USC/R at Death. 401(k)/IRA, RRSP/LIRA/RRIF/LIF Taxation for Deceased and Cdn Beneficiaries?

[jtserbinski]

Hi, and thanks in advance!

I'm a dual citizen and US resident. My Beneficiaries are Cdn citizens and residents.
Been thinking about death and tax/estate planning :(

I've been going through the scenarios. Some I *think* I found answers here, but others have no idea. Appreciate any input!

Taxation at my death ...

[1] 401(k)/IRA
Me: no tax; account goes to beneficiaries. (Not sure the actual mechanics of how this happens. Will my 401k/IRA plans [Schwab, Fidelity] set up a special sell-only account so they can liquidate the assets? Is this an issue for Cdn resident?)
Beneficiaries: they have 10 years to withdraw the funds. (a) US: They must get Tax IDs and file 1040 for US-sourced income, (b) Cdn: file T1 and use foreign tax credit for US-sourced income.

[2] RRSP/LIRA/RRIF/LIF
? similar to Canada ?
Me: (a) Cdn: 25% lump sum withholding, final. (b) US: my US estate files 1040 the same as if I was alive and withdrew all the funds. (Tax rules depending on whether it is RRSP/RRIF (tax on "earnings" only) or LIRA/LIF withdrawl (tax on total amount), as discussed here previously.)
Beneficiaries: no tax

With this information I hope to put together a plan to:
(a) minimizing lump sum US tax of RRSP/LIRA/RRIF/LIF
(b) perhaps withdrawing 401(k)/IRA sooner and investing in index funds so my beneficiaries can inherit stepped up basis. (Essentially, prepay the taxes for the beneficiaries and get some free capital gains.)

[jtserbinski]

After some more research, the following is updated:

[2] RRSP/LIRA/RRIF/LIF
Me: (a) Cdn: 25% lump sum withholding, final. (b) US: subject to US estate tax only (on total value at death).
Beneficiaries: no tax
There might be an issue that the RRSP/etc. goes through probate taking longer than the Canadian bank requires the RRSP to be collapsed (typically by Dec. 31 of the year following death?) and paid out to Beneficiaries? Possibly put these assets into a Revocable Living Trust?

[jtserbinski]

After some more research, the following is updated:

[1] 401(k)/IRA
Me: no tax; account goes to beneficiaries. (Not sure the actual mechanics of how this happens. Will my 401k/IRA plan holders [Schwab, Fidelity] set up a special sell-only account so they can liquidate the assets? Is this an issue for Cdn resident?)
Beneficiaries: they have 10 years (or more) to withdraw the funds. (a) US: file W-8BEN to TRY to get 15% Treaty tax rate for periodic withdrawal. If they get 15%, great! If they get 30%, they must get Tax ID (ITIN) and file 1040NR and Form 8833 to justify US-sourced periodic pension income at 15% Treaty rate, (b) Cdn: file T1 and use foreign tax credit for US-sourced income (CRA may need proof that >15% tax rate was justified, i.e. it was truly a lump sum withdrawal or IRS letter stating the 15% rate was disallowed.)