Cross-Border Estate Planning Between Canada and the US

Two neighboring countries, two entirely separate systems for taxing death. That is the short version of why Canada and the United States generate so much advisory work. A plan drafted well in one jurisdiction can fail badly in the other.

Advisers see the same pattern repeatedly. A client holds a Florida condo, a brokerage account, or shares in a US corporation, and nobody flags the exposure until the estate is being administered. Practitioners handling cross border estate planning know the fix usually costs far less before death than after it. The sections below set out where files most often come apart.

Situs Rules Decide Who Pays What

Situs is the legal location of an asset for tax purposes. It matters because the United States taxes the estates of non residents on US situs property alone. Residency is not the deciding factor for that charge.

US situs generally captures a predictable list:

• Real property physically located in the United States
• Shares in US corporations, even when held through a Canadian brokerage
• Tangible personal property kept in the country, including art and vehicles
• Certain business interests connected to a US trade

Ordinary US bank deposits usually sit outside the charge. So does most US debt held by a non resident. The distinction sounds academic until an estate discovers that a modest vacation property triggered a filing obligation.

The threshold is the part that catches people. A non resident estate must generally file Form 706-NA once US situs assets exceed $60,000, a threshold unchanged for decades.

Deemed Disposition Meets a Federal Estate Tax

Canada does not levy an estate tax. Instead it applies a deemed disposition on death, treating the deceased as having sold capital property at fair market value. Tax on that accrued gain lands on the terminal return filed for the year of death.

The United States does the opposite. It taxes the value of the estate rather than the accrued gain, and it generally grants a step up in basis to beneficiaries. From 2026 the federal estate and gift exemption is set at $15 million per person.

Put the two systems side by side and the mismatch becomes obvious. One country taxes growth, the other taxes value, and the events are triggered by the same death. Advisers who assume the exposures offset each other are usually wrong.

A spousal rollover can defer the Canadian gain where property passes to a surviving spouse or a qualifying spousal trust. The deferral is useful, but it moves the liability rather than removing it. Someone eventually pays.

Treaty Relief That Estates Often Miss

The Canada United States tax convention does real work here. Article XXIX B is the operative provision for a deceased Canadian. It scales the American unified credit to the ratio between US situs holdings and the worldwide estate.

Worked through, the relief can be substantial. An estate with $1 million of US property inside a $20 million worldwide estate claims a small fraction of the credit. An estate with modest worldwide value may see the US charge disappear entirely.

Where the prorated figure lands below the domestic threshold, the estate can still rely on the basic $60,000 exemption. The treaty also provides a marital credit that can effectively double the relief for property passing to a spouse. Treaty texts are published in the Treasury collection of tax treaty documents for anyone who needs the operative wording.

Claiming any of this requires a filing. Relief is not automatic, and an executor who skips the return forfeits it. Bilateral arrangements to avoid double taxation only help clients who actually invoke them.

Structures That Work On One Side and Fail On the Other

Standard planning tools behave unpredictably across this border. A revocable living trust is routine in American practice. Canadian tax rules can treat the same trust unfavorably once the settlor is resident in Canada.

Three recurring problems appear in files:

1. Joint ownership added for convenience, which can trigger an immediate disposition in Canada and complicate US situs analysis.
2. A US corporation used to hold a vacation property, which often converts a manageable issue into shareholder benefit exposure.
3. A will drafted in one country with no coordination clause, leaving executors to argue about which document governs which asset.

Probate adds another layer. Ancillary proceedings in a US state can run alongside the Canadian process, and the timetables rarely align. Advisers new to this work should read up on how probate works in each relevant jurisdiction before drafting.

A Working Checklist for Two-Country Files

Most of the value comes from disciplined intake rather than exotic structuring. Ask for the following at the first meeting.

• A full asset schedule showing the country and legal title of every holding
• Citizenship and residency history for the client, the spouse, and the beneficiaries
• Copies of every will, trust deed, and beneficiary designation currently in force
• Details of any US corporation, partnership, or LLC interest
• The client’s own view on where the family will be living in 10 years

Beneficiary designations deserve particular attention. Registered plans, insurance policies, and retirement accounts pass outside the will and can undo careful drafting. The foundational material at the American College of Trust and Estate Counsel is a sound reference point for practitioners new to the area. Clients unfamiliar with the basics benefit from a plain summary of what estate planning involves.

Building an Estate File That Survives Both Systems

Coordination is the whole discipline. A Canadian tax adviser, a US estate attorney, and an investment manager working from separate assumptions will produce a plan that fails. Agree the asset schedule first, then the situs analysis, then the documents. Review the file whenever residency, marital status, or major holdings change. Clients rarely remember to tell you, so calendar it yourself.

FAQ

Does a Canadian Resident Pay US Estate Tax?

Potentially yes, but only on US situs assets such as American real estate or shares in US corporations. Filing is generally required once those assets exceed $60,000. Treaty relief often reduces or eliminates the charge for estates that claim it correctly.

What Is Deemed Disposition On Death In Canada?

It is a rule that pretends every piece of capital property was sold at market value moments before death. Whatever gain has built up becomes taxable on the terminal return. A rollover to a surviving spouse or qualifying spousal trust can defer that charge.

Can One Will Cover Assets In Both Countries?

It can, but many practitioners prefer separate wills for each jurisdiction. Separate documents speed up local probate and reduce the chance of a conflict. Coordination clauses are essential so that neither will accidentally revokes the other.

When Should Advisers Bring In Cross-Border Specialists?

As soon as a client acquires property, citizenship, or beneficiaries in the second country. Early involvement keeps options open, including how assets are titled and held. Restructuring after death is far more expensive and often impossible.