How to avoid estate-tax issues in U.S
David A. Altro is a frequent contributor to Paul Delean’s business column in the Montreal Gazette, scroll down to read David’s answer to the first question, about policy ownership.
PAUL DELEAN
The Gazette
Monday, August 8, 2011
A cross-border insurance question and potential reduction in Guaranteed Income Supplement (GIS) payments were among the topics raised in the latest batch of reader questions. Here’s what they wanted to know.
Q: “I have a life-insurance policy with my daughter as beneficiary. She’s a U.S. citizen and lives and works in the U.S., I reside in Quebec. Can I transfer ownership of this universal-life policy to her, or would this pose a problem since it’s a Canadian policy? And would there be any tax consequences, now or later, in either country?”
A: Lawyer David Altro, managing partner of Altro & Associates, doesn’t recommend transferring ownership of the policy, or doing nothing. “Transferring ownership might trigger a U.S. gift tax in your hands as the donor. Leaving things ‘as is’ will mean that upon your death, she will receive the policy proceeds tax-free, but upon her subsequent death as a U.S. citizen (even if she moved back to Canada), the value of the insurance and growth therein, if any, will form part of your daughter’s estate for U.S. estate-tax purposes. That means Uncle Sam may take a big bite out of it before it goes to her kids.” Altro suggests creating an irrevocable life insurance trust, with the daughter as beneficiary. He said that will avoid U.S. estate-tax issues “for numerous generations.”
Q: “My wife receives the (federal) Guaranteed Income Supplement (GIS) and next year will begin collecting about $500 a year from a Registered Retirement Income Fund (RRIF). How, if at all, is this likely to affect the GIS? Is there some formula for calculating the impact?”
A: Yes, there will be an impact. Virtually any income other than the basic Old Age Security pension (OAS) and up to $3,500 a year in employment income affects GIS, which is intended for low-income seniors, with the amounts determined by marital status and net annual income. Based on the charts at the government website (servicecanada. gc.ca), an extra $500 a year in 2011 will reduce GIS entitlements by about $10 a month in the case of a couple where both partners receive OAS. Once a couple’s combined income (not including OAS) tops $21,360, the GIS is phased out completely, as it is for singles at $16,176. However, if your wife starts receiving the RRIF money in 2012, there’d be no effect until mid-2013, since GIS payments from July through June are determined using income figures reported for the previous calendar year.
The Gazette invites questions on tax and investment matters. If you’d like your query addressed, send it to Paul Delean, Gazette Business Reporter, Suite 200, 1010 Ste. Catherine St. W., Montreal, Que., H3B 5L1, or by email to pdelean@ montrealgazette.com.
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