Cross Border Tax, Estate Planning and Real

Transcription

1 Cross Border Tax, Estate Planning and Real Estate Issues for Canadians with U.S. Assets

2 Agenda Who we are Cross Border Issues for Canadians U.S. Estate Tax Probate Incapacity Protection from Divorce / Creditors Capital Gains Mortgage Financing

3 David A. Altro -Bio David Altrois the Senior Partner of the law firm David A. Altro & Associates LLP with offices in Montreal, Toronto, Calgary, Phoenix and Florida. David is an U.S. attorney (member of the Florida Bar) and a Quebec Legal Counsel and Notary (Chambre des Notaires du Québec). He has been practicing for over 25 yrs, and specializes in cross-border tax and estate planning, real estate transactions and domestic and international trusts. David s call-in radio show on cross border tax, real estate and estate planning can be heard regularly on CJAD in Montreal. David is a frequent speaker at tax and estate planning legal conferences, seminars for financial institutions and for realtor groups. Bachelor of Arts (B.A.) (1976), Political Science, Concordia University Licence en Droit (Civil Law) (LL.L.) (1979), Faculty of Law, University of Montreal Juris Doctor (J.D.) (1984), Faculty of Law, Nova Southeastern University, Fort Lauderdale, Florida Diplôme en Droit Notarial (DD.N.) (1989), University of Montreal Financial Planning Diploma (Fin. Pl.) (1998), Quebec Institute of Financial Planning Former partner of Holland & Knight, Florida Member of The Florida Bar, the Chambre des Notaires du Québec, the Institute of Financial Planners of Québec, the Canadian and the American Bar Associations Mr. Altro has presented numerous speeches, conferences and seminars on U. S. estate and gift tax planning for Canadians, cross border family and trust planning, the acquisition and disposition of U.S. real estate properties and has published numerous articles on such topics Mr. Altro is also a Florida and Quebec legal expert on call-in Montreal radio shows discussing Quebec and Florida law

4 Who we are Steve Levy, Partner, Quebec Attorney McGill University Graduate (B.A. in Art History), Law Degree from University of Montreal (L.L.B.), Member of the Quebec Bar, Shlomi Steve Levy practiced law for several years in the field of Civil and Commercial Litigation, Corporate and Real Estate Law. Since joining Altro Law in 2005, Shlomi Steve Levy's practice focuses on Cross Border Tax and Estate Planning, Cross Border Real Estate Transactions, Domestic and International Trusts, International Law and Corporate Matters. Shlomi Steve Levy is a frequent guest on David A. Altro's call in show on Montreal CJAD and has appeared as a speaker in numerous seminars about Cross Border Estate Planning and Trusts. Matt Altro, Chief Operating Officer McGill University graduate (B.Comm. Business Management). Prior to joining David A. Altro & Associates, Matt was a project manager at Accenture, a world leader in IT and Management Consulting services. During his 6 years at Accenture, Matthew developed deep expertise in the areas of Business Strategy, Process Design, and Client Relationship Management. At David A. Altro & Associates, Matt is responsible for managing the core business aspects of the firm. This includes marketing, business strategy, operations and finance. Matt plays a key role in creating and managing important business relationships with other professionals.

5 Our Team Our Team David A. Altro, B.A., LL.L, J.D, D.D.N, Fin.Pl., TEP, U.S. Attorney & Canadian Legal Counsel Senior Partner Shlomi Steve Levy, B.A., LL.B. Partner, Quebec Attorney Matt Altro, B.Comm. Chief Operating Officer Bonnie Altro, B.A., B.C.L., L.L.B. Senior Associate, New York Attorney Richard Salis, B.A., LL.B., D.D.N. Associate, Quebec Notary Dan Derhy, LL.B., D.D.N. Associate, Quebec Notary Strategic Alliances Ravinsky Ryan Lemoine LLP Montreal, QC Garfin Zeidenberg LLP Toronto, ON Shea Nerland Calnan LLP Calgary, AB Jeffrey Feinberg, P.A. Ft. Lauderdale, FL Amanda Shear, B.A., JD, Member of the New York and Florida Bar Jason Ansel, B.Comm, LL.L Summer Associate

6 -Practice Areas

7 U.S. Estate Tax Plan now to Protect your Estate TAX My client passed away owning a $1.5M condo in South Beach in his name personally. He was worth$10m. Uponhisdeathhisestate paid$438,000ofu.s.estatetaxtotheirs.

8 U.S. Estate Tax Am I Liable? US estate tax liability of a non resident will depend on the following 3 questions: 1.Do I have US Assets? Includes US real estate and US stocks 2.Is the value of my US estate> $60,000? AND 3.Is the value of my worldwide estate> $3.5M? Includes insurance proceeds

9 U.S Estate Tax Example Estimate of U.S. Federal Estate Tax US taxable estate $500,000 worldwide estate $3,000,000 Annual estate increase 0% All amounts are in US dollars Year Estimated Taxable Amount Estate Tax Marginal Rate Estimated Estate Tax Amount Unified Credit Amount Estimated Estate Tax Payable 2009 $500,000 37% $155,800 $242,633 $0

10 Client Scenario 6 M 5 M TAX ZONE 4 M 3.5 M 3 M 2 M 1 M 3M of Assets NO TAX ZONE Assets: U.S. Assets: $500,000 Condo in Florida Canadian Assets: $2,500,000

11 Insurance can create tax! 6 M 5 M 3.5 M 4 M 3 M 2M UL TAX ZONE (up to 45% tax rate) Assets: 2 M 1 M 3M of Assets NO TAX ZONE U.S. Assets: $500,000 Condo in Florida Canadian Assets: $2,500,000 Universal Life Policy: $2,000,000

12 Solution: Transfer Life Insurance into a Trust 6 M 5 M 3.5 M 4 M TAX ZONE (up to 45% tax rate) 3 M 2M IUL 2 M 1 M 3M of Assets NO TAX ZONE Irrevocable Life Insurance Trust ILIT

13 U.S Estate Tax Example Estimate of U.S. Federal Estate Tax US taxable estate $500,000 worldwide estate $7,000,000 Annual estate increase 0% All amounts are in US dollars Year Estimated Taxable Amount Estate Tax Marginal Rate Estimated Estate Tax Amount Unified Credit Amount Estimated Estate Tax Payable 2009 $500,000 37% $155,800 $103,986 $51,814

14 U.S Estate Tax Estimate of U.S. Federal Estate Tax US taxable estate $1,500,000 worldwide estate $7,000,000 Annual estate increase 0% All amounts are in US dollars Canada US tax treaty allows for a credit on capital gains tax in Canada Year Estimated Taxable Amount Estate Tax Marginal Rate Estimated Estate Tax Amount Unified Credit Amount Estimated Estate Tax Payable 2009 $1,500,000 45% $555,800 $311,957 $243,843

15 U.S. Estate Tax: Defer, Reduce and/or Eliminate Get Spousal Rollover Split the value of the U.S. Asset between spouses CBT Dollar for Dollar reduction on taxable estate CBT NRM Reduce Use Insurance to Pay for the Taxes Insurance Eliminate QDOT Defer

16 Quiz Time! A Canadian has the following situation U.S. Property $1,000,000 Mortgage $600,000 Equity $400,000 What is considered to be his U.S. Estate for Tax Purposes?

17 U.S. Bank Non Recourse Mortgage NRM Considerations Reduces the U.S. estate tax by the loan amount Loan is administered by the bank Bank provides client with new money LTV 50% 17

18 PrivateNon Recourse Mortgage NRM Considerations Client has more control May eliminate U.S. Estate Tax (100% LTV) Liquidity Issues Guidelines to ensure loan is bona fide 18

19 What is Probate? Probate is the legal proceedings in Florida to transfer assets from the estate to the beneficiaries. Expensive Time Consuming Freezes the estate

20 Real Life Client Experience -Probate My mother passed away owning her Florida condo worth $500,000 in her name. On top of dealing with our grief over her loss, I had to deal with a big mess in Florida trying to sell her condo. Probate fees cost over $15,000. Her Florida estate was frozenforoverayearwhilemylawyersdealtwiththecourts.

21 Avoid Probate A Canadian Will does not avoid Florida probate Cross Border Trust CBT SM Title of the property in CBT Owner maintains control No annual filings

22 Real Life Client Experience -Incapacity My husband and I own a condo in Sarasota. We have been goingdown forthewintereachyear forthelast10yrs.this year my husband s Alzheimers has gotten much worse and he won t be able to travel anymore. I decided to sell the house. I found a buyerbutsincemyhusbandisontitlewithme,icouldn tsellour house. I had to hire a Florida lawyer to do a Guardianship Procedure which was expensive and time consuming.

23 Avoid Incapacity A Canadian POA / Incapacity Mandate is not recognized in Florida Cross Border Trust CBT SM No Guardianship Procedure Property is not frozen

24 Protection Against Divorce My dad bought a condo in California 15 yrs ago for $250,000 which has since doubled. My father left me the condo when he passed away 5 years ago. My husband and I enjoyed it for a few years until our marriage went sour. Now we are in the middle of a messy divorce and he is trying to take me for everything I have, including half the value of my father s condo.

25 Protect Property from Divorcing Spouse Cross Border Trust CBT SM Assets inherited through the CBT are safe from divorcing spouses

26 Protection Against Creditors When they passed away, my parents left my brother and I their beautiful $1M vacation home in Palm Springs, CA. We both share the property with our families. A few years ago my brother s business went under and creditors seized everything he had including our beautiful home in California.

27 Protect Property from Creditors Cross Border Trust CBT SM Assets inherited through the CBT are protected from creditors

28 Beware of Capital Gain Tax I bought my property in 1990 during the recession for $250,000. My accountant in Saskatoon told me it was best to put the property in my holdcosoidid.propertyvaluessoaredinfloridaoverthenext15yearsand I sold it in 2006 for $750,000. The good news is I made of a gain of $500,000 but the bad news is my capital gains tax of 40% ate up a huge part of the gain! The worst part of the whole thing is that my accountant passedawayafewyearsagosoihavenobodytoyellatbutmyself.

29 CBT Lowest Capital Gain Tax Rate Cross Border Trust CBT SM Canadian Corporation CBT IRS 34% 15% FloridaDept 5.5% 0% of Revenue Total 39.5% 15%

30 Other Solutions??? Made in Canada 21 Yr. Rule Deemed Disposition IRS Retained Interest IRS Look-Through Rule Can t Get a Mortgage Shareholder Benefit Rule Canadian Corp Ltd Partnership Canadian Irrevocable Family Trust 30

31 Beware of Capital Gain Tax (cont d) I bought my property in 2000 in Phoenix for $300,000 and it was worth $650,000 in I heard David Altro talking about Probate and Incapacity whichgotmeconcernedbecauseiowneditinmynamepersonally.hesaid something about putting the property in a trust to avoid these problems so IwenttoalocalattorneyinPhoenixandsaidheknewexactlywhatneeded to be done. He set up a revocable trust for me and I was happy until I foundout that hejust triggeredadisposition in Canada which meant I had topaycapitalgainstaxonthe$350,000eventhoughthepropertywasstill really mine!

32 No Disposition if Transferred into CBT Cross Border Trust CBT SM Canadian Tax Advantages of Altro scross Border Trust SM Avoids Canadian deemed disposition / capital gains upon initial transfer to trust Obtains Canadian tax credit for U.S. capital gains tax paid upon sale Preserves Canadian tax credit for U.S. estate tax paid upon death if value increased

33 You Never Know When you May Need a Mortgage! I just bought a beautiful home in Lakewood Ranch for $800,000 all cash. Lastyearatthistimeitwasworth$1.2M.IwenttomyattorneyinToronto and he told me to put it in a limited partnership to avoid taxes. A few months later I wanted to refinance the home and I went to the U.S. banks to get a mortgage. They said they wanted my business but couldn t give meamortgagebecausemyhomewasinalimitedpartnership!

34 CBT Mortgage Financing Cross Border Trust CBT SM U.S. Banks will not lend on real estate in the following structures: Corporation Limited Partnership Canadian Irrevocable Family Trust U.S. Banks has approved our CBT for mortgages

35 Other Key Cross Border Red Flags I have children living in the U.S. I would like to move to the U.S. I would like to obtain a Green Card I am a U.S. citizen living in Canada

36 Summary Cross Border Issues for Canadians Probate Incapacity Protection from Divorce / Creditors Capital Gains Mortgage Financing U.S. Estate Tax

37 Our Process Courtesy Consultation 1. Analyze 2. Recommend 3. Implement First point of contact Provide Technical Support Manage the Client Experience Ensures timelines are set and met Matt Altro Relationship Manager 37

38 ALTRO FLASH UPDATE