The WAY to WOW Shows
Cross Border Estate Issues
May 12, 2025
Automatically generated from YouTube captions; names and wording may contain errors.

[0:00] Who are you? And where are you going? What do you [Music] want? Hello and welcome to Trust and Estates Weekly. I'm your host, Kevin Bemmel, and we're here every Monday at 10:00 a.m. Pacific time to talk about estate planning and trust and estate administration, both from the standpoint of professionals like my guest Andrew

[0:35] Nut Brown and me, but also for, you know, individuals who are faced with this particular financial challenge. Um, always good to sort of peek in and and get some thoughts about what has has to happen in order to make sure that our own uh financial our own estate plan is uh is is put together and we're taking care of ourselves, which you know, you it always uh brings up the the cliche of the uh you know, estate planning lawyer who has no trust, has no has no will, right? Typ typical thing. So, uh, we're

[1:11] we're we're we're going to try and avoid that. So, as as I mentioned just a moment ago, uh, I I'm really, uh, pleased to have as my guest today, Andrew Nutbrown. So, Andrew is a an estate planning and estate administration attorney here in the Los Angeles area. You're you're based up in uh, Pasadena, right? Yep, that's right. Yeah. And uh and you will you will sense right away that um Andrew speaks with a a little bit of an accent. Um that's because um he comes from the land of

[1:47] this is the only Canadian thing I know, the land of twofers, which I'm told refers to a a 24 pack of beer, which is I guess how Canadians buy beer. So now you know the full extent of my knowledge of Canada other than Montreal is an extraordinarily beautiful city and I loved every minute that I spent there lo these many years ago. So uh and Andrew is going to be talking about crossborder estate issues which I think is is a topic we haven't covered here on the show yet. So so Andrew welcome to trust

[2:22] in Estates Weekly. Thanks for joining the show. Thank you for the invitation. I appreciate it. Yeah. So start out if you would just so so viewers can uh get to know a little bit about you. How did you get involved in uh you know estate uh trust and estate law and and and and why? Give us a little bit of your background. Yeah. So um originally so my background was fully in in uh Ontario. So I grew up in rural Ontario, Canada. And uh initially I went to law school thinking I was going to be a crown

[2:58] attorney uh or or a prosecutor. And um during my time at law school, I uh I volunteered. They had a a legal clinic in the law school. And so I did some criminal defense work there and I was exposed to what I perceived to be issues in how the prosecution was dealing with disclosure issues, how they were prosecuting cases uh that didn't really seem to make sense to me. Like my first trial was actually I know we're going off on a little bit of a tangent, but my first trial was a case where

[3:34] there were was clear video evidence proving that they weren't um guilty. And uh and even though we we forwarded that information to the prosecutor, uh they didn't drop the charge and then it went all the way up to a trial. And then one of the key witnesses uh who of course was caught in a lie in that in that case didn't show up and then the charge was dropped. But it was just a complete waste of time. The client was a nervous wreck. It had a it could have had a dramatic impact on their life, right? And uh and so that kind of turned me off

[4:09] from that practice. And um when I was at the clinic, uh it was a bit of a a unique legal clinic at the at the law school because there were um we did civil litigation cases up to a certain level, uh criminal cases, landlord tenant issues, and then we actually did wills and estates cases as well. Whoa. Wow. Um and normally it was for people who didn't have, you know, large estates. And I remember my first will being done and it was for someone who uh was uh terminally ill and so we did the

[4:47] documents really quickly and um and it provided a lot of dignity for them and it also allowed for a smooth transition when when that person passed. And so for some reason that's where I found it really fascinating. I found like the work had a lot of impact and value on on on people. And uh and then after that first uh client, I did I did a lot of wills actually when I was in law school um during my time at the clinic. So that was around a two-year period. And I think just generally I I always

[5:22] expected that I would be uh you know the the town lawyer close to where I grew up. Mhm. So I ended up after law school, I got a few different job offers. One of them was in a a fairly small firm. It was I think six or seven lawyers uh down in Leington uh in Kingsville. They had two offices down there, which is a basically the southern tip of Ontario, right close to uh the US border. So that was my first time seeing I guess more larger scale estate plans how those were done uh from the Canadian

[5:57] perspective usually and uh and then a little bit of a a crossber element. Um a lot of our clients had uh US assets. Um I remember I think my first CER crossber case was actually from Trinidad uh at the time and uh and there was just a lot of practical issues beyond just the complicated legal issues that that tend to arise. Um from there I was a lawyer close to where I I grew up. Uh at the time my um fiance was was still in London, Ontario and it was a bit of a drive. So, I moved back closer to home

[6:33] and uh and then ultimately I moved down to California for my wife's career initially and when I moved down I wanted to be able to use my Canadian license and experience um from the last like four or five years and so I looked up a crossber uh international estate planning lawyer that was nearby. Um Kevin Moore, our managing partner, uh turned up. I cold call them and the next thing I know I'm I'm working in Pasadena doing US and then at times Canadian estate planning as well. Wow. I I mean

[7:10] and it's a it's a great story. Um and and it I I think it's what I find is a lot of the people who ended up in the estate planning estate administration realm, they actually have sort of a different background. It wasn't what they intended to do. they didn't, you know, grow up as a kid going, you know, I want to do wills and trusts. It's there's something else. But then they, that's very much the case with me. Um, in my real estate practice, what I found was among I thought the work that that I did that was among the most valuable was the work

[7:46] I was doing. I was, as we were talking before the show started, for uh Jewish Family Services conservatorship program where I felt like I was really helping to solve problems people had as opposed to just, you know, helping people make a lot of money because they own this property. Nothing wrong with that, but but there's there's sort of more meat on the bone when it comes to helping people really solve some difficult problems. It it's the best area of practice because you can be creative. Um I would say for compared to other practice areas, you're doing more, you know, meat and bones law

[8:22] work. Uh but you're but you have to you have to understand and deal with family law issues, corporate issues, um real estate law issues, and then all of that intertwined. You get very interesting personal dynamics and uh it it's it's a blast. I couldn't imagine myself doing anything different now. Yeah. Yeah. Yeah. Same. Same. I mean, I I marry my background in real estate. I I I was a law clerk when I first got out of college and I was a chaplain. So, you know, all of that works together really

[8:58] well for being what I do, a professional fiduciary because there there's a whole emotional component to our work as well as I've mentioned a few times on the show. So, so let's let's get to the the topic now, which is crossborder estate issues. So uh you you mentioned that you know a lot of your work at least in the beginning was crossborder Canada you know US what do what do you see as being uh the most common uh crossborder issues with which you have to deal and and and

[9:33] why why are those you know why do those do you think those come up you know so frequently? So there's a lot of Canadians in general down in California. Uh the snowbirds like it down here. So um so I think I I I see it in commonly in two different forms. Uh either a US person that that lives down here is US citizen and has uh either like a cottage or or some assets um in in Canada. Um, and then the second is a Canadian

[10:09] resident or Canadian citizen and then they have like a vacation home in in California or they just have assets generally in in the US. So those are the two I would say most common types of scenarios and they have very unique issues um and and different issues. Um so for instance the uh and then I would say maybe a third one would be their parents or grandparents are in Canada um and they're now living in the US and they're expecting to inherit a lot of assets from Canada and so they reach out

[10:44] because they want to see okay how how can this best be done right um and and and similar scenarios in other countries as well but uh but but for Canada that that's quite those are the kind of the three things I see. And uh it gets really interesting because then you you get presented with a unique puzzle that you have to try to make fit. And I always describe it as in Canada you've got um circular pieces. In the US you have square pieces and you have to just make the best puzzle you you can in that in that circumstance. Um, you know, it's

[11:21] it's interesting be I realized as you were talking just now I I have a longstanding friend originally from Canada, British Columbia to be specific. And um this is now going back I think about 3 four years ago probably. Yeah, about three years ago. Uh her father had passed away. He lived in Canada. She'd been a longtime resident here in Los Angeles. had a business career here and everything and I think she had become a US citizen and her father had left behind a house in British Columbia,

[11:57] right? He also had a house in in Arizona and you know the going back and forth and dealing with it all. It it it was really kind of frazzling her her her nerves, right? Along with of course she was she was the she was the only child. Um so that you know again having she her mother had passed away many many years before but now her father to whom she was very close had died and it was just the whole emotional burden of it was was was very very difficult. So right yeah so like in that circumstance

[12:35] um if if they're living down down here like Canada uh generally tax based on residency. So um and so in that situation the only asset in Canada that would get hit on uh after passing would be the assets situated in Canada and located in Canada like the real property and uh or or stocks and bonds or shares in Canadian corporations that hold real property. And so because of that um like in Canada there's no estate tax like

[13:10] there is in the US but instead all of the assets that are subject to uh in this case all the assets located in Canada are deemed to be disposed of at fair market value. So you get triggered uh a capital gain and so that's how most estates are taxed. um there's very few exceptions to this and so in this scenario there wouldn't really be an exception that would apply and so uh uh so you're in that case you're probably paying uh a tax in Canada after passing um but in

[13:46] the US you have a step up in capital gains um if the assets are below the exclusion amount and you're a US citizen or US doicile then right now you've got almost $14 million of exclusion so you're probably not paying anything on US side. So the Canadian side would be is a harder to deal with on that. Yeah. So I want to make sure I understand. So uh I I I don't know what the house in in BC was worth, but but let's just say for the sake of argument the house was worth, you know, $2 million. So um the the house whether it's actually sold or

[14:21] not is deemed sold. I I assume as of date date of death. Y right. So, if the house was acquired for a million dollars, there's a million dollar gain there. That's taxed as capital gains in Canada. Uh, here in the US, unless the gross value of the estate exceeded $14 million, there's there's no tax due. Um, now, what what if uh the gross value of the estate, let's say it was a huge estate, let's say it was a, you know, $30 million estate, right? Um, so

[14:57] despite having paid capital gains taxes in Canada, the the $16 million exceeding the exclusion amount would be taxed here in the United States. No, even though some of the assets are not US-based. That's right. So, um, US taxes worldwide. And so, there is a Canada US estate tax treaty. We're we're lucky because there's not that many countries that actually have these. And uh so you can take credits um for the Canadian capital gains tax that that was made. So

[15:33] you can use that on the uh US estate tax return. Um, I would say it the benefits of that treaty come up more often on the reverse scenario where uh you are a Canadian resident and you have US assets because um normally uh it's very severe where where if you're a non-resident alien, so you're not a a US citizen or US doicile, um you have an exclusion amount instead of 14 million of $60,000. So, you pretty much have no exclusion at

[16:08] that point, especially if you're looking at California where an average house is usually over a million dollars at least. Um, so if you had a $2 million house in Malibu and you're you're from Canada, absent that treaty, you would get hit with an estate tax of several hundred,000 dollars, probably around 700,000 or so if if it was 2 million. Mhm. Um but what the way the Canada US treaty operates is that you get um essentially uh the same form of

[16:43] exclusion worldwide and then you you uh uh you take the percentage or a fraction of the worldwide estates that are loc uh of the worldwide estate that's located or situated in the US and then that fraction is then multiplied against the then for an exclusion amount. So then you get a a smaller US exclusion. So if you had um uh let's say double uh your Canadian assets were double the value of your US assets, then you would have half the US

[17:21] exclusion. So you'd have a $7 million roughly exclusion in the US and then that would be app applied. So then it's not adversely really hitting the the Canadian. So, we're we're pretty lucky because if you're in Mexico, let's say, or or Brazil that doesn't that doesn't have an estate tax treaty, you're you're paying that that estate tax. And then so when that those issues arise, um like on the planning side, it's really important to do something before it's too late, right? And the

[17:57] focus is normally on changing the landscape of the client's assets so they're not considered as owning or holding um US situs property or property situated in the US. So, if there was a a vacation home for instance, and normally we have to work with a bit of a team on this because we don't want to cause any issues in their home country or or any income tax issues, but often the focus is on um putting the real property into an entity and then having a the foreign

[18:33] entity, it might be from their home country or a different country, hold the the the shares or the interest in that US entity. And that way when they pass away their uh their estate isn't the real property itself. It's the shares or interest in that foreign entity. And so you're not exposed to the US estate tax. The hardest puzzle to unwind or or or or to uh to fit together on this is the income tax issues that are associated with that. And so normally we're working with CPAs to define okay the estate tax

[19:08] issue is a big issue. How do we deal with that in a way that isn't income tax um prohibitive? Uh because if you're having, you know, a foreign entity and then you're holding an interest in in uh in a US entity, if you're doing it like that, you might be paying the income tax on the US side and then you're paying income tax again when you get So that's that's the that's the harder part. But if it's a vacation home that's not making too much income in the first place, then then it might not be uh as uh as significant of an issue. But um

[19:44] but yeah, so that's that in Canada, we don't necessarily have to do that for most clients. Um, you might still want to do it if you're above the exclusion amount because you want to uh avoid having to pay the US uh estate tax uh um upon their passing even though it might be excuse me relatively small. Mhm. So yeah, I mean I'm I'm I'm I think I'm think I'm following. So So um let's take something other than a vacation house. Let's let's take a business that's here in the U the

[20:19] US um and a a Canadian citizen has a has a share in that business. They could own it directly. In other words, it could be a let's say in a US corporation. they own shares or they could form let's say a a Canadian I don't know if Canada has LLC's but a Canadian LLC that then owns the the shares of stock in the in the US corporation and and that sort of domesticates what is otherwise the ownership of a foreign business. Yeah. So um e exactly so you could you could do

[20:55] something like that. Now, the LLC's is actually a great segue because that's one of the most common issues I see where where things aren't really thought out on both sides of the border from the Canada US side. So, it LLC's in Canada aren't really recognized in the same way as the US. So, the LLC is viewed and treated by Canada as a as a corporation. M and so that be causes a problem because in the most most of the time the LLC's in the US are treated as pour through entities. Um so uh so the the

[21:32] income is is paid by the members of the LLC. But when you are dealing with the candid US treaty and you're taking income tax credits on both sides, that's a problem because on the US side, the the credit or the deduction, whatever it might be, would be on the individual, but on the Canadian side, it's a different person or different legal person. Uh, and so you might not get that credit or deduction. So, um, usually LLC, holding LLC's as a Canadian resident is a really bad idea because you might get hit with,

[22:08] um, double taxation, right? The other thing that's an issue are trusts. Um, like revocable trusts. So, in the US, the standard, you know, cookie cutter estate plan is a revocable living trust, right? um a will that's a pourover will that if if uh you pass away and something's not in the trust it just goes to the trust and then it's a very smooth transition when someone passes in Canada that's a disastrous estate plan because in the US that revocable trust is considered what's known as a grantor

[22:45] trust which is is a trust that's a pour through or see-through entity where the trust creator is considered the the owner. So you don't file a separate tax return for your revocable trust. Right. Right. In Canada, that's not the case. It's treated as a separate taxpayer. And worse, all of the income is taxed at its mar highest marginal rate. So, let's say you've got the client who or or the person who's a California uh resident, um, US citizen, and they

[23:21] decide, I'm going to get a a cottage in the Mskokas, which is a very popular vacation spot outside of Toronto. Um, and uh, so they buy a cottage and they they put it into the revocable trust just like all of their US assets. Mhm. So the the issue is that when you transfer assets into a trust in Canada, the general rule is there's a deemed disposition. We love deemed dispositions in Canada. So you have capital gain there. Uhu. Um uh when every 21 years there's another deemed disposition. So you have a capital gain. So those

[23:57] generation skipping trusts that are great in the US um if they're holding Canadian assets, they're not so great. and all of the income if it's being rented out when it's not being used is taxed at the highest marginal rate at the federal level that's around a third. So that's and then you've got provincial taxes too. So it's it's really really bad in Canada to use those revocable trusts. And there's been some interesting cases um starting I think back in 2019, but then it's they started to come up more often in 2022 and on,

[24:32] but a porover will in a lot of provinces is uh typically not considered even a valid will. Um so I I've seen that come up on on the back end where someone has passed away. um the uh they have a pourover will and there's assets located in Canada and so then it's a challenge of okay how do you probate that how do you get the assets ultimately into uh the hands of the beneficiaries without having it be an intesty basically in a

[25:07] state where you have the general rules of the province apply on how it's divided amongst the heirs. Um so there's a lot of there's a lot of um just apart from the tax issues there's a there's a lot of issues with trusts LLC's um assuming something works in a different another country where when it doesn't and uh a really sad might come off as funny issue is where you'll have documents in different countries that that aren't really coherent

[25:43] And I I've even had one where the US will of course the first line in the will is I revoke all prior wills and it and it's governs wherever like all of my assets were ever situated. And so inadvertently they revoked the Canadian will and of course the beneficiaries in that particular case were different. So then we had a a fight on her hands. Oh gosh. So yeah. So you get a lot of interesting stuff that comes up and uh and it's just really

[26:19] important to to make sure that from the perspective of the client that their adviserss are talking to each other that they understand the general rules in each and uh and from an estate planning pers the estate planner's perspective to have if you're going to have a lot of clients with uh who have assets in that other country to have some familiarity with generally how that works so you can issue spot and then work with uh the the advisers in that other country so you can you can have a coherent plan. So it's a fun it's a it's a fascinating

[26:55] practice area. Yeah. Well, I'm going to I'm going to take a break here for just a minute um because the the the conversation is fascinating. I've got two questions I'm burning to ask. Um, but um, I want to let everyone know that Trust and Estates Weekly is sponsored by Probate and Trusts TV. So, this is a a new venture. Uh, it's a it's a YouTube channel that aggregates all of the best content on estate planning and trust and estate administration in one place. So among the contributors are of course

[27:31] yours truly but also Bill Gross, one of the top uh probate and estate real estate agents in the United States and Paul Ravlet's one of the um he has the largest uh uh YouTube channel on trust and estate issues. Uh Paul is based out of Louisiana. So, it's the one place you can go whether you're a professional like Andrew and me or whether you're looking for your own basis to get answers to questions you have about probate and trust man probate and trust matters and also meet people like Andrew

[28:10] who can help you solve them. So you just go to youtube.com/probate probatrusttv you can see all the content there. So thanks very much to PTTV for sponsoring this show. So now going back to our conversation this this is probate and trusts TV uh probate and trusts u uh weekly. My a my guest is Andrew Nutbrown. Andrew is an estate planning attorney in based in uh Pasadena, California. And he was talking about the complex issues of dealing with uh an

[28:48] estate that has property in um we've been using the example of Canada and the United States. So, so, uh, Andrew, one of the questions, and and and this may be kind of a little bit off to the side, but, uh, both US and Canadian law, well, US law is largely based on English common law, especially when it comes to, uh, probate and trust matters. And I would think being a member of the Commonwealth, the same is true of Canada. And yet, it appears they've evolved quite differently. I'm I'm just curious why why did that happen? There

[29:26] typically there's some sort of public policies undergirling these things and and and evidently very different between Canada and the US. Yeah. So the the common law in Canada and the US for trust and estates uh is for the most part very similar in the in the general application. But the the issues that like a lot of the tax issues and uh like the LLC's and trust issues are based on the country's legislation. So there's a law that's passed by the Canadian

[30:01] government that um that that provides how trusts are taxed and and so that's driven by their own unique um uh goals of the legislature. Right. Okay. And um and so partly because I think we don't have a a US estate tax, we have this other mode of taxation to to try to deal with the issue of okay, how how do we tax pe estates after someone passes away and in uh in the US they they've come to a different uh conclusion. And it's interesting, a good example in the Commonwealth that's like

[30:37] that is South Africa in that they actually South Africa is an interesting country because they've used a lot of the same approach that Canada has on the dean dispositions. Uh but they also have an estate and gift tax like like they they do in the US. So it's actually like a combination in a way of the two countries. Um but uh yeah so but there are some unique differences and and part of that is because we've had a different um uh history in the common law than the US has because as you know Canada's or US

[31:13] is becomes its own country uh much longer before Canada has so all of the English precedent is binding on Canada up until uh when um uh the privy council in in the UK uh basically severed off. So we're we're up to around like the 1930s where we've got rulings in in uh in in the English high court and and highest court that are binding on Canada. So in many ways India for instance is clo has a some rules that are closer to Canada than Canada and the

[31:48] US because we have the courts going on separate paths. Like one example is um there's a a huge uh um case that that that's binding in most of the common law including Canada and it was an English case called Saunders and Bier and what that rule provides is that whenever there's a circumstance where all of the beneficiaries um have all of the interests in a trust they can force the trustee irrespective of what the trust terms are to

[32:23] distribute all of the trust assets immediately in the US. Uh they they they don't have that rule. And so I one of my first uh I was aware when I was studying for the bar exam that it didn't look like they had they had that that same Saunders and Votier rule in it. Um, but I was working on a trust litigation case and I I thought where you would have been able to use a Saunders votier rule if it was in Canada or in England or or elsewhere. And so I looked it up and it was cited in a California case I think in like the very early 1900s and according to that

[33:00] judge the Saunders and Boutier case did did violence against the law. So it's very very different approach uh to to that to that issue and that's standard form like every single lawyer in estate planning lawyer in Canada should know that that rule and how and how it operates because you don't want to unintentionally um cause that uh that rule to be triggered when your when your client doesn't want that to be the case after they pass away. Right. So yeah, so um uh even though the estate plans look radically different because we're dealing with different tax laws that

[33:37] were passed by the government usually. Mh. Um and uh and although the common law is very similar, um the the general rules of how a trust operates, how a will operates in both countries is pretty similar. Um, so like in the US, your general estate plan is a revocable trust, a pourover will um for for a moderate uh size estate. In in Canada, for that same asset value, you you would actually use something that's a bit unique to Canada where you would have duals. So each

[34:14] person instead of having a revocable trust, which is is is uh um not the greatest for income tax purposes, you would have two wills and that's to avoid a provincial tax that that's applied when assets go through probate. In most uh provinces, you don't need a certificate of probate to deal with all of the assets. Um uh so if you had uh certain types of real property or shares in a private company and that was the only asset you had then you could uh

[34:49] have the will don't have to go through probate and then you you administer it similar to you would a like a trust in the US. Um so what we do is uh we make two wills. one will that's governing only the assets where you need that certificate of probate to administer and then the second will that deals with all of the other assets that you don't need the certificate for. And then through that you then severed off all of the assets that don't need that certificate and then you don't have to pay the estate administration tax is what it's

[35:24] called or probate probate fees. Um and uh so the biggest one is shares in privately held companies. So in in Canada, a lot of estate plans involve these primary and secondary wills uh and assets held in um corporations which aren't which are more income tax efficient than than what we're used to in the US. and and then when someone passes away, the secondary will, the the tax-free will then governs how the assets are divided. So, you're only limited to what really you need the

[35:59] certificate for, which are typically relatively large bank accounts, um certain types of real property, um if they're not held in the in the corporation already. So, wow. I mean, that that that is that's very different than how it works here in the US. Yeah. So when when we think about um strategies for dealing with estate taxes, eyelets and those sort of things. So that too I I imagine is is is very

[36:34] different for for the Canada side of of this equation. And and so when you're dealing with both, you know, what do you do in terms of, you know, tax mitigation strategies? Either making sure, you know, an estate has sufficient liquidity to pay, you know, the capital gains taxes in Canada or has liquidity to pay estate taxes here in the US. How how does that work? And it seems to me like if like if you set up an eyelet here I guess you know can you

[37:09] even you know take that liquidity to Canada to pay you know capital gains etc. There's a whole range of issues there. Yeah. So um so I think there's a lot of tools especially on the US side that make that can make things much easier. And so uh for for instance on on the US side you can have trusts that provide incredible amounts of flexibility after someone passes away. Um so if you have let's say a US person and they've got Canadian beneficiaries

[37:44] or some of their children are in Canada um you can set up a trust. often we we incorporate trust protector provisions or something of that nature in there. So that if the circumstances on the ground are are are different at the time of passing then there might be some ways in which you can um make modifications to the trust change the situs of the trust. where the trust is resident. Um and and and and so then you can kind of adapt to to how things might change because although clients should look and review

[38:19] their estate plans every year or every couple years or so, that doesn't always happen. Yeah. So, um, but for instance, like, uh, uh, I I I've got some clients where their children are thinking, well, I might move to, uh, I might do school in Korea, for instance. I'll just use an example. Okay. And uh and in Korea, uh from what I understand, because I'm not licensed in Korea, but from what I understand, they the the taxing authorities there will treat um the uh

[38:58] that beneficiary as owning generally all of the assets of the trust. And so if they're resident in Korea, you might have an issue where uh that beneficiary, if you have like a standard type of provision where where their interest is for health, education, maintenance, and support, which is great for on the US side for estate tax planning. The risk is that they might be facing increased taxes in Korea. And so from what I understand, you can in that in that circumstance uh if the if the trust is converted before they move or

[39:34] um into an absolute discretionary trust, there might be some arguments that can be made where they're not going to have all of the income of that trust treated as as being earned by the the resident of that foreign state. So, um, so those types of provisions, a trust protector provision can can sometimes include, uh, provisions that allow that to be modified when the time comes. Similar on the Canadian side, we've in Canada, we have trust inclusion rules or or trust attribution rules. And

[40:09] so part of that is based on where the assets originated from. Um, so if you have a a US person that that formed a trust, um, and then there's a Canadian beneficiary that has an interest in the trust, depending on the terms of that trust, Canada might treat it on behalf of the Canadian as as if they're the ones earning all of the income. Um, but if the terms are restricted enough and the trust is actually not being administered in Canada, like factually it's being administered in let's say Nevada, then then uh then then you can

[40:47] help avoid a lot of the issues in those uh uh for those Canadian um uh beneficiaries, those 21-year deemed disposition rules, all of those really bad trust uh tax consequences. is in Canada. Um you you can try to avoid it by just administering it well and building in flexibility on the US uh estate planning side to to try to deal with what is often a changing circumstance yearbyear. So you know we've been talking or maybe really I have because I'm I'm the novice

[41:22] here. I've been talking like the US is sort of homogeneous and Canada is homogeneous and yet we have 50 states plus a couple of territories in the US and and trust law and estate law is actually more a statebystate function. There's no with the exception of the estate tax uh provision uh which is which is you know US it's really state byst state. I I could imagine it's province by province in Canada as well. What kind of complexities are there to these crossber

[41:57] issues when you may also be dealing with multi-province multi-state issues, you know, within these two respective countries. Yeah. Um so that's it that's similar. So the the capital gains, all all of those that that tax issue, that's that's um Canadian federal law. So So that applies no matter which province you're in. But the probate fees or the estate administration tax, that's a provincial law. Now, a lot of the provinces have that, but Alberta, um they they have

[42:32] very little um attacks to the point where it might not be worth making that secondary will like I was describing. And then Quebec of course has a civil law background because of their uh um their French uh heritage there. So that's very very different than the other provinces. So yeah. So so there there are times where we're working with a lawyer from that specific province to to try to deal with the the estate planning documents there even though I'm I'm I'm familiar with with the the Canadian federal uh income tax issues. And same with uh the US. So, one of the

[43:08] I I would say most common things that's California specific are how properties are are uh how property tax works in California and when asset when properties are reassessed, right? So, that's not common in a state like Texas for instance. So if you have California properties, you might not realize that although your property t tax base now is very low. Um upon passing uh uh there might be a change of control in all the LLC's you have and then everything's reassessed at fair market value. It makes the properties much less profitable. And so uh that's a great

[43:44] example of of how you might have if you were a Texas estate planning lawyer and or or you're a Texas client and you're and you're you're dealing with a set of facts. It might be treated as if everything is homogeneous, but you'll have state-by-state issues that might require uh action to be taken to really avoid some pretty uh brutal consequences in that state. property tax in California, I think, is the perfect example of that because like one of my favorite clients right now, he's 98 years old, has uh most of his assets are

[44:22] real properties in Texas and and in California. And so you you can you can re do some restructuring um on the California side to really avoid a lot of those property tax reassessments, which is huge because the their property tax base might be because they've held the properties for so long, like $300,000 when the property is three million. That's a that that's changing the property tax amount from a couple thousand a year to several tens of thousands a year. So, you you know, back when I had my real estate company, I had

[44:58] you reminded me of this. I had a situation where um I I was sharing an office with one of my clients. It was a father and son. father passed away and so the son was administrating his estate and because of Prop 13 the way uh um properties are assessed for taxation I is is very very different here in California and this happened to be at a time when because of the automatic increase the 2% automatic increase in assessed value it had pushed the value

[45:33] the um uh the assessed value of a property much higher than its market value, right? And so, uh, in in administrating the estate, um, the, you know, the sun had the properties appraised and on one of the properties in particular, the IRS challenged the appraised value, saying, well, the assessed value is like 50% higher, right? And and I I, you know, my my office mate shows this to me, and I'm like, well, well, this is ridiculous. I said, "Let I'll write a letter explaining to, you know, the auditor how

[46:08] the system works." Um, and I I hadn't done the appraisal. Um, if somebody else had done it, but I wrote that letter and I I showed them that there's no relation between the two except maybe at the time of the sale of a property. And to to my surprise and and my office mates, you know, pleasure, the IRS backed off immediately when they saw, you know, what the what the real situation was. That's that's such a coincidence you bring that up. I I recently had a IRS audit. Now, um it was more focused

[46:43] on gift tax in the US. So, when you're dealing with clients that are going to be facing or likely to be facing an estate tax, um often a great strategy is to set up uh one often several irrevocable trusts during their lifetime that are taxable gifts. And this is one this is one of the the the the great tools in the US side that's that that I don't see a real equivalent on the Canadian side but um you can create a trust that for income tax purposes is a grantor trust like what we discussed

[47:19] earlier. Uh so it's treated as the um as the owner of all of the assets but for gift tax purposes and estate tax purposes is not the same uh the same owner. It's a completed gift. So the the benefit of that is you can gift assets that are appreciating in value and uh you you you report the gift it so it it decreases your lifetime exclusion and uh but then all of the appreciations outside of the estate all of the income from those gifted assets in those trust

[47:55] can be paid from the portion of your estate that would be subject to income tax. And then so you have a a scenario where had you not done anything the estate tax would have been much much longer like 15 20 years down the line. So for this client we were doing a trust like that. We we um we used uh the her her principal residence uh for that trust. There's a different trustee. So and uh and then we had a lease agreement. So she's paying she's paying rent to the trust that's for the benefit of her kids. Um and that rent's coming from her taxable side. it's increasing

[48:30] the non-t taxable side, all the appreciation's going out and um and then so the uh just by chance the IRS audited it and so um one of the issues was the valuation of the property at the time and uh and so there was actually a disconnect between what the assessed value was because the property was originally push purchased in I think late 2008 Mhm. And then of course so around that time the property values actually shot

[49:05] lower. Mhm. And in in this case uh the tax assess they they had some relief for I think this area. So the the property taxes jumped far lower. So then we we could show the disconnect between the original purchase price of the property and what the appraised values were at the time these these gifts were made. So and that and they had this exact same response. So they they just uh informed us a month ago that they're closing the the audit, accepting the gift tax return as filed and you know we're moving on. So yeah. Uh yeah. Interesting. So, we

[49:40] we've been focused on the financial side of estate planning and and before before we wrap up the show, I I wanted to ask a question about I I guess what we could call it the non-financial side, things like healthc care directives, those kind of things. Uh again, I don't know, do the laws work the same way in the US and Canada? And I can imagine a situation where you've got, you know, someone who's, you know, traveling between the two countries. Who knows where the person is going to be when, you know, God forbid, you know, he passes

[50:17] away. So, how is that whole side of an estate plan? How do you deal with that? Yeah. Uh, there's a lot of like non-financial issues like that. Um normally I I I would say the the general approach even on the financial side but as as well as the non-financial side is usually what what whatever the country of residence is as a general rule is going to be homebased. Uh so if we have an English client and they they reside primarily in in England or doiciled in England then the English estate planning lawyer is going to be the captain of the

[50:52] ship. And then our our role is to make sure that our plans work well with that. Uh and then absent an exceptional circumstance that's really really bad in in our country that I'm planning for. Um our our focus is trying to make things very practical, very smooth after someone passes away and then obviously minimizing the tax as much as possible without jeopardizing or causing any significant issues on the other side, right? um if there's an for like healthc care directives and things like that like each country is going to have their different legislation. So if there's an

[51:27] expectation that they will be moving countries quite a bit uh then it's just a good idea to have those those documents which normally don't take much time to to draft to just have those ready in case the issue arises. Um so that that that would be my circumstance. It might not make sense if if it's just uh um if you're in that country for like one week a year, right? But my my view is you'd rather be safe than sorry on that on that issue. Uh spouses um spousal rights is a big issue. Your your

[52:02] rights in different countries vary dramatically. Um, so in in in California, there's a community property state that's that's uh um fairly unique compared to other jurisdictions. And and in in Canada, uh spouses will have um uh uh like in Ontario, Canada, they'll they'll have like a a set payment from the estate that that they're entitled to. And and in in Ontario, a spouse when when their the surviving spouse has an

[52:37] option where they can elect to receive what they would receive on a divorce or they can elect to receive what they uh what they inherit from from from the wills from the estate. And so when you're planning for that, uh that there's different options and remedies available in Ontario versus another state. We we had a a litigation case that was interesting. They it was a new spouse. Their husband tragically passed away um unexpectedly and she's completely emitted from the California trust documents. Oh wow. There's a

[53:13] question about whether she resided in Arizona. And so this estate I think is around like 36 37 million. And in California the omitted there's an omitted spouse doctrine. And in and in California, she receives half of everything. In Arizona, because the the child was the uh the main beneficiary, if if the same circumstance happened in Arizona, I think there's only like a like 160,000 that you would receive. So that's a dramatic dramatic difference and and highlights the importance of updating the um uh the documents when your

[53:51] personal circumstances change and how non-financial issues can can play a massive role in in how things are um administered and what the outcome is. Yeah. Yeah. Wow. Wow. Yeah. dramatic. That's that's like probably the most dramatic difference I could. Yeah. I mean, it just it's it's it's mind-blowing. You know, and we were we were talking earlier about the US and and Canada sharing, you know, kind of English common law as their basis. But,

[54:26] of course, here in in California, our state law is really based on Spanish law, which is which was very very different than than English law historically, right? So, you've got that going on as well. I've got a funny story about that. So, when I first came down, I was working remotely for my Canadian firm while I was studying for the bar. So, I was, you know, going through the um the bar books I purchased and then I come up on the community property section. I'm like, "Oh, that's interesting. They've got a whole section on what I thought was like law about parks and and and public land." Like,

[55:01] oh, community property. I thought I also thought maybe it was about condos and and then after like two three sentences in I'm like oh this is family law and so that's uh yeah it's it's it's California that was one of the aspects when I came down I focused on okay I have to understand family law I obviously have to understand the US constitution because there's different constitutions between the two countries but uh yeah no there it's different yes thank you Treaty of Guadalupia ago, right? Which is which is why we're a a Spanish law

[55:37] based state. Well, well, Andrew, we we could go on easily for another hour. There is so much here. So, um you know, with with your permission, I'm going to have to have you on the show again uh very soon and and climb through some more of these. But but this has been just really fascinating and uh you know I hope for the people who who've been watching and for those of you who who watch you know on on YouTube you get a sense as to just how complex these these matters can be and how important it is

[56:12] to deal with them you know in advance while people are competent. Um and and as as Andrew was just saying a moment ago to you know really keep up to date with changes in in your life situation, changes in uh uh you know in the various laws as well. You know here in the US of course we're we're all sort of hanging on to see what happens as to whether the 2017 jobs act will extend the the the current tax regime or not. We're we're what we're already more than a third of the way through the year, you know, and and and planning needs to be done, but

[56:48] there's not, you know, there's there's there's no certainty. I know I I I talk to my clients about this um pretty routinely, and honestly, I I I don't know what to tell people right now until there's, you know, some sense of what's going to happen. So, um so Andrew, thank you so much for for being on the show today. Really uh fantastic job. Um, I'm going to have you sit tight for just a minute and and take us offline and and and then we can wrap up. So, so folks, if you have any, first of all, if you want to be in touch with Andrew, I will put his contact information in the show

[57:25] notes so you can get in touch with him. And like like all my guests, uh, you know, I take it upon myself to make a shameless plug because they're too modest to do this. uh but but you can see just the tremendous amount of knowledge and experience that Andrew has. So if you are dealing with these kind of crossborder issues uh you absolutely can rely on Andrew to make sure that they are taken care of uh not just competently but but absolutely as appropriately to your individual situation as as as is possible in this

[58:02] uncertain world in which we live. So, I I I I recommend Andrew to you un unreservedly. Uh, tomorrow at 10:00 a.m. Pacific time is my show, Business Lessons from the Military, and I'm going to be talking about From Washed Up to Startup. For those of you who see behind me this particular picture right here, you may recognize Tim Allen in his role uh as Commander Tagert in Galaxy Quest. So, we're I'm I'm venturing a little bit out of the actual military world into

[58:38] the sort of fantasy military world, but thought we'd do something fun tomorrow. So, we're going to talk about the lessons you can learn in business from the movie Galaxy Quest. And then on Wednesday at 10:00 a.m. Pacific time is my show business um I'm sorry, my show People Making Money. and I'm going to be talking about the five best startup cities if you're thinking about launching a business. So these the the climate for startups varies tremendously from state to state as do the laws that

[59:13] Andrew and I have been talking about. So tune in for that and and you'll get some thoughts on where is where is it best in the US to uh to launch a business. And then a week from today, uh, we'll be back for the next edition of Trust and Estates Weekly. My guest is Schulpa Bot and she, uh, Schulpa is an estate planning and, uh, estate and trust attorney based in Orange County, California. And she's going to be talking about the importance of actually funding your trust. So, you know, your lawyer goes through all the work of creating all this stuff, but if the

[59:49] assets don't get into it, it was all for not. So uh so please join me for what I'm sure will be another great conversation with Schulpa. So uh Andrew once again thank you so much for being a guest today. Really appreciate it for all of the people who joined us live viewing. Thanks for being with us. Uh always a great treat to see you. Uh great treat to see you and signing off as I always do. Marie darling, you are my bell.