US citizens newly living in Canada - A Case Study
Updated: Jan 23
A cross border financial planner can be a great way to ensure that your finances are managed optimally and that you are on track to reach your financial goals. To illustrate the benefits of working with a cross border financial planner, let's look at the example of a couple we worked with who moved from the United States to Canada.
THE PEOPLE Shelly and Caleb are in their mid-50's, and are US citizens. They have never lived in Canada before, so all of their accrued wealth is US based.
MAIN CONCERNS The couple has no idea how to integrate their existing US financial life into the Canadian landscape. Investment and tax laws are so different in both countries, and they don't want to make any mistakes. They are also looking for someone to walk beside them along their journey as they navigate their new country. Specific planning-related concerns were:
What can they / should they do with respect to their US based retirement accounts?
If they move back to the US, will there be an exit tax?
How can they retain their existing US advisor?
Does a spousal loan make sense?
Should they purchase a home in Canada or wait?
What does retirement look like if they intend to spend half of it in Canada and half in the US?
Should they keep their US based disability insurance policy? Is it viable?
What should they or shouldn't they do to build wealth as Canadian residents?
Can they access long term care insurance or health insurance in Canada for retirement? How does this differ from the US and what is offered by OHIP?
EMPLOYMENT & INCOME Caleb works for a Canadian subsidiary of a US based employer. Shelly works for a private tech firm. Both are salary based.
Caleb also receives an annual bonus and ongoing RSUs from his employer.
FINANCIALS The couple have been working with an existing financial advisor in the US, and have assets in a US revocable trust, IRAs, and US property. There are RSUs that are vesting and accruing that also need to be accounted for. They wish to retain their relationship with their US advisor, so aren't looking to build a relationship with a Canadian financial advisor who is paid by charging asset-based fees or commissions. PLANNING WORK Since there is complexity to Shelly and Caleb's situation, we approached their finances by taking a step-by-step approach. Creating a full 'financial plan' simply doesn't work, in this case, as there is much care and consideration required for each element within their perosnal finances. This has included (but is not limited to):
Immediate discussion on home purchase vs. rent - (home was inevitably purchased prior to new foreign home buyers freeze was implemented;)
Understanding the 'cons' to remaining with their existing advisory team in the US, and where issues may arise;
Ongoing direct coordination and communication with their US-based advisory team;
Discussion and coordination re: the US revocable trust and moving to personally-owned brokerage accounts;
Proper tracking of their cost bases on their US based investment holdings including vested RSUs, for Canadian tax purposes, as their accounts will remain in the US;
Development of a Canadian retirement plan using US based assets, and potential pitfalls that may arise due to tax differences between the IRS and CRA;
Assisting with finding the right home for, and setting up a personal RRSP for Shelly;
Guidance on mortgage paydown/penalty analysis on Canadian home after a US property sale;
Cost/benefit analysis on the US disability policy to determine if it should be kept, and for how long (it is able to pay out to a Canadian resident worker);
Currency management and foreign exchange guidance;
Navigating the health care funding options for retirement, including working with an insurance agent to price out potential private health care options;
Understanding ongoing tax planning differences between gains and losses in Canada vs. the US, and the impact for them annually and over time. This is especially pertinent to some of their RSUs, and existing portfolio holdings.
Coordination of the creation of a proper cross border estate planning documentation alongside legal professionals.
THE TEAM Modern Cents assisted the clients in aligning with distinct practitioners that they would require as part of their new Canadian financial reality. This included a realtor, a mortgage agent, a cross border lawyer and accountant, and an insurance agent.
We continue to work with Shelly and Caleb to navigate their journey under our subscription based model.
IN CONCLUSION Having financial planning that takes into account both countries and their respective financial regulations can help Shelly and Caleb manage their finances more effectively and have a better understanding of their overall financial situation. With the right cross border partners, they can achieve their financial goals and have peace of mind knowing they are on the right track.