TFSA and RRSP income

[saldanch]

How does the US tax US resident aliens (Canadian citizens) who are named direct beneficiaries of RRSP accounts and TFSA accounts upon the death of the account owner? I assume since the accounts transfer at death to the US resident who must claim all foreign income, there will be tax implications on a go forward basis, for capital gains from buying/selling stocks and dividends received and reinvested into the accounts after death of the account owner but does the Canadian government or the US government tax the US resident who now owns these accounts sitting in Canada? Are there foreign tax credit availabLe to prevent double taxation? What about at the time of death? The estate of the deceased person (Canadian citizen and resident) files a Canadian tax return, but how are the RRSP and TFSA accounts treated?

[nelsona]

If the RRSP beneficiary is the spouse, then they would inherit the RRSP as is, no tax in Canada nor US.

If they are NPOT the spouse, then the RRSP is collapsed by the deceased, tax paid on the deceased return, and the proceeds are given to the beneficiary. There should be no tax on the proceeds, in either country.

TFSAs are simply ordinary accounts, so no tax in Canada for the deceased, and then tax on any growth after inheritance.

[saldanch]

Thank you. What if the deceased will puts the money into a Canadian trust upon death instead of paying out directly to the beneficiary (who is not the spouse). Would the beneficiary of the trust who is a US resident need to pay taxes on those investments? When would they be taxed? When money is disbursed from the trust to the beneficiary or even when there is a dividend or capital gain - or does the trust entity itself pay CDN taxes on that and the beneficiary is therefore not taxed again when theoney is disbursed to them in the US? The RRSP and TFSA money are in trading accounts which will be held/owned by the trust upon death of the current account holder.

[nelsona]

As isaid, the RRSP would cease to exist. I suspect the TFSA would as well, but in any event, the US person would now be an owner of a foreign trust, and would be required to pay tax year-over-year on the income, as well as report the trust itself.

The trust would not be the way to go here because of your US residence (if it was even a good idea for anyone).

Sounds like the person her is being advised by someone who loves trusts.