Hi Phil, found you on youtube of all places.
Sometime next year I’m going to be receiving a fairly large portfolio inheritance from my late mother in the US. Her lawyer and accountant are going to be working through the last of the estate work and I should be receiving my half of the inheritance in 2022.
The estate is made up of my mother’s house, which we’re currently trying to sell and a large portfolio of stocks.
The lawyer is asking us (my brother and I) if we want the investments or to liquidate the accounts completely before they are distributed to us.
I would like to get your advice on this as I don’t want to run into any tax or penalty issues. Also note that I am a US citizen and am currently all caught up on my tax return, both Canadian and US.
I look forward to your response.
Thanks for the email.
Yes, you’ll certainly want to plan for receiving the inheritance. We should speak about these issues in more depth on a call, however I have few general comments outlined below that may help:
- As a beneficiary you’ll likely need to report some of the income that will be allocated out of the estate to you personally. You won’t know what this income is however it will likely be reported on a US K1 form. These forms can be tricky to convert properly to Canadian as some of the income, especially capital gains will not retain their character.
- Also note that you’ll need to file form T1142 to report any capital or income distribution from the US estate to you in Canada. It’s important that this form is filed on time as the penalty for late filing this form is $25 a day to a max of $2,500. As you can imagine, most people who miss this form miss it to a maximum of 100 days.
- All things being equal it often makes sense to take the inheritance in cash rather than transferring investments in kind. However if you do want to keep any of the investments you’ll need to ensure to properly track your new cost basis per each investment. Depending on when the assets are transferred to your new cost basis will be the FMV at the time of your mother’s death. You’ll also need this tracking to properly report investments on your T1135 filings for Canadian purposes. Note that if the investments are not moved to Canada you’ll need to complete the complex version of the form. Hence the reason why I tend to suggest moving US investments to Canada. When moved to Canada the simplified version of the T1135 will be available to you.
- Also, considering all the assets are in USD you’ll want to be strategic in how you convert the amounts eventually to Canadian. For example, using a traditional bank to convert the USD to CAD would be very inefficient as the banks still charge a significant spread.
- I’ve only really touched on the Canadian cross-border implications as other professionals are handling the tax issues in the US. However you’ll want to ensure any non-resident withholdings are properly made to any non-US beneficiaries.
I hope the information above helps a little and please let me know if you would like to setup a paid cross-border consult.