Radio Show – September 27, 2011

Montreal, Quebec – September 27, 2011

On the September 27th episode of Dollars and Sense on CJAD 800 AM, host, Matt Altro and legal expert David A. Altro discuss David’s new book, Owning U.S. Property – The Canadian Way, the new U.S. estate tax laws, moving to the U.S. and take questions from listeners live on the air!

Part 1

Part 2

Part 3

Part 4

Part 5

Part 6

David A. Altro featured in the Winnipeg Free Press

David was interviewed for the Personal Finance section of the Winnipeg Free Press by Joel Schlesinger.

Please click here to view the article online and scroll down to read the complete article below.

Arizona bound: Canadians snapping up homes, but they need to be careful

Winnipeg Free Press
September 24, 2011

Jim Ballance had always dreamed about owning a place down south when he retired, but the price tags had always been too high.

“We had been going down there for about 20 years, and all those properties kept going up and up,” says the 61-year-old retiree.

Prices increased by about 20 per cent a year until about 2006, when Ballance says he noticed they began to level off.

With the Canadian dollar at par with the U.S. greenback, he decided to strike while the conditions were right, buying a 2,400-square-foot condo in Palm Desert, Calif.

Since then, of course, the U.S. real estate market has only become more buyer-friendly, with prices in Arizona, California, Nevada and Florida dropping as much as 60 per cent from their highs more than five years ago.

“People will say to me ‘I bet you wish you bought now,’ ” Ballance says. “But I always say ‘If I bought now, that would be five years I didn’t enjoy being down there.’ ”

These days, Ballance is likely to find he has plenty of Canadian company in the desert. He is among a growing number of Canadians who now own property in the United States.

In fact, Canadians are now the leading buyers of U.S. real estate, says David Altro, a lawyer with Altro & Associates.

“Prices are way down and the Canadian dollar is up, which creates the perfect storm,” says Altro, author of Owning U.S. Property — the Canadian Way.

And Winnipeggers haven’t been sitting on the sidelines during this real estate buying bonanza. Former Winnipeg police officer-turned Arizona real estate guru Diane Olson says many of her clients are Winnipeggers who want to buy a second home in the Phoenix area for less than they could buy a home here in the city.

In many instances new, multi-bedroom homes — some even with pools — in good neighbourhoods are selling for under $200,000.

“It seems the average buyer is around 50 years old,” says the Realtor, whose firm goes by the title Diane Olson Team.

“Some are renting them out and not using them personally, yet, and others are using them some of the time and letting friends and family use them other times.”

Olson says prices in the Phoenix area are as low as they’ve been in the last decade, but the market is showing signs it may start going up again.

“I don’t have a crystal ball, but for the last three months the really lower-valued… properties have been going up slightly,” she says about homes with a $100,000 price tag.

“Lately, I’ve seen multiple offers on lower-priced homes, and I’ve seen them for going over the asking price, which may be telling or not.”

While market conditions may be ripe for the buying, would-be buyers need to get legal, financial and tax advice from professionals with cross-border experience before making the purchase, Altro says.

“I say take your time, do the due diligence and don’t panic because it (the market) certainly isn’t going up significantly in the short term.”

Altro says one of the main concerns for Canadian buyers is the potential tax implications associated with owning U.S. property.

The U.S. estate tax — often referred to as the ‘death tax’ — is normally the largest tax liability.

This tax applies to the U.S. assets of deceased individuals with worldwide assets exceeding $5 million.

Individuals with total assets less than $5 million are exempt from the tax that can run as high as 35 per cent of U.S. assets, including real estate.

Given many Canadians do not have $5 million in assets, the estate tax might not seem like much of a concern, but Altro says the taxation rules are set to change in two years, affecting many Canadians with U.S. assets.

Starting in 2013, the estate tax exemption will be lowered to less than $1 million in worldwide assets, and the highest tax rate will be bumped up to 55 per cent.

Altro says Canadians with U.S. real estate do have a few options to structure ownership of U.S. property in a tax-efficient manner to reduce or eliminate the estate tax and other related costs like probate fees.

The most common strategy is to hold the property in a cross-border trust.

He says this specialized trust should be set up before purchasing property so it’s the trust that legally buys the asset and owns it, but it’s the client who controls the trust.

This offers many advantages, but most importantly, assets held within the trust are not subject to the estate tax when the client dies.

“Inside the trust it can state that when you die, control goes to your spouse or kids.”

Altro says U.S. property held within the trust is also subject to more favourable capital gains taxation when the property is sold. Instead of paying as much as 35 per cent on the property’s increase in value, the capital gains tax on assets in a cross-border trust is 15 per cent.

Tax considerations, however, are just one of many for Canadians to mull over before buying U.S. real estate. They also have to look at financing.

RBC branch manager in Winnipeg Marcel Tetrault says many Canadians use a home equity line of credit, borrowing against their home here — currently at all-time highs in value — to purchase the property in the United States with cash.

“Or they’re being referred to a cross-border mortgage specialist,” he says. RBC and a few other Canadian financial institutions also have U.S. branches that can provide more traditional mortgage financing for purchases in Phoenix or other Sunbelt states.

Altro says he often recommends clients use a Canadian financial institution or one of its U.S. subsidiaries, because U.S.-based financial institutions have dramatically tightened up their lending practices since the 2008 meltdown.

Olson says buyers should also familiarize themselves with the different types of home sales in the United States. She says about a third of sales in the Phoenix area are short sales. Basically, the homeowner is selling the home for less than what is owed on a mortgage to a lender.

“If they meet all the criteria, the bank will let them, but it doesn’t pre-approve it in advance,” she says.

“A short sale should really be called a long sale because it can take up to six months, and it still may never close.”

She says foreclosures are often more straightforward and usually take less time to close — about two weeks for cash buyers. But they, too, can be problematic, Altro says.

“What you have to worry about with foreclosures is the condition of the property, because someone has lost their house,” he says. “They may have ripped out the appliances.”

Still, many homes on the market are neither foreclosures nor short sales. The homes are on the market because the owners need to sell for whatever reason, and they’re stuck listing at a price the market will bear.

“That’s why you don’t have to get a short sale or foreclosure,” he says. “You can buy from a regular seller and get that similar low price.”

David A. Altro Published in STEP Journal – September 2011

Click here to read the article on the STEP website or scroll down to read.

Southern Comfort – David A. Altro considers the advantages and disadvantages for Canadians holding Florida rental properties in a limited liability partnership

When a Canadian citizen residing in Canada buys rental property in Florida in an LLP, the structure will provide creditor protection to the individual. For example, if ‘Bob’ and ‘Mary’, his wife, (Canadian citizens residing in Canada) purchase a condo in Florida in an LLP, the LLP is the owner of the rental property and Bob and Mary are the partners in the LLP. Should the tenant of the rental property slip and fall then sue for damages, the LLP is sued as the owner of the property but Bob and Mary are creditor protected personally.

The LLP presents several problems. First, it ends when the first spouse dies, as there must be two parties in a partnership. Now what? Another LLP cannot be created, as you need two partners, and only one is still living.

On the death of the first partner spouse, the estate will be subject to probate in the county in Florida where the real estate is situated. The probate process is time-consuming, freezes the estate and may cost up to 3 per cent of the fair market value of the property (as of the date of the death of the first spouse).

Probate will be required because, under Florida law, LLPs are intangible assets, which must pass through probate on death unless the interest is held in a revocable trust, such as a cross-border trust (CBT). To avoid probate, each spouse needs to have a CBT that ‘owns’ the partnership interest.

Also, the LLP does not protect against US estate-tax exposure, as the limited partnership holds real estate, which is considered a US asset for Canadians and is therefore subject to US estate tax. The current exemption under the Internal Revenue Code (IRC) of USD5 million on the worldwide estate of the deceased, even with the marital credit available on the first spouse to die to double up the exemption amount, may not protect them from US estate-tax exposure on death.

On January 1, 2013, the IRC exemption drops to 1 million USD on worldwide assets.

Cross-border trusts
I suggest that the bigger issues of probate and US estate-tax exposure be addressed first, rather than creditor protection, as clients typically have liability insurance.

For husband-and-wife clients with moderate estates, I recommend the CBT, or, better yet, a CBT each. Legal fees should be the same to create one or two mirror-CBTs. The structure of two CBTs:

  • avoids the contribution rule issue of s2040(a) IRC.
  • provides for discounting the value on death of up to 33 per cent for the purpose of calculating the estate-tax valuation on first and second spouse to die.
  • ensures that, on the death of the surviving spouse, only their half of the property is included in the estate-tax valuation, and
  • means that any tax payable on the death of the first spouse is deferred until the death of, or sale of the property by, the surviving spouse (whichever occurs first).
  • When clients are purchasing, or own, more expensive US properties and have larger estates, I create a cross-border irrevocable trust (CBIT). The CBIT:

  • pays no US estate-tax on death of the first and second spouse, irrespective of property value, the clients’ worldwide estate or the exemption amount
  • provides creditor protection, and
  • avoids probate procedures at court.
  • Notable exceptions
    The only time I might suggest an LLP is for law firms or accounting firms (unless I’ve added CBTs to own the limited partnership interests). I do use limited liability limited partnerships (LLLPs) for business purposes or for high-net-worth clients who desire several layers of protection against estate-tax exposure or divulgation of assets on death, or creditor protection. Again, there needs to be a second tier of ownership, so the limited partnership interest should be owned by either another limited partnership or a CBIT.

    The limited partnership interest could be owned by a Canadian corporation, but then the capital gains tax rate would be over 40 per cent on the accrued gain on sale, whereas in a CBIT it would be 15 per cent of the gain, provided the trust was the owner for at least 12 months.
    Where the Canadian investor plans to acquire US multi-tenant rental property where there is or might in the future be a strong net cash flow, several ownership structures are possible to obtain the lowest possible income tax payable to the Internal Revenue Service and the Canada Revenue Agency. However, the capital gains tax rate might be the higher amount, as described above.

    No perfect solution
    There is no perfect solution to the challenge of structuring ownership for US properties for Canadians. What is most important is showing the client the issues, options and best-case proposals.

    © 2011 Society of Trust & Estate Practitioners

    David A. Altro interviewed by

    David was interviewed by Joseph Planta for, the online home of Planta’s interviews with “renowned bestselling and prize winning authors, Canadian newsmakers and political figures, internationally known print and broadcast journalists, prominent academics and public intellectuals, as well as noted artists and personalities.”

    He describes the state of the U.S. real estate market and why there are so many opportunities for Canadians today. He explains the Cross Border Trust in detail and lists its advantages. David also talks about the upcoming changes in the U.S. tax laws and what they could mean for Canadians who own or are looking to purchase property in the U.S.

    Listen here:

    David A. Altro interviewed on CBC radio

    David was a guest on CBC Winnipeg’s Up to Speed with Larry Updike in September.

    Listen below as David discuss the “perfect storm” of advanatges for Candians looking to buy property in the U.S. as well as potential pitfalls such as U.S. estate tax, ownership structures, succession planning and more!

    Click here to listen

    Radio Show – August 25, 2011

    Montreal, Quebec – August 25, 2011

    On the August 25th episode of Dollars and Sense on CJAD 800 AM, host, Matt Altro and legal expert David A. Altro discuss why now is the time to buy property in the U.S., the difference between U.S. and Canadian tax laws, and much more!

    In part 2, David tells listeners some disadvantages of holding a property in a corporation and explains the U.S. amnesty program. Nick calls in about owning a property in Florida and what problems he may encounter in the future. David explains to Eleanor, a U.S. citizen living in Canada, the forms she must file to avoid potential tax problems.

    In part 3, Matt and David talk about changes to the U.S. estate tax laws and explain two questions everyone must ask themselves concerning U.S. estate tax exposure. You can calculate your own U.S. estate tax exposure here.

    In part 4, David talks about the launch of his new book, Owning U.S. Property – The Canadian Way, 2nd Edition, and Marco calls in to ask about holding properties in a corporation vs. in a Cross Border Trust. Finally, Matt explains the major issues concerning moving to the U.S. that Canadians need to be aware of, as well as some options to explore for getting a green card.

    Part 1

    Part 2

    Part 3

    Part 4

    David A. Altro Interviewed in The Montreal Gazette – Monday, August 29, 2011

    New U.S. property tax rules hit home

    David A. Altro is a frequent contributor to Paul Delean’s business column in the Montreal Gazette.

    Click here to view the article online or scroll down to read David’s interview about his new book, Owing U.S. Property – The Canadian Way, 2nd Edition.

    The Gazette
    Monday, August 29, 2011

    A strong loonie and depressed U.S. real estate prices have led to a buying binge south of the border by Canadians. We’re now the largest non-American buyers of U.S. real estate. Many purchasers, however, have only a vague idea of what they’ve committed to from a tax and legal standpoint.

    “There’s a presumption among people that the laws must be the same in the U.S. and Canada. A lot find out otherwise only after they buy,” said David Altro, a Montreal lawyer who also practices in the United States.

    Altro, who specializes in cross-border tax, property and estate-planning issues, is the author of a 2009 guidebook titled Owning U.S. Property the Canadian Way.

    An updated version of the book is on the way because of significant changes looming in U.S. estate tax, starting in 2013.

    Altro said those changes will be “expensive and onerous” to many Canadians if they don’t do their homework and/or get advice.

    Starting Jan. 1, 2013, the exemption level on estate tax for owners of U.S. property drops to $1 million in worldwide assets from $5 million, and the maximum tax rate on U.S. property rises to 55 per cent from 35 per cent.

    Although the threshold may still seem high, Canadians must include in the calculation the value of their RRSPs and life insurance payable at death, which pushes a lot more people into the tax zone.

    Estate tax isn’t the only significant difference between the two countries.

    Florida counties have probate rules that could cause a lengthy delay and expensive disbursement to settle the estate of a Canadian who dies owning property there.

    If a property owner becomes mentally incapacitated, no transaction is possible until Florida’s guardianship requirements have been met. “A Quebec incapacity mandate often isn’t valid in Florida,” Altro noted.

    Nor does Florida recognize handwritten holographic wills, as Quebec does.

    Canadians who give U.S. property to relatives are liable for U.S. gift tax as well as Canadian capital-gains tax (determined using the fair market value). Adding your children to the title also could put you on the hook for a taxable gift, and leave the property vulnerable to seizure if the children have marital or financial problems.

    Altro said one way for Canadians with significant property to minimize hassles, taxes and property transitions is to create a cross-border trust, with one or more people as trustees.

    “The trust doesn’t die when the person does, so you can avoid estate tax,” he said.

    Having a corporation own U.S. property isn’t usually a good idea, he said, since the U.S. capital-gains tax is higher for corporations; states such as Florida can tack on an additional levy of their own, and the Canada Revenue Agency may charge a “shareholder benefit tax” to those who make use of outside property owned by a corporation.

    Altro says tax and estate planning is always best done beforehand to avoid complications and surprises. So before signing for that Florida condo, make sure you know where you stand.

    © Copyright (c) The Montreal Gazette