US citizen received TFSA as beneficiary

sdee · Post by **sdee** » Fri Dec 19, 2014 2:26 pm

I am a US citizen living in the US. My mother, who passed away this year, was a Canadian citizen living in Canada. She had a TFSA where she listed me as the beneficiary. The bank where the account is located has been grappling with how to handle the transfer of money, presumably due to my not being Canadian. They are now asking for my SSN but its not clear to me how they are going to report it to the IRS and what I need to file on my end for taxes. I understand its not tax free in the US, but I was never the account owner, only the beneficiary because of her death. Can anyone advise what needs to be done? The amount is roughly $30k CAD.

Separately, I was also listed on a GIC as a secondary owner and will receive that payout as well sometime early next year. Finally, I will also be receiving 50% of her estate as a part of her will when paid out in 2015. I'm confused as to how I file each of these under US tax law. Any help is appreciated.

nelsona · Post by **nelsona** » Fri Dec 19, 2014 2:41 pm

The TFSA IS tax-free to you, just like any other money you would recieve.

You should not be inheriting the TFSA, but the PROCEEDS from the TFSA -- tax free. Inform the executor to have the estate liquidate the TFSA and send you proceeds. If he can't do this, then you should sell it the moment you can. The only possible taxable income would be income eaned from the time of her death until the time you sell it, which should be minimal.

For anyome else who is in the same situation, don't have your parents bequeath you specific accounts, just have these go to the estate, and then bequeath the estate to whomever.

As for what you will need to report to IRS: very little. You will only need to report the toatl value of the inheritance, on a 3520 form, no tax.

As far as income tax, as I said, the only income related to this would be the income that the estate earns in the period before you finally get the payout (some bank interest no doubt). then the money is yours, and you are responsible for US tax going forward, as usual.

sdee · Post by **sdee** » Fri Dec 19, 2014 3:23 pm

Thank you. My father is the executor of her estate, and it was our understanding that the TSFA and GIC were not to be distributed as part of her estate (where the estate gets sold/taxed in Canada and I get 50%), but separate since I was deemed a beneficiary (and not taxed). I was also told that because its not legally distributed as part of her estate, it would be considered a gift. I assume this is incorrect? Either way, the bank is liquidating the TFSA and sending me the full amount since I'm the beneficiary. They have stated they will report it to the IRS, although its not clear to me what they are listing it as as they have no one there who understand cross border taxes.

My father, who is also a canadian, is redoing his finances and was planning on adding my name to some of his term investments. From what you state, I gather there is no benefit to me?

nelsona · Post by **nelsona** » Fri Dec 19, 2014 5:24 pm

Whether or not the bank reports these things to the IRS or not doesn't really matter to you. You need to report that you are recieving a gift from a foreign person or estate. What shape that gift is in is not important. The value of the gift goes on form 3520 in the year you get it. No tax.

the money from a TFSA and GIC is not taxable at death in any event, so why would it matter that your name be on it and you recieve it directly or not. If it was simply to avoid probate fees, this is not worth it for you as a US taxpayer, since it brings in all sorts of reporting requirements before and after death of your father. this "stragegy" may work if you are all in canada, but NOT if you are a US taxpayer.

And do not be the executor of your father's estate either, as this also is problematic for US citizens.

sdee · Post by **sdee** » Fri Dec 19, 2014 5:39 pm

Thank you for your replies. Unfortunately, I am the only living relative who is capable of handling his estate, so I am the executor and have power of attorney. There isn't anyone else to pass this burden on to, and its worth it to give him peace of mind until then, regardless of the hassle to me. I don't know any way around that. I will just have to deal with it at the time of his death - likely by hiring an cross border accountant and attorney to handle things. I'm sure I'll be posting again. Thx.

nelsona · Post by **nelsona** » Fri Dec 19, 2014 11:05 pm

It is almost always best to have a non-relative as executor, so the fact that you are only relative shouldn't matter. A trusted friend who is not an inheritor is best.

nelsona · Post by **nelsona** » Fri Dec 19, 2014 11:08 pm

Any particular reason why your mother didn't leave all these things to your father? A TFSA is easily transferred to another Cdn.

rlb · Post by **rlb** » Sun Dec 21, 2014 3:42 pm

If you have power of attorney for him, note that you must include all of his accounts (for which the power of attorney applies) in your annual FBAR report.

nelsona · Post by **nelsona** » Mon Dec 22, 2014 12:38 pm

Exactly. This is really a bad idea.

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jenfin · Post by **jenfin** » Sat Dec 27, 2014 12:33 pm

Re: the power of attorney issue. I am a dual US Cdn citizen my husband only Cdn we are resident in Canada. Our lawyer had us name each other P of A for each others accounts. Should I remove myself from his accounts. Is there any problem if he has PofA over my accounts. Really no one else to name. J

rlb · Post by **rlb** » Sat Dec 27, 2014 12:44 pm

Since your husband is not a U.S. person (assuming he does not have a green card), he does not have to file an FBAR report, and there is no problem having him given P of A on your accounts. UNLESS - if you and he decide to file a joint US 1040, then he will have to file FBAR and report all his accounts as well as those of yours for which he has power of attorney.

In your case, assuming the total value of all foreign accounts over which you can exercise control (including your husbands) is over $10,000 at any time during the year, then you will have to file an FBAR report on your own individual and joint accounts, and you will have to include his accounts for which you have power of attorney.

I'd like to point out that this is not "a problem" in any way, unless you fail to comply. The FBAR report is only a report and does not involve taxes of any sort. It is now filed electronically, and all it involves is typing out the information concerning ownership, address of the bank/broker and number and value of the account. I find I can copy and paste address info from one account to another pretty quickly.

nelsona · Post by **nelsona** » Sat Dec 27, 2014 5:11 pm

And why do you need PoA on each other's accounts anyways?

jenfin · Post by **jenfin** » Sun Dec 28, 2014 12:59 pm

Agree. Wanted a PofA for property that only took effect if I became mentally incapacitated. I Assume this would not require fbar reporting unless it came into effect.

However, the lawyer prepared a "continuing" power of attorney. I explained this was not what I had expected. However, this (and a will) was all done (reviewed and signed) the day before I was to go into the hospital for major surgery. Fortunately I survived. I guess we should scrap the powers of attorney. The will has things in it not exactly what I would have wanted as well. (The problem of postponing than having to act in haste.) The lawyer passed it by an accountant that does US taxes primarily because I included some testamentary trusts. Thus 2 bills for stuff that will have to be redone.

nelsona · Post by **nelsona** » Sun Dec 28, 2014 8:34 pm

Of course. Pretty expensive for what turns out to be joint accounts, which woiuld have been the normal way to proceed.