Receiving a large inheritance – IRA and investments

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I have helped hundreds of people successfully navigate from the US to Canada. If you're thinking of moving or retiring to Canada contact me today to chat about your plans.

I can be reached via email at phil@philhogan.com, by phone at 250-661-9417 or through my contact page here.

I look forward to speaking to you soon.

Phil Hogan, CPA, CA, CPA (CO)
Cross-Border Tax and Investment Specialist

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Question

Hi Phil

My wife and I are dual citizens living in Victoria and also members of your Americans in Canada Facebook page.

This is certainly a good problem to have, but I’ll be receiving a large inheritance from my mother’s estate in the coming months and wanted to figure out how to save as much tax as possible. To be clear I’m ok paying as much tax as I need to legally but just want to ensure I don’t pay more than I need.

Due to large US university pensions our income is already quite high and close to the top marginal rate. This is what I will be receiving:

• IRA worth $800,000
• Regular investment account worth just under $2,000,000, however it was just liquidated to cash
• Proceeds from condo of $700,000
• Some value related to an investment in an LLC (30%)

Her accountant mentioned that I may need to pay Canadian tax on this US inheritance and suggested that I reach out to a Canadian accountant with cross-border tax experience, hence the reason why I’m reaching out to you.

One added wrinkle to my situation is that the LLC assets are jointly owned by my uncle and he doesn’t have any plans on winding down the business. I’ve read on many websites that owning an LLC as a Canadian is a very bad idea. Any ideas on how to handle this?

Thanks

XXXXX

Answer

Hi XXXXX

Thanks for your questions. Let me see if I can help with some general comments via email, however we should schedule a proper investment consultation to properly flush out all the tax issues:

• As I often advise, if you’re a permanent tax resident of Canada I would suggest moving up all the cash and investments to Canada so that all the accounts can be planned for together.
• Assuming you don’t need any of the cash (which seems like the case from the information contained within) you should leave the IRA in-tact and move it with a Canadian advisor that can manage US retirement accounts. Since the IRA is inherited it will not be eligible to be rolled into an RRSP and will need to be fully withdrawn in 10 years.
• Since the regular investment account is already liquidated you can now properly plan on how to invest it with a good cross-border wealth manager. I can someone that can help if you need a referral. I would suggest waiting to convert any of the USD cash to CAD as you won’t get a great rate with a regular Canadian bank.
• The same can be said for the proceeds of the US condo
• The LLC assets will be tricky. Since you have a 30% stake in the US LLC you’ll have to start filing T1134 forms with CRA. To be honest, the amount of tax planning and compliance required to hold the assets may not be worth the hassle. In some cases you may be better off asking your uncle to “buy you out” even if that means you won’t get 100% of your 30% value.
• With respect to your accountant’s comments on the potential Canadian tax on inheritances. No, any cash or investments you receive as an inheritance won’t be taxed. Future income or capital gains from the capital will be, but the actual amount of the capital won’t be subject to any “inheritance tax”.

As mentioned above, these are general comments only and we should arrange a proper consultation to discuss these items in greater detail.

Hope that helps and I look forward to speaking to you soon.

Cheers

Phil