The Problem of US Citizens Owning Canadian Life Insurance Policy
Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
Guest Contributor: Peter J. Merrick, TEP
The Problem of US Citizens Owning Canadian Life Insurance Policies that Your Canadian Insurance Agent Probably Didn't Inform You About Are:
Understanding U.S. Income Tax: U.S. citizens must file annual income tax returns, regardless of residence. Exploring U.S.-related life insurance investments demands careful thought. Notably, the U.S. "exempt test" differs from Canada's. Non-compliant Canadian policies owned by U.S. individuals could trigger taxable growth for U.S. taxes. Beneficiaries might face taxed portions of death benefits. Opting for non-U.S. spouses as owners or low-growth policies often proves pragmatic.
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Navigating the U.S. Estate Tax: Estate taxes apply if U.S. citizens' estate value exceeds a threshold. Insurance policies can increase estate taxes. The Irrevocable Life Insurance Trust (ILIT) helps exclude policy proceeds. Proper structuring, restricting creator's rights to benefits is crucial for exclusions.
Managing U.S. Gift Tax: U.S. citizens manage lifetime gift taxes on asset transfers. In 2024, the federal lifetime gift and estate tax exclusion is $12.92 million, with potential inflation-based rises for 2024 and 2025. Using the gift tax lifetime exemption linked to estate tax facilitates efficient allocation. Annual gifts and gifts to non-U.S. spouses offer more options.
The Looming Sunset Clause: The urgency lies in the sunset clause: Absent tax law changes, these thresholds are temporary. Enacted in 2017 as the Tax Cuts and Jobs Act, the overhaul mandates the exemption increase to sunset after 2025. This resets the estate and gift tax exclusion to pre-2017 levels back to $6.8 million, adjusted for inflation.
Insights for the U.S. Beneficiaries: Incorporating insurance within corporations introduces complexities, necessitating adept estate planning. U.S. citizen beneficiaries should distinguish exempt and non-exempt policy benefits. Strategically channelling distributions through estates can curb taxes.
ILITs and "Throwback Rules": "Throwback rules" apply to U.S. beneficiaries of foreign trusts like ILITs. Distribution may trigger U.S. tax liabilities due to accumulated trust income. Canadian-resident ILITs with investment income might face U.S. tax implications.
Understanding the Excise Tax: A 1% excise tax on non-U.S. insurance premiums impacts U.S. citizens globally, adding complexity to ILITs.
Guidance Through Complexity: Navigating this demands specialists in U.S. cross-border planning, estate management, trusts, U.S. tax treaties, and regulations. With the 2023 and a potential 2024-2025 lifetime estate and gift tax exemption, along with the looming sunset clause, your insurance experts need to craft strategies to ensure effective cross-border life insurance planning.
If you need Peter Merrick's invaluable expertise in Executing Tax Solutions Through Life Insurance so that your Business, Family, Wealth, and You are De-Risked and Protected, let's schedule an introduction to Peter J. Merrick by CLICKING HERE.
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Who is Peter J. Merrick, CFP, TEP?
Peter J. Merrick, TEP, is a Commentator, Keynote Speaker, and expert in US/ Canadian/International cross-border Estate Planning and Insurance and annuity Planning.
Over three decades, Peter specialized in de-risking and saving his clients up to 40% of their wealth that would have otherwise been paid out because of poor planning. These proven solutions effectively shelter income, reduce taxes on income and estates and defer or eliminate tax on investments and creditor-proof assets for domestic and international clients.
Peter is also an author.
Peter has written three comprehensive LexisNexis business, legal, tax, succession and estate planning textbooks. For 18 years, Peter wrote a column for LexisNexis called "The Bottom Line," one of the largest professional tax and accounting publications.?Peter was also a university and college finance and financial planning lecturer for over 12 years.
Peter is also the author of The Business Novel - The King of Main Street. To read reviews, please click here.
To receive a complimentary digital copy of "The King of Main Street," email me at [email protected]
In 2019, Peter relocated to San Diego, California, from Toronto, Canada. Right now, he sees a number of wealth-saving opportunities resolving long-ignored issues for Canadians in corporate planning, cross-border US and international planning, financial, philanthropic, and estate planning implementation, utilizing Canadian/US Life Insurance and Canadian/US Annuity strategies.
Peter works with high-net-worth individuals and their legal, tax and financial professionals performing Canadian estate freezes and terminal tax planning, as well as those who seek to relocate to the US or have financial interests in the US from places like Canada and other national jurisdictions.
It is absolutely essential that you partner with and work with an expert familiar with the Canadian Income Tax Act, the IRS Tax Code, and US/International Tax Treaties before implementing any strategy in the areas of Canadian estate freezes, terminal tax planning, and cross-border planning.
If you are a professional advising a client who falls in this situation or if you personally have cross-border interests in the US and you want to review your situation, schedule an introduction to Peter J. Merrick by CLICKING HERE.
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Adrian C. Spitters FCSI?, CFP?, CEA? President, Author, Private Wealth Advisor
I Execute Tax-Efficient Investment Portfolio Solutions So That Your Business, Family, And Estate Assets Are De-Risked And Protected Against Financial Risk, Economic Threats, Inflation And Higher Taxes.
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