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Cross-Border Estate Planning: What Happens to My Canadian Parents’ Accounts When They Pass Away and I’m a U.S. Beneficiary?

02.11.25 // Markets & Investing // Blog Article //

Written by Carson Hamill CIM®, CRPC®, FCSI® Associate Portfolio Manager & Assistant Branch Manager & Dean Moro BComm, CIM®, CRPC® Associate Portfolio Manager

Your parents, proud Canadians, are living their best lives in Canada, enjoying their Tim Hortons and thriving off their hard-earned money and assets—Registered Retirement Income Fund (RRIF), Tax-Free Savings Account (TFSA), and non-registered investments. Meanwhile, their kids (that’s you) are U.S. taxpayers, and the looming question of estate planning is always in the back of your mind: What happens when Mom and Dad become angels?

Family Dynamic

When both spouses are alive, one can pass their assets to the other through a spousal rollover. However, once the last surviving parent passes, estate planning becomes crucial. If the father is the last surviving parent and a Canadian resident taxpayer, the estate will face immediate tax implications upon his passing.

Cross-border inheritance can feel like trying to understand Canadian hockey rules while watching the Super Bowl! Let’s break it down.

Registered Retirement Income Fund (RRIF)

Think of it as a giant piñata. When your father passes, the Canadian government smashes the pinata open. The spousal rollover is no longer an option, and the entire RRIF is considered taxable income in the year of his passing.

  1. Canada Gets First Dibs: The Canadian taxman takes their cut before you receive anything. The executor will be the one handling this.
  2. Your Share Arrives Tax-Free (Mostly): Once Canadian taxes are settled, the rest is yours. The U.S. doesn’t tax inheritances, but any growth in the RRIF after Dad’s passing is subject to Canadian non-resident withholding tax and reportable on your U.S. tax return reportable on your U.S. tax return.

Pro Tip: Work with a cross-border accountant to determine if you can claim a credit for Canadian taxes paid, ensuring you avoid double taxation by Uncle Sam.

Non-Registered Accounts (Investment Accounts)

Capital Gains Chaos Think of this as Dad’s stock portfolio or investment stash.

  1. Canada’s Capital Gains Tax:
  • Under current legislation, one-half of the gain is taxable. It’s possible (or maybe likely) the recent Canadian capital gains inclusion rate changes proposed for 2026 will be reversed.
  • Example: If the account grew by $500,000 CAD, $250,000 is included in income on the terminal tax return.
  1. Stepped-Up Basis Perks:
  • Both Canada and the U.S. reset the cost basis of investments to their fair market value at death.

Pro Tips:

  • Ensure the executor properly resets the cost basis.

Pro Tips:

  • Proper planning-consider working with your father to sell investments strategically while he’s still around spreading the unrealized capital gain over years instead of one big lump sum upon passing to reduce the future tax hit.

U.S. Estate Tax Considerations for Canadian Residents

If the father’s RRIF and non-registered account held U.S. investments exceeding $60,000 USD, a U.S. non-resident estate tax return may be required. However, while there is a filing obligation, no U.S. estate tax should be due. This is because the Canada-U.S. tax treaty grants Canadian residents access to the unified tax credit, effectively eliminating any U.S. estate tax liability in most cases.

Tax Free Savings Account (TFSA)

TFSA -A Wolf in Sheep’s Clothing (for Americans). TFSAs are tax-free in Canada but not in the U.S. The IRS doesn’t recognize them as tax-exempt, making every dollar earned inside taxable.

  • Pro Tip: Consider selling the TFSA assets right away to avoid future tax headaches. The growth will only be taxable upon the date of death of your father. CLICK HERE to learn more:

IRS Reporting: Don’t Skip the Paperwork

  • Inheriting more than $100,000 USD from a foreign (non-U.S.) estate? The IRS expects Form 3520 to be filed. Missing deadlines can result in hefty penalties.
  • Missing Form 3520 can lead to penalties up to 35% and potential IRS scrutiny. File ASAP and seek professional advice to minimize risks.

Choosing the Right Executor

Managing an estate across borders, especially between Canada and the U.S., requires careful planning, particularly when selecting an executor. As noted in the blog "Choosing a U.S. Resident as Your Executor Requires Caution," it's often beneficial to have a Canadian-based executor familiar with local laws. To further streamline the process, Canadian parents can use proactive estate planning strategies such as establishing a cross-border trust to protect assets from U.S. estate taxes, gifting assets strategically to reduce future tax liabilities, and ensuring wills and estate plans comply with both Canadian and U.S. legal requirements. These steps can help avoid common pitfalls in cross-border estate management. CLICK HERE to read more..

Conclusion

Cross-border inheritance is like navigating a road trip with two conflicting GPS systems. But with proper planning, you can make it work. American beneficiaries of Canadian parents face unique challenges when it comes to cross-border estate matters. Engaging with cross-border estate planning professionals, including tax advisors and estate lawyers, can help mitigate risks and ensure compliance with all legal and tax obligations.

By proactively addressing these issues, beneficiaries can preserve their inheritance and avoid unnecessary legal and financial complications.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate portfolio managers with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.

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