Put your U.S. home in a trust
It could mean tax savings for loved ones if you die
Dan and Colette Craig have owned a condo in Cape Coral, Fla., for almost a decade. They know better than to talk politics with the neighbours when they visit.
“We tend to avoid conversations with any U.S. folks regarding Trump. We don’t initiate that. From an outsider looking in, you really don’t know what you’re talking about,” Dan says.
Politics have nothing to do with the Craigs’ enjoyment of their Florida home and they dream of spending more time there in the future.
“If anything surprised me about buying in the U.S., it would be the relative ease of the purchase. They’re so used to dealing with Canadians down there, the whole economy seems to revolve around that,” he said.
Despite widespread speculation about a Trump dump, Americans haven’t flooded the Canadian market, although there was an 11-percent increase in U.S. visitors looking at properties on royallepage.ca between Dec. 1, 2016, and Nov. 30, 2017, compared to the same period a year earlier.
But there has been about a 20-percent increase in Canadians buying south this year, says Royal LePage CEO Phil Soper.
Most of the action is in Florida and Arizona, but the Carolinas and Texas are also getting a look. Albertans, in particular, are buying “above their weight” in the U.S., probably due to the harsher western climate and their relative wealth, he said.
The economy on both sides of the border has proven more powerful than politics, Soper said.
“We’ve had the best jobs year in 18 years in Canada. They have had the best job performance in the last four years since the post-World War era,” he said.
Three of those four years predated U.S. President Donald Trump’s election, Soper said.
Most Toronto-area buyers are looking on the lower end of the sun state property market and the majority are baby boomers using their home equity to finance the purchase, said Richmond Hill realtor Shawn Zigelstein, who has compiled a stable of American agents to whom he can refer clients with cross-border house hunting.
You need a U.S. agent to buy there, he said. With the U.S. real estate market uplift, a home in the sun is increasingly being seen as an investment, as well as a vacation home, Zigelstein said.
“Some Canadians are disillusioned by Trump’s policies, but we haven’t seen a slowdown,” said lawyer David Altro, whose Toronto, Montreal and Florida law firm specializes in crossborder real estate transactions.
If you’re thinking of buying south, Altro’s top bit of advice is to hold your property in a cross-border trust rather than as a personal asset or in a Canadian corporation that benefits you personally.
A lawyer can help you set up that kind of trust, he said.
In tax and legal terms, not much has changed since Trump took office. But the president’s pending policies have implications for Canadian property owners’ estate and tax planning.
Trump’s proposed tax law would phase out estate taxes.
That’s good news for wealthier property owners. However, Altro warned, the phase-out will likely take years.
“Right now, if a Canadian passes away with U.S. real estate, there may be a U.S. estate tax on the value of the property,” he said.
Many Canadians would be exempt because the tax only applies to those with a total international estate of
“Some Canadians are disillusioned by Trump’s policies, but we haven’t seen a slowdown.” DAVID ALTRO LAWYER, CROSS-BORDER SPECIALIST
$5.5 million (U.S.) or more.
But for those with that kind of portfolio — “If you pass away while it’s still in effect, you’re going to have U.S. estate tax,” Altro said.
If you own U.S. property in a Canadian corporation, it will be subject to a 35-per-cent capital gains tax when you sell it. Trump’s tax bill (when it becomes law) would bring that down to 20 per cent.
If you are a Canadian holding a U.S. home by a corporation, the use of that property will be taxable here. It’s called a shareholder benefit, so you are taxed at the level for which the property would rent, even if you don’t rent it out, Altro said.
If you die, your American home will almost certainly be subject to probate whether you hold it personally or in a corporation.
But if you’re holding it in a trust, he said, “The trust doesn’t die so there’s no probate when you die.”
In the meantime, the value of Florida property continues to climb, said Fort Myers real estate agent Doug Leugers. He and his wife, Lona, work with 10 to 15 Canadian buyers a year.
“Right after the recession, we were getting a 17-per-cent appreciation in our market. Now we’re around10 per cent. When they buy a home, they can expect the value to go up by about 10 per cent a year. Most of the country sits around 3 or 4 per cent a year,” he said.
As for Trump, Canadians have some strong opinions, but they’re far more interested in the rate of the dollar than politics, the Leugers say.
People you’ll meet in the sunbelt — Americans and Canadians — will likely be in a good mood because they’re escaping winter, Soper said, who owns a place in Arizona.
“But bring up politics at your own risk,” he warned. “Even the most reasonable people can have political views that are really foreign to the most conservative Canadians.”