acquire vs inherit

terry · Post by **terry** » Tue May 31, 2005 11:09 am

i'm being asked to put my name on investment accounts, real estate, and bank accounts now rather than wait to inherit these same items shortly. i'm concerned that acquiring these items (that i have no need of at this time) may have tax implications that inheriting them would not have. does anyone know where i can find information on this issue? Nelson, I tried the Serbinski site but it wouldn't post.

Carson · Post by **Carson** » Tue May 31, 2005 1:05 pm

Terry:

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by terry

i'm being asked to put my name on investment accounts, real estate, and bank accounts now rather than wait to inherit these same items shortly. i'm concerned that acquiring these items (that i have no need of at this time) may have tax implications that inheriting them would not have. does anyone know where i can find information on this issue? Nelson, I tried the Serbinski site but it wouldn't post.
<hr height="1" noshade id="quote"></blockquote id="quote">
Where are you a tax resident (Canada and/or US?)? Where are the properties and accounts located? The individual who will leave them to you: where are they are a tax resident? What is the expected date of death?

Is this being suggested to simplify the management of certain accounts, instead of having to wait for probate? Is joint ownership being suggested, or will you be the sole owner? Are these Canadian assets, and probate is trying to be minimized? In Ontario, to avoid probate, the name change must also be a change in "beneficial ownership". A change in beneficial ownership means a disposition now to the party doing the transfer.

From my list of questions, you can see that there are many issues involved. If you can provide some more details, perhaps we can help.

Regards,

CRH

terry · Post by **terry** » Tue May 31, 2005 1:52 pm

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by Carson

Terry:

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by terry

i'm being asked to put my name on investment accounts, real estate, and bank accounts now rather than wait to inherit these same items shortly. i'm concerned that acquiring these items (that i have no need of at this time) may have tax implications that inheriting them would not have. does anyone know where i can find information on this issue? Nelson, I tried the Serbinski site but it wouldn't post.
<hr height="1" noshade id="quote"></blockquote id="quote">
Where are you a tax resident (Canada and/or US?)? Where are the properties and accounts located? The individual who will leave them to you: where are they are a tax resident? What is the expected date of death?

Is this being suggested to simplify the management of certain accounts, instead of having to wait for probate? Is joint ownership being suggested, or will you be the sole owner? Are these Canadian assets, and probate is trying to be minimized? In Ontario, to avoid probate, the name change must also be a change in "beneficial ownership". A change in beneficial ownership means a disposition now to the party doing the transfer.

From my list of questions, you can see that there are many issues involved. If you can provide some more details, perhaps we can help.

Regards,

CRH
<hr height="1" noshade id="quote"></blockquote id="quote">

Thanks for your response Carson. Most of the outstanding questions are answered below.

I'm a tax resident of the US. All property and the individual are in Ontario. This individual has some months left and is willing to have all these items shared immediately. The individual's name will remain on all items.

This is being suggested to avoid probate by the individual to avoid an unforseen circumstance. Probate is to be avoided at all cost. It is being suggested that 2 others also share these items equally.

Carson · Post by **Carson** » Tue May 31, 2005 4:04 pm

<blockquote id="quote">quote:<hr height="1" noshade id="quote">Originally posted by terry

Thanks for your response Carson. Most of the outstanding questions are answered below.

I'm a tax resident of the US. All property and the individual are in Ontario. This individual has some months left and is willing to have all these items shared immediately. The individual's name will remain on all items.

This is being suggested to avoid probate by the individual to avoid an unforseen circumstance. Probate is to be avoided at all cost. It is being suggested that 2 others also share these items equally.
<hr height="1" noshade id="quote"></blockquote id="quote">

One of the main differences under US tax between receiving something as a gift (ie during the giftor's life) and as a bequest at death is that assets received as gifts receive the original cost basis. Assets received at death have a "bumped up" cost basis, i.e. equal to fair market value at death. So, if you were to receive part of say, a Canadian house or part of a Canadian portfolio as a gift now, you would inherit the historical cost basis and would have US tax to pay on any capital gain when you sell, whereas the estate would also be responsible to pay tax on any capital gains (due to making the gift which is equivalent to a sale for Canadian tax purposes). This is not the ideal result!

Note, your tax implications are different than those of a Canadian tax resident. A Canadian in your situation would receive the gifted assets with a "bumped up" cost basis and tax would only be payable once on the accrued gains (by the estate).

The lesson I am trying to impart is that in trying to avoid probate tax of only 1.5%, you may create significant unnecessary additional US income tax. Usually, it's "cleanest" to sell what can be sold before death, and then distribute the cash. That may of course not be practical.

I can't speak to the "unforseen circumstance", but don't let the "probate tail" wag the "income tax dog".

This is only the briefest of explanations, so I recommend that you and the other beneficiaries receive competent advice from someone with cross-border knowledge.

CRH