Personal Tax Planning: What Is at Stake for US Beneficiaries of Canadian Estates

Abstract

This article provides an overview of US tax issues that foreign estates with US individual beneficiaries may face. While families may implement planning strategies to effectively manage the transfer of wealth from a domestic perspective, US tax laws can create complex problems and at times adverse consequences for the unwary. The main goal of this article is to identify the general US tax considerations for a foreign estate, including the potential application of the anti-tax-deferral rules governing passive foreign investment companies (PFICs) and controlled foreign corporations (CFCs). A case study is included to illustrate how these rules may apply to US beneficiaries of a Canadian estate if the estate holds shares of a PFIC or a CFC. The article also offers a few guidelines and strategies to reduce potentially adverse US consequences and to mitigate some of the tax risks.