U.S. Beneficiaries of Canadian Estate: Filing Requirements

[eeyore]

I am the executor for my mother's estate, who passed away last year in Canada. I live in Canada and am a Canadian citizen only. Two beneficiaries are siblings living in the U.S.

Do these siblings need to file a 3520 as a result of receiving funds from the estate? Do they have any other requirements, if any, for receiving funds from the estate or from other investments that were owned by my mother and are being distributed outside the estate (e.g., RRIF, TFSA)?

Thanks.

[primo]

If they receive more than $100,000, they have to fill out 3520.

From the IRS website:

Reporting Requirements
You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest. Include on Form 3520:

Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);

[eeyore]

Thanks, primo.

Could you please post the web link, so that I can see the entire document?

Thanks!

[eeyore]

Sorry, I found the link.

It's not enirely clear from the IRS web page whether beneficiaries of a TFSA, RRIF, or RRSP would also be exempt from reporting if under $100,000. Or is it?

Thanks.

Wayne

[nelsona]

Lets not flail around. Regardless of what form the inheritance comes in, it is all considered from the estate, so I don't know what distinction our poster makes between "funds" from teh estate, and funds from a TFSA or RRIF "outside" the estate. Its all part of the estate.

Our poster can look up 3520 on irs website, which the US residents will be familiar with.

[charlie12]

I am a Canadian citizen but have lived in US for 8 years and have filed US resident tax returns. My parents, Canadian residents, passed away this year and I will recieve inheritances from sale of real estate, life insurance and Canada Savings bonds. With regard to the bonds, the estate lawyers have advised that I must file CRA Form T2026 as there is interest from the bonds....which will be included as part of the distribution. They say it's a "trust" for purposes of CRA sec 116.

My reading of all this leads me to believe that I should not have to file this form as I am not disposing of any property that I own but getting it through an inheritance. Am I incorrect?

[nelsona]

Dunno.

But I do know that you now must file a 3520 in US for the inheritance. No tax, just a report.

[JGCA]

The interest from the inheritance is the obligation of the Estate and not the beneficiacy to be taxed on. The interest is most probably the interest earned on the bonds in the Estate from the date of death to the day the Estate is settled since this occured after death its the estate that pays tax on it or if the estate will distribute the interest to the beneficiaries then the beneficiaries pay tax on it. Sincxe you are a non resident witholding tax has to be deducted from this interest on your behalf and sent off to CRA this is why they are asking yu to file these forms. You then can file a return in Canada sec 116 to ask for a refund but of course the interest is taxed by the IRS anyhow.

[nelsona]

Is there being tax withheld becuse the estate owes tax on the interst or becuase the beneficiary does?

If the beneficiary does, then being a US residnt makes the NR tax 0%.

[nelsona]

or is this considered non-arm's length interest, not eligible for the reduced treaty tax rate.

[JGCA]

THe estate makes a distribution to a non resident thus it has to comply to the witholding tax requirements, I also would not imagine that its subject to a zero rated witholding since its clearly non arms length from teh estate to a legatee.

[nelsona]

Thanks. Banks are also "comply to the witholding tax requirements" when paying non-residents, but US residents are zero-rated.

So it is the non-arm's length issue that requires actual withholding.

[JGCA]

yes estate and trust distributions are very strict in ensuring non resident tax applies . Case in point when a trust allocates a tax free capital dividend to any non resident from Canada even though this capital dividend is tax free its subject to witholding tax none the less and people have mistakenly not witheld tax on this and CRA has imposed penalties.

[malachirobertson]

Hi, I am hoping for some help in the confusing mass of tax information. My mother-in-law was a US resident dying in July 2013 and I am trying to do her final tax form. Her sources of income were all accounts in Canada. Some accounts easily transferred to my wife, the daughter of the deceased, because her name was in someway associated with the accounts. Others have not been so easily dealt with. There was a tax free savings account (TFSA) that was closed and the monies transferred to a regular savings account. I figure that the interest on that account, while tax free in Canada is taxable in the US. Is that correct? Anyway, perhaps more complex is the Registered Retirement Income Fund (RRIF) that she had. She had already received her minimum distribution for 2013, which I suppose is taxable in the US. But after her death, the bank closed out the RRIF, sending a form in her name that had the final payout at the time of death. Income earned after the death, however, was sent in a separate form to my wife. My wife inherited the final payout and the accrued income from the time after the death. What I can't figure out is whether the final payout is taxable in the US. Please help!

[nelsona]

Any Cdn income arising from mother-in-law's (MIL) death is taxable on her 1040, and not your wife. You would use any Cdn tax withheld as credit on MIL's 1040. I'll assume she is not required to pay estate tax in US on her holdings at the time of death. If she was, any leftover Cdn income tax would could be used as a credit against that.

I'm pretty sure that -- since you appear to be a Cdn resident -- that doing this tfinal US tax retunr is far above your level -- no offense. There shouldn't be a Cdn one to deal with, since her taxes would all have been by straight withholding for each payout. How has she been doing her taxes over the years? The same person should do the final one.



As I see it the only thing that is taxable in your wife's hands, in Canada, is the income generated after her mom's death, which she recieved separately.