Canada

Those who come to the U.S. — and, in particular, those with great wealth — have a lot to learn about the American tax system.

Sufficient time should be allowed for planning to shelter worldwide assets from the U.S. tax net, especially if the person has significant assets or stands to inherit significant assets from family in the home country.

It is recommended the following steps be taken before permanently moving to the U.S.:

1

Review Holdings in Foreign Corporations and Offshore Mutual Funds

Holdings in offshore mutual funds and foreign private investment companies are often not suitable for U.S. persons, as they will attract the potential application of the U.S. Controlled Foreign Corporation (CFC) and Passive Foreign Investment Company (PFIC) rules.

2

Consider the Implications of Foreign Trusts

The tax consequences and considerations are different for settlors and beneficiaries of foreign grantor trusts. Understanding these differences is critical to protecting assets both in the present and for future generations.

3

Establish a Gifting Program

If worldwide assets are expected to exceed the $11.18 million gift and estate tax exemption afforded to U.S. citizens and permanent residents, outright gifts can be made prior to immigrating in order to reduce the overall taxable estate.

4

Accelerate Gains and Defer Losses

It may be beneficial to try to accelerate the recognition of income before immigration (or hold off on realizing losses until the emigrant becomes a U.S. taxpayer). This will depend on whether the tax rates in the home country are lower than those in the U.S.

5

Explore the Use of Insurance

Whether it is a traditional whole-life policy or a private placement life insurance policy (PPLI), insurance can enjoy the benefits of tax-free growth and distributions if properly titled and funded.

1M

The number of people who attain legal immigrant status in the U.S. each year.1

13.5%

The percentage of the U.S. population who are immigrants.2

43M

The total number of immigrants in the U.S.3

“With thoughtful planning, it's possible to avoid running afoul of unfamiliar or unexpected aspects of U.S. tax law that could have a significant impact on family wealth.”
Understand which type of taxpayer you are
Non-Resident Alien

Non-resident aliens only pay income taxes on U.S. source income, and only incur estate or gift taxes on U.S. situs assets, such as U.S. real estate or tangible property in the U.S.

Resident Alien

Whether a non-citizen is deemed a “resident alien" for income tax purposes depends primarily on how much time they spend in the U.S. Those who are considered long-term or “permanent" residents (e.g., green card holders) must pay tax on their worldwide income. Whether they must pay transfer tax on worldwide assets is determined through a subjective test that is intended to determine the individual's intent to remain in the U.S. indefinitely.

U.S. Citizen

U.S. citizens are subject to income and transfer taxes on worldwide assets, regardless of where they reside, however, a substantial amount of assets can be sheltered from the U.S. estate tax thanks to the $11.18 million exemption.

  • Footnotes

    1 As of 2015.“Frequently Requested Statistics on Immigrants and Immigration in the United States", Migration Policy Institute, www.migrationpolicy.org

    2 Ibid.

    3 Ibid.

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