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.
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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.
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.
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. ?
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.
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
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?
also , when the day comes, how do I transfer funds from Canada to USA and what is the limit amount?
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.
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?
Also, she has no income, only canada pension, owes no income tax, and she has paid her property taxes in full for this year.
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.
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.
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.
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.
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?
No!
oops I missed your last response
Do you know of an official web reference that documents this?
No. But an inheritance in Canada and the US (Federally) is not taxable.
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.
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.
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