Taxes in Canada from U.S. Life Insurance?

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webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Taxes in Canada from U.S. Life Insurance?

Post by webcite_99 »

Scenario:

A US citizen is the beneficiary of a life insurance policy that was set up through irrevocable trust, etc. by the grantor in the way that the beneficiary would receive the proceeds completely tax free at the time of death.

If at some point that US citizen then moves to Canada and becomes a tax resident of Canada and the grantor of the policy dies, will the US citizen/resident of Canada be subject to any taxes in Canada? If so, what are the tax amounts and are there any exemptions? Also, if yes, is there anything the person or the grantor could do prior to the death of the grantor to avoid future Canadian taxes?

I am assuming that the person will at all time avoid US taxes regardless of residence, but please confirm.

Thanks.

Webcite.

Rick
Norbert Schlenker
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Post by Norbert Schlenker »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by webcite_99</i>

Scenario:

A US citizen is the beneficiary of a life insurance policy that was set up through irrevocable trust, etc. by the grantor in the way that the beneficiary would receive the proceeds completely tax free at the time of death.

If at some point that US citizen then moves to Canada and becomes a tax resident of Canada and the grantor of the policy dies, will the US citizen/resident of Canada be subject to any taxes in Canada?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
By "subject to any taxes", I assume you mean "subject to any taxes on the life insurance proceeds". The answer to that is no. Life insurance payouts at death are not taxable in Canada.

Residents are of course "subject to taxes" on income.
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

Thank you for the response. I did mean taxes on the proceeds from the life insurance payout, so thanks for the answer.

Are there any other ways to avoid taxes on estates (I'm including any vehicle where income/wealth is passed from parent to child upon death)? For example, are there any unified tax credits like in the US for one time gifts or anything similar? If so, what are the limitations?

I know this can be a complicated subject matter, but broad stroke answers would be great.

Thanks.

Rick
Norbert Schlenker
Posts: 68
Joined: Sun Nov 21, 2004 1:22 pm
Location: The Dry Side of the Wet Coast
Contact:

Post by Norbert Schlenker »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"><i>Originally posted by webcite_99</i>
Are there any other ways to avoid taxes on estates (I'm including any vehicle where income/wealth is passed from parent to child upon death)?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
Canada has neither estate nor gift taxes. Instead, it assesses capital gains taxes at death on appreciated assets. (Principal residences are exempt.) Using life insurance is an option to pass funds tax free to a beneficiary but, in most cases, that's just a way of filling an insurance company's pocket with as much as would have been paid in tax anyway.

Provinces charge probate fees. Most provinces charge a percentage of the value of an estate and the fees can run as high as 1.5% (Ontario). They are avoidable if one is willing to reside in Alberta (fee capped at $400) or use inter vivos trusts to hold assets.
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