Inheriting IRA as Dual Citizen

[nsbirdie]

I have both US and Canadian Citizenship (came to Canada in the 70s). I own a house in Canada and a mobile in US (rented landed). I stand to inherit a small portion of a brother's IRA (most going to distance relatives). I am in my 70s thus a RRIF not RRSP. What is the best way to handle this re taxes? My brother said he could give me an equal dollar value of his investment account VS his IRA if that was better from a tax perspective. How can I direct his intensions? Apparently, I am identified in the IRA docs and in his will re the IRA. NOTE: I file in US and Canada.

[nelsona]

First, your brother should probably simplify his IRA beneficiaries to 1 or 2 (if that: he could just leave it to the estate, and make any distributions in his will)
Next, like he seems to realize, he should be giving you non-IRA holdings, excluding you from the IRA pot.

The handling of inherited IRA is not made more complicated because you live in Canada: anything that is taxable on your 1040 during the required 10-year distribution, will be also taxable to the same extent on your Cdn tax return, with credit given on your Cdn rurn for any US tax.

[nsbirdie]

Thank you taking the time to reply. I do have some questions. Why does he need to simplify to 1-2 beneficiaries? Is there a tax benefit to this or ? While I could advise him to leave the IRA to the estate, I doubt I could persuade him if it would cost him (like legal fees) to do this but if there was a reason....maybe. Basically, he dislikes change, dislikes feeling he is not the one that is in control (making the decisions).
Why would it be better for me to get non IRA holdings? He quoted an 10% on his IRA though each year that will diminish with required distribution. As he manages, to my knowledge, is own portfolio all I can assume re: the non IRA investments is that 10% of its current value is equal to the 10% of his current IRA. Whether he is living off of pension income and interests plus the IRA I do not know so 10% of investments could be variable as time goes on but he is very cautious of keeping what he has. He will not share details as you might have guessed by now.
I am unclear on your last statement (10 year distribution). Would I, in my current dual citizenship status with no IRA of my own and only a RRIF plus other investments with RBC, have an option to take the IRA monies over ten years rather than lump sum? Once again your input is greatly appreciated.

[nsbirdie]

I did find out the IRA is a Non Roth BTW

[nelsona]

I find it is best to either leave an IRA to a spouse, or leave it in the estate. Listing a whole bunch of beneficiaries on an IRA will be hard to manage.

As to why you would prefer investments rather than IRA is that you will be taxed in canada on the entire IRA distribution over the following 10 years (it is MORE than simple required distribution), rather that getting essentially cash that you can se however you wish, and not taxable except for any gains YOU might make.. If he's offering you that choice, I'd take it.

[nsbirdie]

Thank you for all your time. Gratly appreciated it.

[nsbirdie]

I am still questioning approach. As I understand it, as one of the designated recipients of a portion of my brother's non Roth IRA, I can, as a dual (CDN and USA) Citizen qualify as Eligible Designated Beneficiary as I am within the 10 years younger category (5.5 years) of IRA Owner. We are both in our 70s and he has already started to do required annual withdrawal. As an EDB, I can take distributions over the longer of my life expectancy (not sure what that would be) maybe, according to IRS, less than 10 years but I do not know. Because of this issue, I still question whether it is better to get monies he wishes me to have via that method or better to have the same amount/ % designated in his regular investments. And, if in his regular investment account, is it preferred to have me allotted any cash vs real investments?

[nelsona]

The fact that you may be an EDB changes little, since you are already old. Besides there are multiple inheritors you said, which goes back to the simplification suggestion.

With the IRA you are inheriting 100% taxable income (at Cdn rates, btw, and which could subject you to clawback). Always better to get money, which is not taxable until you it generates income.