MICHAEL KENNEDY, FOREIGN LEGAL CONSULTANT & U.S. LAWYER U.S. TAX & ESTATE PLANNING FOR CANADIANS & U.S. CITIZENS LIVING IN CANADA MARCH 7, 2014

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1 MICHAEL KENNEDY, FOREIGN LEGAL CONSULTANT & U.S. LAWYER M U.S. TAX & ESTATE PLANNING FOR CANADIANS & U.S. CITIZENS LIVING IN CANADA MARCH 7, 2014

2 MICHAEL KENNEDY, FOREIGN LEGAL CONSULTANT & U.S. LAWYER 1601 Wyandotte Street East Windsor, Ontario, Canada N8Y 1C8 T (519) F (800) mk@ingenuitycounsel.com

3 Bio Michael Kennedy is a U.S. a1orney at law permi1ed by the Law Society of Upper Canada to provide U.S. legal services in Ontario as a Foreign Legal Consultant. He is also admi1ed to the U.S. Tax Court. Michael pracdces U.S. law exclusively. Prior to establishing Ingenuity Counsel in 2012, Michael pracdced law in the U.S. for more than 10 years in California, Michigan and Florida. From his office in Windsor, Michael specializes in cross- border tax, estate & business planning for Canadians. In addidon to planning, Michael handles U.S. probate administradon, estate tax return preparadon, business formadons, immigradon, trademarks & general commercial law Michael is a graduate of Western New England College School of Law in Springfield, Massachuse1s (J.D.), Georgetown University Law Center in Washington, DC (LL.M. in Tax) and the University of Windsor (B. Comm.).

From his office in Windsor, Michael specializes in cross- border tax, estate & business planning for Canadians. In addidon to planning, Michael handles U.S.

4 U.S. Tax, Estate & Business Planning Federal Estate & GiZ Tax State Issues Estate Planning Tools Forms of Ownership ReporDng & Other Issues Voluntary Disclosure Update Renouncing U.S. CiDzenship Doing Business in the U.S.

Ownership ReporDng & Other Issues Voluntary Disclosure

5 U.S. Estate & Gift Tax U.S. Ci'zens & Permanent Residents [LARGE ESTATE CROSS BORDER MARRIAGES] Subject to U.S. estate tax on worldwide estate upon death (max rate 40%) ExempDon Amount provides base for taxable estates permanently fixed at $5M (adjusted for infladon annually); $5.34M for 2014 Marital DeducDon if assets pass to U.S. cidzen spouse Subject to generadon skipping transfer tax on skip generadons Subject to giz tax on transfers during life No tax undl gizs exceed the ExempDon Amount Unlimited marital deducdon on gizs to U.S. cidzen spouse $14,000 annual exclusion on gizs to any donee $145,000 annual exclusion on gizs to non- U.S. spouse

34M for 2014 Marital DeducDon if assets pass to U.S.

6 U.S. Estate & Gift Tax Non- Resident Aliens NRAs (Canadians) Subject to U.S. estate tax on property situated in the United States ExempDon amount for NRAs is only $60,000 of U.S. property Tax Treaty provides relief: ProraDon of the $5.34M [U.S. Property / Worldwide Estate] Marital credit provides relief for transfers to spouse In Short: If U.S. property < $60,000; NO U.S. estate tax issue (no filing) If worldwide estate < $5.34M; NO U.S. estate tax (filing) If worldwide estate > $5.34M; U.S. estate tax (tax)

S. property < $60,000; NO U.S. estate tax issue (no filing) If worldwide estate < $5.34M; NO U.S. estate tax (filing) If worldwide estate > $5.

7 U.S. Estate & Gift Tax NRAs are subject to U.S. giz tax on transfer of property situated in the United States $145,000 annual exclusion on gizs to non- U.S. spouse $14,000 annual exclusion on gizs to any other person No tax on gizs to U.S. cidzen spouse Tax Treaty does NOT provide relief from U.S. giz tax GiZ tax does not apply to the transfer of intangible property by a nonresident not a cidzen of the United States (i.e., shares in U.S. corporadon).

S. giz tax GiZ tax does not apply to the transfer of intangible property by a nonresident not a cidzen of the

8 State Issues Estate Taxes Income Taxes Property Taxes Insurance Probate Incapacity

9 State Issues U.S. Property & the Probate Process Legal process by which property is transferred upon Death. Usually handled at the County level (State law) An Ontario Will can be used to probate property situated in the U.S. Lengthens Dme to probate Complete probate proceedings in Ontario first Complicates probate process if no probate occurs in Ontario Statutory probate fees for lawyer are approximately 3% of estate (not including estate tax return or other extraordinary ma1ers) Must understand cross border issues, i.e., estate tax return for foreigners, tax treaty, bond for nonresident personal rep, etc.

ate law) An Ontario Will can be used to probate property situated in the U.S.

10 State Issues What if you become Incapacitated? A person is considered incapacitated when they have lost their ability to make important decisions, including those related to their assets or property or health. Your loved ones may encounter significant problems when trying to sell or transfer your property; or make decisions regarding your health care Ontario POAs just don t make the cut in the U.S. Guardianship costly & Dme consuming court process.

those related to their assets or property or health.

11 U.S. Estate Planning Tools Probate Wills Use Florida Will for Florida property Do not revoke exisdng Ontario Will Deeds Joint tenancy; Tenancy in common Enhanced life estate deed Trusts Avoids probate Costs involved to set up and administer Watch out for income tax in Canada & giz tax in U.S.

in common Enhanced life estate deed Trusts Avoids probate Costs involved

12 U.S. Estate Planning Tools Incapacity Durable Power of A1orney Create Florida POA for Florida property (covers all U.S.) Trusts POA not essendal; trust provision for incapacity, i.e., successor trustee Tax issues and costs to consider DesignaDon of Health Care Surrogate Health Care POA Allows medical professionals to adhere to your wishes; otherwise they follow the law and hospital policy.

13 U.S. Estate Planning Tools Estate Tax Have someone/something else own it. Trusts Assets in trust may or may not be subject to U.S. estate tax Revocable; irrevocable; control over property GiZs annual exclusions Life Insurance Covers potendal U.S. estate tax Compare potendal estate tax to premiums Use ILIT to hold

estate tax Revocable; irrevocable; control over property GiZs annual

14 Forms of Ownership Individual Requires Florida probate (unless enhanced life estate deed) Included in U.S. estate upon death Joint Tenants 100% of fmv included in estate on first spouse death (unless prove contribudon from surviving spouse): non- U.S. spouse Avoids Florida probate only on first death Tenants in Common 50/50 husband & wife; half of fmv included in estate on first spouse death (transfer it to spousal trust to avoid possible estate tax on death of surviving spouse) Florida probate required on each death Tenancy- in- Common Agreement (management; use & ownership)

spouse Avoids Florida probate only on first death Tenants in Common 50/50 husband & wife; half of fmv included in estate on first spouse death

15 Forms of Ownership Corpora'on No capital gain treatment when sold; high corporate tax rate Canadian taxable benefit issues Limited Liability Company (LLC) Double taxadon individual level; corporate level; no offseung FTC); Canadian taxable benefit issue Limited Partnership Trust Income tax neutral (same treatment both countries) Revocable no good (double tax issues) Irrevocable out of estate; restricdve and potendal tax consequences Florida Land Trust

@ individual level; Canada @ corporate level; no offseung FTC); Canadian taxable benefit issue Limited Partnership

16 Reporting & Other Issues Estate Tax Return Disclose worldwide assets at death to invoke treaty benefits Due date is 9 months from date of death Check with State GiT Tax Return Year azer the giz is made Income Tax Return Sale of U.S. property FIRPTA withholding (10% of sales proceeds) Withholding CerDficate to reduce or eliminate FIRPTA Canadian Repor'ng Issues T1135 Foreign Property > $100,000 (e.g., U.S. real property)

17 Reporting & Other Issues Life Insurance Not taxable but included in Worldwide estate; reduces prorated exempdon amount under Treaty Insurance is included in estate of U.S. person Adding Children to Title of Florida Property NO NO NO!! Triggers U.S. giz tax; carryover basis in U.S.; Canada capital gain tax with no offseung FTC for giz tax paid Sale of property U.S. capital gain tax & no FTC for Cdn tax paid IRS Collec'on of Estate and GiT Taxes The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribudon of the decedent s property under transferee liability provisions of the tax code.

S. capital gain tax & no FTC for Cdn tax paid IRS Collec'on of Estate and GiT Taxes The Internal Revenue Service may collect any unpaid estate tax from any

18 Voluntary Disclosure Update Haven t filed or missed a filing deadline? Determine your issues; Choose a filing strategy Streamline; OVDP; Standard New Streamlined Filing Procedures effecdve September 1, 2012 individuals who reside outside the U.S. & haven t filed (no amended returns) low compliance risk taxpayers with li1le or no U.S. tax owing IRS will expedite review and no penaldes or follow- up acdons pursued Opt out of 2011 Offshore Voluntary Disclosure IniDaDve into SFP Late PenalDes on 3520, FBAR, 5471, 1120F & 5472 (Reasonable Cause) FBAR Mandatory electronic filing as of July 1, 2013 FATCA No more hiding from IRS (Foreign Account Tax Compliance Act)

19 Renouncing U.S. Citizenship 1. Must be in full compliance with U.S. tax laws & repordng requirements. 2. Possible Exit Tax 3. Not complicated handled locally in Toronto at U.S. Consulate 4. No longer able to pass cidzenship to children. 5. No longer able to work in U.S. 6. No longer guaranteed entry into the U.S. 7. Possible difficulty at border crossings. 8. Makes sense to consider if you have high degree of Canadian tax planning that does not correspond to U.S. tax laws and causes U.S. tax where no Canadian tax is imposed. 9. Other than that, it generally only means annual repordng & no tax. 10. Get good advice before making any decisions.

No longer guaranteed entry into the U.S. 7. Possible difficulty at border crossings. 8.

20 Doing Business in the United States Business Structures U.S. CorporaDon Canadian (or other foreign) CorporaDon LLC Limited Partnership Sole Proprietorship Form in 1 State; Register in Others Cross Border Tax Issues U.S. federal income tax (corporate; individual; partnership) State income & sales tax Canadian & Provincial income tax

21 Doing Business in the United States U.S. Tax Repor'ng Tax Returns: 1120; 1120F; 1065; 1040 (Schedule C; K- 1) InformaDon Returns: 5472; 5471 Corp return due 2 ½ months azer year end Watch for late filing penaldes! Immigra'on Must have valid work authorizadon to work in the U.S. U.S. cidzenship; green card; work visa (TN, L- 1A, E- 2) Doesn t ma1er if you own a U.S. company or property no inherent right to work in the U.S. or even enter it. Limited ExcepDon Business visitor (or B visa )

22 MICHAEL KENNEDY, FOREIGN LEGAL CONSULTANT & U.S. LAWYER M QUESTIONS

23 MICHAEL KENNEDY, FOREIGN LEGAL CONSULTANT & U.S. LAWYER M THANK YOU

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