Gifting Property into a Cross Border Irrevocable Trust: What You Should Know

The estate and tax plan can be complicated with high net-worth individuals who have assets and family in different locations, such as the border among Canada and the United States. A common tactic that is gaining popularity is the process of gifting the property to a Cross Border Irrevocable Trust. Although the strategy has great benefits in terms of protection of assets and tax benefits, it has legal complexities that should be known before choosing to apply it.

 

What is a Cross Border Irrevocable Trust?

Cross Border Irrevocable Trust is an arrangement under the law that owns property or assets on behalf of specified beneficiaries. After the establishment of the trust and the transferring of the ownership in question into it, the grantor loses control over the assets. Such trusts are particularly made to fit the laws of different states, including Canada, the U.S., which is why they are perfect in the cross-border family.

 

This form of trust can guarantee protection of assets, their smooths transitions to heirs, and more so the possibility that the assets might be exempted by the goodwill of the United States and Canadian estate taxes- depending on how the trust is set.

 

The Advantages of a Gift into the Trust

The main benefit of gifting real estate or any other property into Cross Border Irrevocable Trust is that you take the asset out of your taxable estate. This has tremendous potential in minimizing federal estate taxes to U.S. citizens or residents. In the case of Canadians, there is no estate tax but rather, capital gains tax occurs at liquidation at the deemed disposition on the date of death; this is something which can be reduced when done through the right planning of a trust.

 

The trusts are also creditor-proof and can be used to evade probate and also ensure secrecy since that property belonging to the trust does not usually undergo the probate process.

 

Legal Implications to the Gift

Putting property into an irrevocable trust is permanently irrevocable. You have to be satisfied with relinquishing the legal entitlement and control of the asset. This would imply inability to sell, refinance, and even stay in the property unless terms are stipulated in the trust.

 

Moreover, the taxation of gifts, rules of attribution, income reporting concerning Canada and the U.S. are complicated. In a case in point, the U.S. also has annual gift tax exemptions and Canada can demand the capital gains tax at the transfer date in the event of property appreciation.

 

Cross Border Irrevocable Trust should be properly drafted in order to comply with those rules, to prevent any double taxation and to comply with tax laws of both countries.

 

Decision on the Appropriate Trustee and the Jurisdiction

Recruitment of a suitable trustee is important. In an international scenario, residency of the trustee may influence the residency of an entire trust. A U.S. trustee can make a declaration of a trust one of the U.S. taxpayer, reportable to the IRS, although the property is in Canada. In the same way, a Canadian trustee can elicit various tax provisions in the Canadian law.

 

Legal counsel might suggest that a Canadian and U.S. co-trustee should be appointed, or a trust company with cross-border expertise, so as to balance the effects of law and optimise tax efficiency.

 

Conclusion

The Cross Border Irrevocable Trust is an advanced planning instrument which provides the ability to transfer assets, especially property asset, in a tax efficient but secured manner cross country borders. Nevertheless, transfer of property into this sort of trust is a move that needs great comprehension of the law together with tax related issues. To ensure that your wealth is passed on over generations, you need the services of professionals who deal with cross-border estate planning to avoid the expensive mistakes of doing it on your own.