Use of Trusts for US citizens in Canada

| Published on
January 6, 2015
| Updated on
September 17, 2021
By Jeffrey (JP) McAvoy
| Published on
January 6, 2015
| Updated on
September 17, 2021

When we are meeting with our married clients, there are certain issues that we need to address when one is a US citizen and the other spouse is not and both are resident in Canada.

Fortunately, with careful planning, there are steps that can be taken to manage the exposure to US estate tax.  We help we manage this exposure by ensuring that the non citizen does not hold US assets and reducing the value of the worldwide estate of the US citizen to the extent possible.

During our meetings with our clients, the following considerations are addressed:

  1. To the extent it is possible, US property will be owned by the US citizen in his or her name alone.
  2. Similarly, to the extent it is possible, all non US property will be owned by the non citizen in his or her name alone.
  3. We will consider the use of annual gifts in line with the annual exemption from the US citizen to the non citizen spouse.
  4. We will consider how joint property is being held and if possible gift property with potential capital gains to the non citizen.
  5. We will consider whether the Will of the US citizen should contain a spousal trust for any US property to manage the US Estate Tax on the death of the non citizen spouse.
  6. We will consider whether to create a spousal trust in the Will of the non citizen to limit the value of the estate of the US citizen.

If a spousal trust is created, it is vitally important that it complies with US requirements.  These requirements include language that makes it clear that the value of the trust property is not included in the estate of the surviving spouse.  To do so, income must be payable at a minimum annually to the surviving spouse.  In addition, there must be language that clearly restricts the powers of appointment.  Finally, if the spouse is a trustee, there must be language that ensures that the power to encroach on capital is restricted to only the health, education, and maintenance of the spouse.

If you wish to discuss the planning discussed in this blog or any other matter feel free to contact one of the professionals at ConductLaw.  Our professionals are experienced in implementing structures that manage tax obligations, whether that be spousal trusts, family trusts, testamentary trusts, or any other type of legal entity such as a holding corporation.

ConductLaw is an Ottawa based law firm with three locations in the Ottawa area to serve clients.  Feel free to call or write one of our professionals for all of your business and estate planning needs.

About the Author

JP McAvoy
JP is the Managing Partner of Conduct Law, a Business Law Firm with Offices in Ottawa, Ontario and Orlando, Florida. His legal practice is focused on business and business owners.  Called to the bar in 2001, he received his LL.B and JD from Queen’s University in 1999. He represents a diverse range of clients throughout Canada, the United States, and Eastern Asia. In addition to practicing law, JP is a College Professor, Best-Selling Author and Host of the top rated podcast The Millionaire's Lawyer.  JP's accomplishments earned him an Ottawa Business Journal Forty Under Forty Award. Read JP's full profile.