Renouncing US citizenship

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formerpatriot
Posts: 62
Joined: Mon Feb 23, 2015 4:13 pm
Location: Montreal

Renouncing US citizenship

Post by formerpatriot »

My wife: Late fifties, US citizen by birth, lives in Canada since 1993, Canadian citizen since 2008.
Me: Early sixties, Canadian citizen by birth.
The big question: should she renounce her US citizenship?

She is up to date with the IRS. She files as "Married filing separately" with me as a NRA spouse (Non Resident Alien spouse). So far it's always been simple: Form 1040, Form 2555, no US taxes due. She also files Form 8938 and she files her FBAR. We do it by ourselves, no accountant. We avoid having to file complicated form 3520 or 3520-a because her investment (outside RRSPs) are limited to bank CDs (Certificates of Deposits) and she declares all interest earned (which is below her Form 1040 personal exemption). All RESPs are under my name.

My fear is that if I die before she does, she will inherit my TFSA, the younger son's RESP, my non-registered brokerage account full of ETFs, etc. etc. and she will face a very complicated life of IRS filing requirements and accountant fees.

Therefore, she is considering renouncing her US citizenship. It seems to us that there is nothing positive about keeping it. She has no intention of ever living in the USA again. I am assuming that renouncing will not have any major negative effect on her US Social Security benefit (she has accumulated enough SS credits). Am I missing something? Thanks.

P.S. My older son, also a dual citizen, has decided to renounce his US citizenship. He started the process at the end of March and he now has his appointment at the US Consulate scheduled for July 25. For him it will be "Good Bye Uncle Sam! Good Bye lifetime of endless IRS filing requirements! Welcome TFSA for him and RESP for his son".
FormerPatriot in Montreal
exPenn
Posts: 106
Joined: Tue Aug 20, 2013 3:06 pm
Location: GTA

Re: Renouncing US citizenship

Post by exPenn »

Your situation is almost identical to that of my wife and I 5 years ago. She renounced her US citizenship in 2013 (when the fee was still only $450, not the usurious $2,350), and she has never regretted it. One caveat: if you continue to do your wife's taxes by yourselves (as we did), make sure you know how to handle form 8854 which must be filed with her final return.

Some suggested reading: http://moodysgartner.com/renouncing-you ... w-Original,

https://hodgen.com/why-people-expatriate/

https://serbinski.com/taxation-abroad/t ... d-taxation
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Renouncing US citizenship

Post by nelsona »

The problem is not if you die, where she will inherit all without issue.
The problem is if SHE dies, you may not be entitled to all her assets without her paying estate tax. Once you check into this, you will see that it probably isn’t worth renouncing
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
formerpatriot
Posts: 62
Joined: Mon Feb 23, 2015 4:13 pm
Location: Montreal

Re: Renouncing US citizenship

Post by formerpatriot »

Thank you Nelsona.

Isn't it true that the US estate tax would apply only to her assets held in the USA?
As of now, her assets consist only of her Canadian RRSPs (about 400K CAD), half our house in Canada (half of about 500K CAD) and a 401K (about 70K USD) from the few years (more than 25 years ago) when she still lived in the USA.
No danger of US estate tax, right?

A related question:
She will inherit a few hundred thousand dollars when her mom passes away.
What is the best way to deal with this "problem"? Have the executor of the will send her a check and then deposit the money in her brokerage account here in Canada, or open a brokerage account in the USA and have the money deposited there?

In fact, we have been wondering if we should open a US bank account and a US brokerage account in the USA for various upcoming reasons, such as receiving Social Security payments, receiving 401K retirement income and of course the inheritance mentioned above.
FormerPatriot in Montreal
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Renouncing US citizenship

Post by nelsona »

Estate tax applies on world holdings.

Inheriting from anyone cause no problems in either country. She can take the money in any form and put it anywhere.

If she lives in Canada she is not permitted to hold a brokerage account in US, by securities regulations. She can certainly have a US bank account.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
formerpatriot
Posts: 62
Joined: Mon Feb 23, 2015 4:13 pm
Location: Montreal

Re: Renouncing US citizenship

Post by formerpatriot »

Nelsona, you wrote
"The problem is if SHE dies, you may not be entitled to all her assets without her paying estate tax. Once you check into this, you will see that it probably isn’t worth renouncing".
I'm not sure if I follow you. Why do you say "it probably isn't worth renouncing"?
The way I see it, there are 2 plans:

Plan A: She does not renounce.
The total value of her worldwide assets is, and will remain, well below the US estate tax exemption. Therefore, if she dies before me,there is no estate tax to be paid and I am entitled to all her assets.

Plan B: She renounces.
There will be no exit tax (because her net worth is under 2 million and she has no US tax liability). After her last year as a US citizen, she will never have to file another 1040.

Advantage of Plan B: No more filing requirements (IRS and FBAR) for the rest of her life..
Disadvantage of Plan B: Pay 2350$ for renouncing.

Am I missing something?
My original question was "Are there any reasons why she should not renounce her US citizenship?"
Our situation:
- She is a duel citizen (Canada-USA)
- She files as "Married filing separately, with me as her NRA spouse".
- I am a Canadian citizen
- We have been living in Canada for over 20 years.
- We do not own real estate in the USA.
- We will be entitled to some Social Security benefits.

Thank you for your feedback.
FormerPatriot in Montreal
exPenn
Posts: 106
Joined: Tue Aug 20, 2013 3:06 pm
Location: GTA

Re: Renouncing US citizenship

Post by exPenn »

One more advantage for Plan B: Your wife can now open her own TFSA. She will immediately have $57,500 in contribution room, and can move some of those bank CD's into it and stop paying Canadian tax on the interest.
formerpatriot
Posts: 62
Joined: Mon Feb 23, 2015 4:13 pm
Location: Montreal

Re: Renouncing US citizenship

Post by formerpatriot »

Thank you expenn. About TFSA: My wife does have a TFSA and she has been using the full room contribution every year. But in order to avoid potential issues with complicated IRS filing requirements, we decided to keep her TFSA very simple: all of it is at "Epargne Placement Quebec" in various "Quebec fixed-rate bonds" and in "Quebec step-up bonds" earning 3 to 4 percent per year. She reports all the interest income in her 1040 (but still ends up having no US taxes due). After renunciation, she would open a TFSA at the brokerage house where her RRSP account is located and she will progressively move her Quebec bonds (as they come to maturity) into various ETFs. I think that all makes sense. Doesn't it?
FormerPatriot in Montreal
exPenn
Posts: 106
Joined: Tue Aug 20, 2013 3:06 pm
Location: GTA

Re: Renouncing US citizenship

Post by exPenn »

It does as long as the IRS does not consider her "simple" TFSA to still be a foreign trust, requiring 3520 reporting. There are several threads on this.
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