29 Sep Cross-border estate planning: Don’t forget to update these documents
Consider Matt and Sandra, a retired Ontario couple who bought a vacation home in Arizona 15 years ago. Matt also has an IRA from a period spent working in the United States. Their Canadian wills were updated when they retired, but the beneficiary designation on Matt’s IRA has not been reviewed in years. Their Powers of Attorney were prepared in Canada, and the daughter they named as executor has since moved to the United States.
Nothing about their estate plan necessarily looks unusual. But if Matt or Sandra dies or becomes incapacitated, their family may discover that having the right Canadian documents does not necessarily answer every question south of the border.
For Canadians with U.S. real estate, retirement accounts, or other cross-border holdings, effective estate planning extends beyond writing a will. It requires coordinating legal documents, beneficiary designations, and decision-makers across both jurisdictions.
Your will may not control some of your most valuable U.S. assets
One of the most important places to start is with beneficiary designations. Canadians who previously worked in the United States may still have an IRA, Roth IRA, or 401(k). Those accounts generally pass according to the beneficiary designation and applicable plan or custodial rules rather than simply following instructions in a Canadian will.
That distinction can become important surprisingly quickly.
Suppose Matt named a family member as beneficiary of his IRA years ago and later updated his Canadian will without revisiting the IRA designation. The beneficiary designation on the account may still determine who receives it.
Marriage, divorce, the death of a spouse or beneficiary, and other major family changes should therefore trigger more than a review of your will. Beneficiary designations on both Canadian and U.S. retirement accounts should be reviewed as part of the process.
There is another question Canadians sometimes overlook: what happens after the beneficiary inherits the account? A Canadian resident inheriting a U.S. IRA, Roth IRA, or 401(k) can face an intersection of U.S. distribution rules, withholding taxes, and Canadian income-tax reporting. The rules can differ significantly depending on whether the beneficiary is a spouse, another individual, a trust, or the estate.
The important question, therefore, is not simply who inherits the account. It is also how they will receive it, what tax may apply and what rules they will face on both sides of the border.
Can a Canadian executor administer your U.S. assets?
Canadians with U.S. assets should also look closely at who they have appointed to administer their estate. Simply owning an IRA, Roth IRA, or 401(k) does not automatically mean you need a U.S. resident executor. Retirement accounts with valid beneficiary designations are generally administered under the account or plan’s beneficiary rules.
U.S. assets that become subject to probate, particularly real estate, can be another matter. If Matt and Sandra’s U.S. property becomes subject to probate after one or both of them die, the estate may need to go through a probate proceeding in the state where the property is located. State law can determine who is eligible to administer that estate.
Some states restrict the ability of non-residents to serve. Florida, for example, generally limits who can serve as a personal representative when the person is not domiciled in the state, although exceptions exist for spouses and certain relatives. That can create an unpleasant surprise for a Canadian who assumes the executor named in a Canadian will will automatically be able to handle everything in the United States.
The lesson is not that every Canadian with U.S. assets needs an American executor. Instead, Canadians should ask whether the person they have chosen is legally eligible and practically able to administer the assets they own in each jurisdiction.
Do you need a U.S. will?
Another common question is whether owning property in the United States means a Canadian should have a separate U.S. will. There is no universal answer. Depending on the assets involved, the Canadian province where you live and the U.S. state where your property is located, lawyers may recommend coordinating Canadian and U.S. wills or using another estate-planning structure.
But having two wills is not automatically better. Poorly coordinated wills covering different jurisdictions can create unintended consequences, including the possibility that one document interferes with or revokes provisions of another.
If separate wills are used, they should be deliberately coordinated so each document deals with the assets it is intended to govern without undermining the other.
