U.S. Beneficiaries of Canadian Estate: Filing Requirements

[malachirobertson]

I am a US citizen, new to the intricacies of dealing with Canadian income and US taxes. My Mother-in-law became a resident of the US in 2012 and filed a US tax return for 2012. I am seeking to amend it because the tax professional who did it was unfamiliar with handling the RRIF. No form 8938 was filed and no 8891 was filed. Right now I am trying just to deal with her final US return. I got that the foreign income is taxable and there can be a foreign tax credit in the US. I am also clear, I think, about my wife's taxes. It is clear to me what to do with the regular distribution in 2013. It goes on 8891 and is taxable. What is unclear to me is what to do with the monies from the closed RRIF. Is it all to be reported as her taxable income or is just part of it or none of it? Thanks for the help.

[nelsona]

Unlike canada US does not deem everything as sold upon death. Instead it levies estate tax. You are a USC but where do you live?

So your MIL has 2 federal returns 2 file for 2013. an income tax return and an estate tax return.

The regular distributions are taxable income in US (100%) and Cdn tax on that portion can be used as a credit. Yes, 8891 should have been filed in 2012. and FBAR, and perhaps 8938, and other forms for the TFSA.

This is too complicated for now, and estste tax is a little too complicated to be dealt with on a forum.

[malachirobertson]

I live in Indiana. As far as I can tell there is no estate here to probate. The executor of the will is her nephew in Canada. My wife is the sole beneficiary.

By the way, I saw something you said in a different thread. It suggested to me that the RRIF is only taxable on the increase it made since her residency in the US. I just learned that she was officially a US resident in July 26, 2011. So would I just need to know the FMV of the RRIF at the time she became a resident to calculate the taxable portion of the payout? So, for instance, the RRIF was paid out to the deceased at about 19000 CAD. The taxable amount would be 19000 CAD minus the FMV of the RRIF in July 2011. Does that make sense?

[nelsona]

Correct about the RRIF. But the payout at death is not incoke taxable, it is estate taxable -- which is different than probate tax. Estate tax is based on total value not taxable value.


Again, I'm going to leave this because estae tax is not a cross border issue.

[malachirobertson]

Thank you for the help. I didn't think that I had to file a US estate form, because the estate (if one considers it as such) is in Canada, not Indiana. All the assets are Canadian ones. The will is Canadian, the executor is Canadian. There was income after the date of death, but I thought from what I read about it that it could just be added to my wife's return. She is the sole beneficiary. The executor has only gotten involved when my wife didn't have her name associated with an account. He has mostly acted as an intermediary to receive documents and to get things transferred. Perhaps the only thing that could be considered estate-like is that he received the small death benefit from CPP and deposited this into my wife's account. Otherwise he has functioned only to receive paperwork and to grant my wife access to certain accounts.

This is what I read from Pub 559: "How To Report
Income in respect of a decedent must be included
in the income of one of the following.
The decedent's estate, if the estate receives
it.
The beneficiary, if the right to income is
passed directly to the beneficiary and the
beneficiary receives it.
Any person to whom the estate properly
distributes the right to receive it"

[nelsona]

A US person's estate is worldwide.

[malachirobertson]

Ok, looking at things it seems that I have to file an estate form 1041. Can I get an extension for that like I can the 1040?

[malachirobertson]

Never mind, I found out that I need to file form 7004 for an extension of 1041.