The Colemans Take the States!

The Colemans Take the States!

In July, my daughter Olivia and I will be taking part in the “MINI Takes the States” rally that travels around the US. It begins in Georgia, proceeds north to Baltimore, across to Detroit and then west to Minneapolis, Sturgis, Park City, Las Vegas and ends in Palm Springs, California.

The route will take two weeks and cover nearly 10,000 km (one way!). We’re going to do ½ the route, from Atlanta to Detroit so we don’t miss too many of David’s baseball games.

Over 1,000 MINI Coopers will participate in the rally. We’ll be in the coolest one. J

This will be an amazing experience for us, and I hope we build life-long memories that Olivia and I can share. Having this time with her, just before she enters those strange teenage years, is priceless.

We’ve been very blessed and are fortunate to do a lot for others now. Our original intention was to have you “ride with us” as we raised money to support a charity.

However, I’ve made a significant charitable commitment this year to the Community Foundation of Mississauga that I will be sharing with you over the summer. It’s a very big deal and I will need your full support for its success. I know you’re going to love the idea and I’m really looking forward to announcing it soon!

In the meantime, please wish Olivia and me luck as we Take the States!

Digital Disruption

“Tomorrow belongs to those who can hear it coming.”
– David Bowie

One of the most important items I encourage you to note is how the financial press will continue to demonstrate their misunderstanding of the changes that impact our economy. They will breathlessly report on financial facts and data that are increasingly irrelevant. Let me explain with some examples:

  • World’s largest taxi company owns no taxis (Uber)
  • Largest accommodation provider owns no real estate (Airbnb)
  • Largest phone companies own no telecommunications infrastructure (Skype)
  • World’s most valuable retailer has no inventory (Alibaba)
  • Most popular media owner creates no content (Facebook)
  • Fastest growing banks have no actual money (SocietyOne)
  • World’s largest movie house owns no cinemas (Netflix)
  • Largest software vendors don’t write apps (Apple & Google)

Technology has created a “digital disruption” that is completely changing how we gauge the rate of change in our business markets. What do we learn from shipping data, purchasing manager indexes and inventory levels when the world’s fastest growing and most successful companies have no inventory, no manufacturing and require no shipping? When you hear the news reports, ask yourself if they are reporting on the “old economy” or the new one.

Up, Down & Sideways

Up, Down & Sideways

Who are we planning for? It’s a tougher question that you might think.

We will be expanding our planning with you in 2016, as we look to dig a bit deeper and also to go “Up, Down and Sideways”. This means expanding your plan to include other people and responsibilities that we may not have considered:

  • Up” means considering the how we are involved in the care of aging parents and extended family members
  • Down” means appreciating how you may be financially responsible for children and grandchildren as they find their feet or return home
  • Sideways” means understanding how your friends play a role in your retirement plan. No one wants to retire alone. If your friends are not planning for their future as well as you are, then that’s a problem we want to see coming. You have three choices if they have a poor plan: either show them how we can help, pay for them to play with you – or find yourself new friends. I’ve already seen with some clients how this becomes one of the worst surprises in retirement. Let’s not take those friendships for granted. If you want your friends in your life, let’s work together to make sure you can always play together.
Pre-paid Funeral Plan – Will I Get What I Paid For?

Pre-paid Funeral Plan – Will I Get What I Paid For?

Note from Coleman Wealth: Thinking about a pre-paid funeral is an often neglected estate planning item. However, we have connected with Katherine Downey, a Certified Executor Advisor and specialist in legacy and funeral planning. Kat offers many important products and services to help make the conversation around funeral planning less taboo, more accessible and comfortable for seniors and their caregivers. To find out more information or to be put into contact with Kat, please email us at

During a recent presentation to a Lions Club a lady asked me “How do I know that the prepaid funeral will actually give me what I paid for – not something cheaper in the end?” When people have the courage to preplan and prepay their eventual funeral arrangements, they enter into a contract with the Funeral Home and a licensed Funeral Director. The binding legislation for the profession is the Funeral, Burial and Cremation Services Act. In this legislation, it is mandated that every funeral home must have a current price list, and all goods and services must be itemized on the prepaid funeral contract – exactly as these items are listed in the price list. Additionally the Ontario Board of Funeral Services has outlined how all prepaid funeral contracts must be organized.

Every funeral home will have a separate charge for the following items:

  • Documentation fee – permits, forms, statements
  • Transportation of remains – usually a specific radius is stated
  • Professional and Staff Services – coordinating activities, rites and ceremonies
  • Embalming of remains
  • Basic preparation of remains
  • Facilities for preparation/embalming/shelter
  • Staff services for visitation
  • Facilities for visitation
  • Facilities for ceremony or off site facilities set up fee
  • Administration and service vehicle fees
  • Family Limousine – usually a time perimeter is also stated
  • Funeral Coach
  • For each item that is applicable and prepaid, the current price is entered onto the prepaid contract for the item selected.

Further, the legislation mandates that for the merchandise selected and prepaid, a full description of the selected merchandise must be on the prepaid contract. For example, if a casket is selected the manufacturer must be noted along with the name of the casket, a full description of what it is made of, and the model number. The current price of the casket is then entered onto that line of the prepaid contract.

When the contract is complete there will be an itemized price and full description for each item selected.

The legislation also states that if the merchandise selected and prepaid is no longer manufactured or available at the time the funeral services are required; then the funeral director must inform the Estate Trustee and make a substitution for the previously selected merchandise of equal or greater value. I have seen this a few times and usually it involves a casket selected many years ago. For example, one lady had prepaid a cherry casket and that model was no longer manufactured. In that situation the Estate Trustee selected a different cherry casket.

This lady’s question reinforces the importance of knowing exactly what you have prepaid. Additionally, tell your Estate Trustee your wishes and where the contract is; better yet give them a copy of your paperwork. If you would like to know more about how you can setup your prepaid funeral contract please connect with me. I am also offering a complimentary prepaid contract review to ensure you have everything the way you want it to be in the end.


Katherine Downey is the #1 Funeral Preplanning Professional in Canada for the fourth time. She is a professional educator, author, radio host, licensed funeral director and insurance advisor. To set up an appointment or have your questions answered, please contact Kat directly.

Using Debt Wisely: Strategic Ways to Rethink your Debt

Note from Coleman Wealth: Often, we don’t take the time to rethink how we shape some of the basic components of our financial picture. Thinking about using debt in a strategic fashion in today’s low interest rate environment can often be overlooked. Helena Corallo, a banking specialist with Manulife Bank, has helped us and our clients by removing the anxiety around debt and cash flow management by introducing a new solution, the Manulife One all-in-one account. To find out more information or to be put into contact with Helena, please email us at

Do you have a plan for debt elimination?

When most people think about retirement planning, they think of building a retirement nest-egg through RRSPs and pension plans. While these are key pieces of the puzzle, it’s important not to forget about another important element of retirement planning – debt elimination. After all, the less you spend on interest payments, the more you can allocate to your retirement savings.

A debt-elimination plan doesn’t have to be complicated. But you should have one or you’ll likely be in debt longer than you have to. There are a few simple strategies for getting out of debt sooner, such as:

Building extra debt payments into your budget.
Consolidating all of your debts at the lowest rate possible.
Using your income and savings to automatically reduce your debt (without giving up access to that money).
When you’re planning for retirement, don’t forget about the impact that your debt has on those plans. With a strategy for becoming debt-free sooner, you may even be able to retire earlier than expected.

A painless way to cut back on expenses

With the current economic uncertainty, many people are looking for ways to reduce expenses. A relatively painless way to reduce your monthly expenses is to have a second look at the way you’re managing your debt.

Over time, most of us take out a variety of loans for different purposes. These can include things like credit card debt, car loans, home renovation loans and, of course, the mortgage. And if you have more than one loan, you’re most likely paying a different interest rate on each loan. One of the easiest ways to reduce your monthly interest costs is to consolidate your debt at the lowest rate. Typically, your lowest-rate debt will be a loan that is secured by an asset, such as your home.

If you have sufficient equity built up in your home, consider switching to a product that allows you to access your equity, such as a home equity line-of-credit. Then, use this line of credit to repay your higher-interest loans. In this way, you’ll be bringing all of your debts together into a single account, at a single rate. Some line-of-credit products even allow you to track debts separately within the account so you can continue to keep track of interest costs and repayment separately. Not only will debt-consolidation save you interest but it will make it easier for you to keep track of what you owe and how you’re progressing in paying it down.

Reducing your monthly expenses is one way to deal with economic uncertainty – and it doesn’t have to be painful. By borrowing smarter you can reduce your interest costs and increase your cash flow each month.

Help out the kids without hurting your retirement

As parents, we want nothing more than for our kids to succeed. Often, we wish to give our children a “leg up” in their transition to adulthood by helping them out with larger expenses, such as tuition for post-secondary education, a down payment on a home or even a reliable vehicle. If you find yourself in this situation, be sure to carefully consider where you take that money from so that helping your kids doesn’t hurt your retirement.

For people who don’t already have savings set aside for their kids, such as an RESP or a savings account, there are generally two options:

Retirement savings. Tapping into your retirement savings may be the quickest way to access cash but it could have some undesirable consequences. For example, you’ll be charged taxes on a withdrawal from your RRSP and you’ll lose that contribution room forever. You’ll also forego any future growth on the amount you’ve withdrawn, which will most likely mean you’ll have less money available at retirement.

Home equity. Some people are reluctant to take on more debt in the years leading up to retirement. However, using a home equity line of credit to help out your kids may be the wiser choice in some instances. Here’s why: you won’t be charged any tax when you access your home equity and your existing retirement savings can remain intact and continue to grow. Some accounts will even allow you to track different portions of your debt separately. This can be particularly useful if you’re providing money to more than one child and/or if you wish to track the interest charged for different portions of the debt.

We all want to help our kids succeed. By carefully considering how you help, you can help to ensure you don’t compromise your own future financial security.

Cross Border Estate Planning for Canadians

Note from Coleman Wealth: We work with a network of Canada’s best cross border experts, and are fortunate to have connected with Michael Kennedy, an American estate lawyer at Ingenuity Counsel. Michael has worked with a number of our clients who have cross border legal issues and understands the complexity of cross border investing. To contact Michael, please email us at

As the calendar turns from summer to autumn, Canadian snowbirds begin to plan for their annual pilgrimage south escaping the inevitable Canadian winter. Whether you own property in Florida or are thinking of purchasing your own piece of southern paradise now is a good time to evaluate your estate plan to ensure it protects your interests in the United States.

One important issue to consider is whether you have the appropriate Power of Attorney documents in place. Many Canadian snowbirds already have an Ontario Power of Attorney for Property and/or a Personal Care Power. However, do you also have the Florida equivalents of these important documents?

Powers of Attorney are used to make important decisions that affect your assets and medical treatment. In many cases, these decisions are incredibly time sensitive. For example, if you were admitted to a Florida hospital, your spouse would not be able to make decisions related to your care under an Ontario Personal Care Power. Under Florida law, your Ontario Personal Care Power will not be valid and therefore not effective with the medical provider. In that case, a guardianship proceeding would have to be commenced in the Florida courts. Clearly, this could take time, significant money and ultimately delay your spouse’s ability to make timely decisions related to your care.

In addition, to the health care problem above, let’s assume you had a stroke and are unable to make decisions regarding your affairs. Your spouse wants to sell your Florida home but since you own the property as joint tenants with right of survivorship, you must consent to the transaction. Your spouse presents the buyer with your Ontario Power of Attorney for Property naming her as your agent but because it was executed under the laws outside the United States, the buyer and the title company will not accept it and therefore it will not be effective.

Another critical cross border estate document for the snowbird is the last will & testament covering property in the USA. Many problems arise for your estate if you dispose of property in the United States using your Ontario last will & testament. By using a state specific last will & testament for your property in the USA, your executor can save time, confusion, stress & money.

The good news is that you are permitted to have estate-planning documents under both Canadian and United States law. You can have Ontario estate documents to address matters in Ontario (and throughout Canada) and Florida estate documents to protect your interests in the USA. Therefore, you should consider adding United States documents to your estate plan to provide you with an extra layer of protection while in the USA.

With or without an up to date United States estate plan, there will be estate administration that must be done with respect to your property situated in the United States. Whether it’s probating the estate in the USA, clearing title to the property (even if jointly owned), transferring property to the rightful heirs or filing an estate tax return with the Internal Revenue Service and the state department of revenue, there is work to be done with respect to your property situated in the USA. Knowing that this will be the case is half the battle.

If you want to avoid many of these problems, a trust can be the answer, but it takes advance planning and working with the proper attorney to ensure compliance with all relevant United States laws & regulations. The Florida Land Trust is one particular trust that must be used with careful cross border planning – it is not the silver bullet you may think.

In the end, you should strongly consider discussing your activities in the United States with an experienced cross border tax & American estate lawyer.

To find out more about cross border estate planning, please contact Michael Kennedy at, 519-252-3888 or Michael Kennedy provides representation and counseling related to all facets of estate planning and business enterprise throughout the United States.


My summer vacation in Europe is coming to a close and, after consuming more than my fair share of gelato, I wanted to share one particular memory with you. Two weeks ago, I granted my wife one wish and took her to the Ferrari Museum in Maranello, Italy. (Curiously, I was with my Mom in Germany three years ago and she was just begging me to take her to the BMW factory and museum – what’s with these ladies?)

As a long-time Formula 1 fan and car lover, I was as excited as a small child at Christmas. So many beautiful and important cars – this was much art gallery as it was a museum. One of the exhibits that really struck me, were all the Championship Formula 1 cars that were driven by Michael Schumacher.

Here I am with one of them:

I must confess – it was a bittersweet moment. On one hand, I was so happy to be next to a car I had watched on television, and surrounded by some of the most incredible cars on earth. And yet, I was also saddened by my thoughts of what has happened to its driver.

You may know that Michael experienced a very severe brain injury while skiing with his family in late 2013. In December of that year, he was placed in a coma for over a year and his injuries have been described in the press as “traumatic”. From what I have read in the press, there is very little expectation for a recovery.

He has experienced unparalleled success and amassed immense wealth while exposing himself to catastrophic risk driving racing cars at breakneck speeds for over three decades. And nearly everything was taken from him during his retirement while skiing down a hill with his children.

Michael and I are about the same age, and perhaps this is one of the reasons I have always been a fan. He lived a life I could only dream of – and while I am admiring his incredible career and amazing cars, he lies in a hospital bed in his home in Switzerland.

As a seven time World Champion, five of which came driving for Ferrari, Michael Schumacher was not only one of the most successful drivers of all time, he is also perhaps the wealthiest, with a fortune estimated to be over $500 million US.

Today, it is estimated that his care since his accident cost over $10 million and currently costs almost $100,000 per week.

Life has movement. Things happen. Even the rich and famous are not exempt.

So, along with coming home rested, I’m also coming back with a renewed sense of what’s important and what I’m working for. We must prepare for all that life has to offer: to really enjoy and celebrate when things go well, and make sure we have solid plans in place for the times they don’t.

Andrea, Pedro, Nick and I are completely committed to ensuring you and your family has both. As always, thank you for your continued trust and confidence. We’re grateful for our relationship. And stay tuned – we have a lot of things in store for you this fall!

Have you been appointed Executor of someone’s will?

Note from Coleman Wealth: We work with a network of Canada’s wealth planning experts, and are fortunate to have connected with Executor Duties on Demand. This company simplifies the estate administration process and makes sure all of your duties are covered. Their team is comprised of chartered accountants, tax specialists and trust lawyers, who will ensure you have the right information and that you are correctly fulfilling your executor responsibilities.

We thank Mich’le Follows for providing us with this blog post. To set up a consultation at no cost, please email us at or visit

Many people agree to be the estate trustee (a.k.a. executor or executrix) of a family member’s estate without realizing how large a responsibility they have taken on. In addition to the risk of personal liability and the possibility of legal action for inappropriate handling of the estate, there are over 400 time-consuming tasks that need to be performed to complete your responsibilities (depending on the size of the estate and the nature of the assets and liabilities).

Let’s look at the one of the biggest questions that we get from clients:

What is the risk that I am taking on in accepting the role of being an Executor?

An Executor/Executrix has been given the fiduciary responsibility of managing someone else’s affairs, after that person has passed away. They are expected to handle all of the assets and liabilities with due care and in a responsible manner. They need to determine firstly, what their responsibilities are, and then execute them in such a manner as to not cause any unnecessary monetary losses to the beneficiaries of the estate. If it is determined that certain losses to the estate such as late filing penalties, or the sale of assets well below the fair market value of the asset, could have been prevented, the executor could be accused of fraud or negligence. In addition to having to repay any compensation that they may have taken as an executor, he/she could have to use their personal funds to compensate for their actions. Also, if the executor distributes the estate prematurely, they could have to personally compensate the creditors or other beneficiaries for this misjudgment. The executor’s fiduciary responsibility is to remain honest, avoid any conflict of interest, communicate fully with the beneficiaries, and administer the assets and liabilities as timely and as accurately as possible – in a way that any careful, intelligent person would look after their own affairs. If the estate is insolvent (i.e. its debts are greater than the assets available to settle them), the executor should seek legal counsel immediately. If handled properly, the executor is not responsible to personally cover the liabilities of a bankrupt estate.

It is important to note that lack of expertise is not considered a viable excuse for the mishandling of an estate. Executors are expected to seek the help of lawyers, accountants, investors and other professionals to ensure that they are administering the estate properly – and in all cases, complete and accurate documentation is a must.

Being an executor is both an honor and a huge responsibility. If you have been asked to be an executor, you have been personally chosen as the best person available to administer the affairs of a person once they are gone. Be smart, be honest and be responsible, and seek assistance if you need it, and you will safely execute your duties with minimal risk and exposure.

This discussion is for general information only and is not intended to provide legal or any other advice. Executor Duties on Demand Inc. accepts no responsibility for any losses related to reliance on information contained herein.

Bill Yourself First

George and Angie Noble are a happy, successful couple. George is an executive at a large real estate firm, and Angie is a psychologist. They are in their late 40s, have 3 kids, and are enjoying the riches of life. They own a nice home in Rosedale (the mortgage is finally paid off), take several trips with the kids each year, and have a penchant for foreign cars. Combined, they earn over $400,000 per year ‘ a nice income!

The Nobles have worked hard over the years to get to where they are. Spending most of their 30’s just getting by, raising their kids and aggressively trying to pay down a large mortgage, they are now at a point where they want to enjoy their success. George loves cars, and Angie loves travelling. But, the more money that they make, the more they spend. This is not unique to the Nobles; this is common and we see it with many clients.

They have one main problem that naturally, they won’t be able to resolve. When you get used to a larger lifestyle, this becomes your new norm. There’s nothing wrong with this, but often the result is that there’s no balance between an increase in spending and an increase in savings. If you’re spending more now, you’ll likely want to keep up that lifestyle when you retire. And selling the house to help fund retirement (the proverbial ‘Retirement Nest Egg’) isn’t so common place anymore.

George and Angie are saving some money, but not a lot. It’s usually done ad hoc, when a bonus comes in, or when there’s some extra money sitting in the bank. They save about $20,000/year into RRSPs combined. Their total RRSPs today total about $200,000, and they have no other savings or pensions. At a 6% growth rate, this will amount to about $1 million by age 60. Doesn’t sound bad, but when you consider that they’re spending about $180,000 per year in today’s dollars’ well, let’s just say we hope that Walmart will be hiring. And that all of the monetary stimulus that’s been cycled into the economy won’t drive inflation up too much…

How did George and Angie have the discipline to pay down the mortgage so aggressively, yet lack the structure to make any regular savings that will go to help preserve their lifestyle at retirement? Easy.

People hate debt. People pay bills

You’ve probably heard the expression, Pay Yourself First. Well, doesn’t that sound like fun! Making regular savings can almost sound discretionary, at best. There’s always somewhere else that money could go – and often, it’s a lot more fun. But what if you ‘Bill’ yourself first?

Here’s how to do it. At the beginning of each year, take out a loan and invest that money (where you invest it, we can chat about!). Every month, you’re going to want to pay down that loan, because you hate paying the interest on it. So, structured like a mortgage payment, you pay down a portion of that loan every month. It’s one of your regular bills. By the end of the year, the loan is paid off completely. And then you do it again next year! In the meantime, that investment has been growing all year, and you’ve been earning compound growth on that money from January on.

Believe me; it’s a lot easier than you think. You’ll start to look at that loan with the same feeling of loathing as you do any other debt. And paying it down will become a priority! Suddenly, you’ve made looking after your future important again.

So for the Nobles and any other couple who struggles to save ‘enough’ ‘ consider this strategy. You may not be a natural born saver, but anyone who’s had a mortgage, student loan, line of credit, or credit card knows how to pay down debt.

Bill yourself first.

Representative case study

When borrowing to invest you will need to ensure that you have adequate financial resources to meet your loan obligations. Investments (such as mutual funds) in your RRSP and/or TFSA are not guaranteed, their values change frequently and past performance may not be repeated. Regardless of the performance or the value of your investments held in your RRSP and/or TFSA, you will be required to meet your loan obligation in full.

US Citizens in Canada: Tax-Efficient Estate Planning Through Wills

Note from Coleman Wealth: We work with a network of Canada’s best cross border experts, and are fortunate to have partnered with Altro Levy LLP, a boutique law firm providing sophisticated cross border tax, estate planning and real estate legal services with offices across Canada and the United States. This blog was co-authored by David Altro, D.D.N, J.D, L.L.L, and Jonah Speigelman, M.A, J.D, partners at Altro Levy. David has worked with a number of our clients who have cross border legal issues and is known as a thought leader in this complex area of law. We thank Altro Levy for providing us with this blog post. To set up an introduction, please email us at

There are over one million American citizens who currently call Canada home. It has been our pleasure to work with some of the many Americans living in Canada over the past several years, helping them achieve their estate planning goals. Such clients require specialized care as they are subject to a unique set of legal and taxation challenges since the US is the only Western nation which taxes its citizens regardless of their country of residence. Americans in Canada are therefore subject to two sets of laws: the US Internal Revenue Code (the ‘IRC’) and the Income Tax Act of Canada (the ‘ITA’).

However, the Canada-US Tax Treaty (the ‘Treaty’) affords many benefits to Americans living in Canada, such as providing foreign tax credits that can offset the impact of being subject to two different tax codes, preventing double taxation in many situations. However, without careful planning, it is possible to miss out on the Treaty’s benefits.

One area that requires particular attention is will and estate planning, which is discussed in detail in the book, Americans Living in Canada: Smile, the IRS is Watching You, by Davd A. Altro and Jonah Z. Spiegelman. Both US and Canadian tax principles need to be incorporated into the wills of US citizens living in Canada in order to ensure that assets are distributed in a tax-advantageous way on both sides of the border upon death. Canadian laws surrounding the treatment of capital gains tax upon death must be considered, as well as US estate tax laws.

US Estate Tax

Upon death, the Internal Revenue Service has jurisdiction to impose an estate tax on the fair market value (‘FMV’) of all assets owned by a US citizen, regardless of where the assets are located or where the person lived; however, not all US citizens are subject to US estate tax due to a number of available exemptions, deductions and credits. Deductions available under the IRC can reduce the amount of a US citizen’s taxable estate, thereby decreasing the portion of the estate that will be subject to tax (‘taxable estate’).

Under current law, for example, there is an unlimited deduction available for gifts made to a surviving spouse as long as he or she is a US citizen. However, gifts must be made carefully in order to ensure that the surviving spouse qualifies for this deduction. It is also important to note that if the surviving spouse is not a US citizen (a ‘mixed marriage’), this unlimited spousal deduction is not available.

The first $1 million of taxable estate is subject to graduated rates, with the remainder taxed at 40%. This results in the determination of what is called the ‘tentative tax.’ This would be the tax payable by the estate if no credits were available to offset that tax.

Fortunately, for many estates, the unified credit will offset all or a portion of this tentative tax. The unified credit can be applied against tax imposed on lifetime gifts and/or bequests in one’s estate.

For 2015, the credit amount is $2,117,800, sufficient to offset $5.43 million in taxable transfers. To the extent that unified credits are used against taxable gifts, they will be unavailable for use against that person’s estate tax liability.

In addition to a person’s own unified credits, a surviving US citizen spouse is now able to use the unused unified credits that were available to that person’s most recently deceased spouse (‘portability’). Like the unlimited spousal deduction, portability does not apply to mixed marriages.

US Estate Tax for Canadians

Canadian citizens and residents are only exposed to US estate tax if they pass away owning US assets with an FMV over $60,000 USD and their worldwide estate is valued to be greater than $5.43 million USD. (The $5.43 million USD exemption is current for 2015 and may change in coming years.) However, if a Canadian is exposed to the estate tax, the tax will only be levied on the value of the deceased’s US-situated assets, not on his or her worldwide estate, and he or she may also qualify for a credit under the Treaty. (For more information on this, please see David A. Altro’s book, Owning U.S. Property the Canadian Way, Third Edition).

Tax-Efficient Estate Planning Through Wills: Mixed Marriages

The estate planning for a married couple’s wills depends on whether one or both spouses are US citizens. In a mixed marriage, the wills of each spouse will be very different.

Consider Jerry, a US citizen married to Deanna, a non-US, Canadian citizen. Jerry and Deanna’s combined estate is $10 million, virtually all of which is held in joint names. Jerry has never made taxable gifts. The couple has three Canadian citizen children.

Jerry’s Will

Jerry wants to ensure that any Canadian capital gains tax on death is deferred if he dies first, and he also wants to ensure that he pays no US estate tax whether he dies first or second.

As the first to die, to defer Canadian tax, assets with unrealized capital gains have to pass either directly to Deanna or to a spousal trust for her exclusive benefit during her life.

If Jerry’s assets are valued at $5 million, no US estate tax would be due, as his unified credit would be sufficient to cancel it out. Moreover, under the Treaty, when a US citizen is married to a Canadian citizen and the US citizen passes away first, he or she is able to use the Canadian citizen spouse’s unified credit to offset US estate tax. In this situation, if Jerry were to pass away in 2015, before Deanna, there is therefore a total of $10.86 million in unified credits available. If Jerry’s assets were valued at $8 million, then he still wouldn’t have any estate tax due because of the availability of Deanna’s credit.

However, a well drafted will must take into account the possibility that Jerry’s estate will have grown above the exemption amount available under the Treaty by the time he passes away. (It is possible that the exemption amount may be reduced by new legislation effective in the year of his death.)

To ensure that no tax is payable on Jerry’s death as first to die, the will should allow the executor the option to apply a Qualified Domestic Trust (‘QDoT’). A QDoT is similar to the Canadian concept of a spousal trust, except that any distribution of capital from the trust is subject to deferred estate taxation at the rate that would have applied had no QDoT been formed.

However, the QDoT will only be necessary if Jerry’s estate exceeds the amount of his and Deanna’s combined credits available under the Treaty. If Jerry dies in 2015 with $8 million of assets, as in the example above, it is preferable to use his $5.43 million credit and most of Deanna’s $5.43 million credit in order to cancel out the tax due rather than to defer tax using the QDoT: cancelling tax, rather than deferring it, is always the goal.

It is still good estate planning to include a requirement in Jerry’s will that the QDoT is an option. Since a QDoT is complicated, its terms and conditions should be carefully drafted into the will. Given the uncertainty surrounding whether or not estate tax will apply, and the rate at which it will apply when a will is probated, good estate plans always make the QDoT election optional. Furthermore, the executor should seek advice from a cross-border tax advisor due to the complexity of issues.

Deanna’s Will

Since Deanna is not a US citizen, she does not need the same type of US estate tax planning. Unless Jerry and Deanna have US-situated assets, she will not be subject to US estate tax at all. As such, Deanna’s will has two primary objectives:

To defer Canadian capital gains tax at death if she passes away first. This will be achieved with an exclusive spousal trust for Jerry, with a remainder interest for the kids upon his subsequent death.
To shelter the assets within that spousal trust from US estate taxation upon Jerry’s passing by drafting the trust with special US tax provisions.

Tax-Efficient Estate Planning Through Wills: Two US Citizen Spouses

If both spouses are US citizens living in Canada, they will be subject to the same tax rules on death; as such, their cross border wills are likely to be mirror images of each other.

From a Canadian perspective, it remains advantageous to defer capital gains tax on death until the second spouse passes away through the use of a spousal trust, which should be drafted to ensure that it qualifies for the deduction from the taxable estate of the deceased spouse on the US side.

The objective is to defer the death tax on the same assets in both Canada and the US until the second spouse passes away. Under the Treaty, such taxes can offset each other, limiting the amount payable on second to die.

Tax-efficient estate planning for US citizens in Canada is a complex endeavor that raises a variety of issues. Each couple’s situation is unique, so each couple’s wills must be unique, too. The ultimate objective of cross-border wills is not only to save clients time and money, but to bring peace of mind to US citizens and their heirs.