query, my issue has been resolved– and as it turned out–there was no actual issue. This is what we did: As the funds were disbursed, the executor (in Canada) transferred my money into US funds and mailed me bank checks (each over $10,000 and drawn on a US bank). I have deposited them in my (US) account without a problem.
I have kept documentation of the transactions and I will file a 3520 next year and declare it as (non-taxable)income.
Thank you, ‘Tax Guy’ for getting back to me. The info on your site was helpful and I appreciate it.
To Karen t and others out there wondering the same things… I’ve tried to get specific with the details with the hope that they answer the questions you have. It turned out to be a very easy process…good luck.

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