By Elli Schochet, CFP
This two-part series explores the challenges and solutions faced by Canadian families with U.S. connections. Part One examines insurance planning strategies that can help protect assets, simplify transfers, and preserve legacies across generations. Part 2 highlights common pitfalls in cross-border wealth planning.
Cross-border wealth planning is no longer a niche concern; it has become a mainstream issue. Many Canadian families have U.S. connections through citizenship, marriage, or children studying or living in the United States. Different tax regimes, conflicting reporting rules, and inconsistent definitions of income or ownership mean that even well-intentioned plans can backfire. The following pitfalls are among the most common — and the most costly if left unaddressed.
U.S. citizens are subject to Estate Taxes on their worldwide assets.
There is an estate tax on global assets that is payable on death. In 2026, the exemption limit for an estate is $15M. In 2027, that exemption limit will increase by inflation. It is doubled if both spouses are U.S. citizens. In Canada, life insurance proceeds are paid out tax-free. Life insurance proceeds are also paid on a tax-free basis in the U.S. However, in the U.S., insurance proceeds are part of the individual’s estate, which may cause the estate to exceed the exemption limit, resulting in estate taxes that can exceed 40%.
Missing FBAR and U.S. tax return obligations
U.S. citizens must file U.S. tax returns regardless of where they live, as the U.S. taxes worldwide income based on citizenship, not residency. Additionally, there is a requirement for a Foreign Bank Account Report (FBAR). If at any point a non-U.S. resident has an account that exceeds USD $10,000 in aggregate, they must file the FBAR. The FBAR requires the disclosure of all financial accounts over which the person has a financial interest or authority, to disclose the highest balance during the course of the year. Many U.S. citizens in Canada overlook this, only to discover years later that penalties for non-compliance can be onerous. Check with a tax professional for compliance guidelines.
Assuming TFSA and RESP accounts are tax-free
Canada provides tax-free growth in TFSAs and RESPs, but the U.S. does not. For U.S. citizens, income held inside a TFSA is fully taxable, and RESPs are often treated as “foreign trusts,” with annual reporting obligations for the subscriber. Additionally, there may be tax consequences for the beneficiary (child) if they are a U.S. person. Appointing a Canadian subscriber may reduce exposure, but a cross-border expert should always review these accounts before use in cross-border families.
Overlooking U.S. situs assets in an estate
If an individual owns more than $60,000 USD in U.S. assets, they need to consider the implications of owning U.S. situs Assets. US Situs Assets comprise various asset classes, but the most common are U.S. real estate and securities, even when held in a Canadian brokerage. For example, if a Canadian owns $500,000 of Microsoft shares (a U.S. corporation), they would be subject to the U.S. Situs Asset test, which may require them to file a U.S. Estate Tax Return even if no taxes will be owing.
There are formulas in place that determine whether taxes are owing based on the US exemption limit and a specific formula (US Assets/Worldwide assets x the Unified tax credit of $5,541,800). Tax credits may be available for Canadian taxes paid, which may offset U.S. exposure.
If you have US assets over $60,000, even if the US company stocks are held in Canadian Brokerages, it is advisable to seek proper tax advice to understand your exposure.
Holding Canadian mutual funds without PFIC advice
Canadian mutual funds are frequently categorized as Passive Foreign Investment Companies (PFICs) under U.S. law. That triggers annual Form 8621 filings, and, unless elections are made, can result in punitive taxation on distributions and gains. A single holding can create years of reporting headaches. Families should confirm whether specific funds are PFIC-compliant or consider alternative structures designed for cross-border investors. Consult with your financial advisor to determine the best way to structure your investments to ensure financial compliance.
Owning or inheriting Canadian holding companies
When a U.S. citizen owns shares in a Canadian investment Holdco, the Holdco may be treated as a PFIC. The rules around PFICs are complex, and professional cross-border advice is strongly recommended as the penalties for holding a PFIC are punitive. An Unlimited Liability Corporation (ULC) would not be treated as a PFIC, as it is considered a flow-through entity for U.S. purposes. However, the disadvantage of the ULC is that it does not have the same liability protection as a regular corporation. Additionally, US situs assets held in a ULC are treated as if held personally for US estate tax purposes. ULCs are incorporated in the provinces of British Columbia, Alberta, Nova Scotia, and Prince Edward Island.
Misunderstanding bank disclosure rules
When opening financial accounts in Canada, which include insurance, banking and investment accounts, people are asked whether they are U.S. citizens. This requirement comes from the Foreign Account Tax Compliance Act (FATCA), not the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Under Canada’s intergovernmental agreement with the U.S., banks are required to identify U.S. persons and report them annually to the CRA, which then transmits the data to the IRS. Many clients are surprised to learn their accounts are automatically disclosed.
Families with U.S. ties cannot rely solely on Canadian planning. Every case is unique, and the risks of double taxation, penalties, and lost value are real. With the proper planning, these and other pitfalls can be mitigated but not always avoided.
Al G. Brown & Associates collaborates with cross-border tax and legal experts to develop effective plans to minimize double taxation, preserve wealth, and protect family harmony across generations. Contact Elli Schochet CFP, to learn more: eschochet@algbrown.com.
This article is provided for general information purposes only and does not constitute legal, accounting, or tax advice. Cross-border tax rules are complex and subject to change. Readers should not act on the basis of this material without obtaining advice from qualified tax and legal professionals with expertise in Canada–U.S. cross-border planning, tailored to their specific circumstances.
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