Article written by Jennifer Black and Dedicated Financial Solutions.
Is Now a Good Time to Buy a Home in the US?*
* Excerpts taken from “Avoid Second Home Surprises” by Tom Junkin, Fiduciary Trust Canada.
Before buying a home in Arizona or a condo in Florida, speak to your estate planner. Owning property in another jurisdiction, can affect your estate plan.
Land and buildings, “real property” are governed by the legal jurisdiction and laws of its location. The laws regarding inheritance, marriage rights, taxation and even the validity of your will, can differ vastly from the laws of your home province. Those differences require careful planning or they can be costly in many ways.
Probate is the process where a court verifies the validity of a deceased person’s will, and grants legal authority to the executor of the estate to perform their duties, including dealing with any real property in accordance with the will terms.
Owning real estate outside your home province means your representative must obtain probate again in the legal jurisdiction where the real estate is located. Real estate can almost never be transferred without the formality of probate. Within Canada probate obtained in one province can often be “re-sealed” in another province relatively simply. Obtaining probate in a foreign jurisdiction can be altogether another matter.
Be certain your last will and testament will be valid in the jurisdiction of the real property. For example, many places in the world do not recognize a holograph, or handwritten will. Requirements for impartial witnesses can also vary. Often, creating a separate will to deal with foreign real estate is recommended.
Your personal representative will probably require legal advice in the foreign jurisdiction, adding to estate expenses.
Your estate, or at least the portion represented by the real estate in the other jurisdiction, will be subject to the tax regime of that jurisdiction, which could include probate tax, gift or estate tax, or property transfer tax.
The complications and expenses of dealing with “foreign” property in your estate might wind up being disproportionate to the value of the real property. However, your personal representative may have few options to reduce those expenses.
The U.S. legal system is very different from Canada’s. Estate laws vary widely from state to state so it is critical to receive state-specific legal advice.
Owning U.S. real estate means your estate will be subject to the U.S. gift tax and estate tax regime. This is a very complex subject and the tax rules have been changing frequently for several years, with more changes on the horizon. It is difficult to state with certainty whether or not estate tax may be payable upon your death, as the calculation depends on the value of the U.S. property, and the value of your worldwide estate. One thing is fairly certain: If your estate owns U.S. real estate, whether tax is payable or not, your personal representative will be required to file a U.S. estate tax return, and this will probably require professional advice.
Many Canadians decide to buy foreign property unaware of the implications for their estate plan.