Setting up a trust for grandchildren

[barbarag]

I am an dual US-Canadian citizen living in Canada. I have assets in the US which I would like to go to my grandchildren when I die. What is the best method for reducing US and Canadian estate taxes on these assets after I die, and at the same time ensure that my grandchildren receive the money when they reach the age of 25? Should I set up some kind of a trust in the US? thanks.

[JGCA]

So you would like to set up a testamentary trust wherein you leave assets on your death to your grandchildren, or do you want to set up an inter vivos trust during your lifetime to put assets into a trust for the grandchildren.

First the intervivos trust will be taxed in Canada at the highest marginal rates on any income uless you pass off all o=income to beneficiaries. The testamentary trust ( upon death) pays tax in Canada at the marginal rates same as individuals.

So it depends on the property you are transfering in.

Also not trusts are resident based on the residencey of the trustees if the trustees are resident in Canada the trust is resident in Canada no matter where the assets are located you file tax T3 returns in Canada and if any of the grandchildren reside in the US any ioncome allocated to them will result in witholding tax to be sent to CRA. as pers sec 115 and 116 of ITA.

Remember also when you put the assets into the trust you are deemed to have disposed of them for FMV and will have capital gains tax on the transfer in your hands, if also in Canada you are a trustee you will also have income attributed back to you since you were teh setlor and are deemed to controll the trust.

For Estate purposes the trust will not effect your estate tax in the US since the property is not yours, in Canada we do not have any estate tax.

You need professional help in setting up a non resident trust and it may not be worth the added administrative costs unless it generated other benefits also such as asset protection along with tax allocation to benefivciaries at a lower tax rate.

[nelsona]

"For Estate purposes the trust will not effect your estate tax in the US since the property is not yours, in Canada we do not have any estate tax. "

I would question this statement.

First off it is a trust, and therefore subject to US foreign trust rules (ie 3520). If it was indeed a transfer it would be subject to gift tax, which is the precursor to estate tax.

US citizens living in Canada cannot simply follw the "normal" methods of asset transfer without consulting a US estate/trust professional.

[JGCA]

Correct, but his questions asked about estate tax not the US gift tax, that is whty I say you must seek professional advise its too complex an area to be dealt with on a forum.

[nelsona]

Indeed, a much better answer.