One of the most important estate planning decisions you make may not be in your will or trust.
It may be a beneficiary form you filled out years ago and forgot about.
For Canadians living in the U.S., naming beneficiaries on U.S. and Canadian accounts can create unexpected tax, estate, and family issues on both sides of the border.
In this video, I explain what Canadians in the U.S. need to understand before naming beneficiaries on accounts like IRAs, 401(k)s, Roth IRAs, taxable accounts, RRSPs, RRIFs, LIRAs, TFSAs, and life insurance policies.
We’ll cover:
- What happens when you die in the U.S. with beneficiaries named versus no beneficiaries named
- Why beneficiary forms may override what your will says
- How to think about naming beneficiaries on U.S. retirement accounts
- Why RRSP beneficiary planning can be very different from IRA beneficiary planning
- What happens when a Canadian resident inherits a U.S. account
- Why “equal before tax” may not be equal after tax
Beneficiary planning is not just about who gets what. For Canadians living in the U.S., it is also about how each account passes, how each country taxes it, and whether your estate plan actually works after tax.
If you are a Canadian living in the U.S., this is an important part of your cross-border retirement and estate planning.
Watch the video here:
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Summary
Quick recap
Bryan Haggard, a Certified Financial Planner and Chartered Financial Analyst, presented a comprehensive video discussion on the importance of beneficiary designations for Canadians living in the United States. He explained how beneficiary forms on retirement accounts, life insurance, and investment accounts can override wills and trusts, emphasizing the critical need to keep these designations current. Bryan covered the benefits of having named beneficiaries, including faster asset distribution compared to probate, and discussed optimal beneficiary strategies for U.S. residents with both U.S. and Canadian retirement accounts. He noted that while naming individuals as beneficiaries is typically recommended for U.S. residents, there are specific circumstances in which trusts might be appropriate, such as when children are under 18 or when a special needs trust is required. Bryan also addressed tax implications, explaining that Canadian residents inheriting U.S. retirement accounts face immediate taxation, while U.S. residents inheriting from spouses typically don’t face immediate tax consequences. He concluded by recommending that all Canadians review their beneficiary designations across all accounts to ensure the proper distribution of assets and to avoid potential tax issues.
Beneficiary Forms in Estate Planning
Bryan discussed the importance of beneficiary forms in estate planning for Canadians living in the U.S., highlighting how these forms can create tax and family issues on both sides of the border. He outlined the topics to be covered, including how beneficiaries work, dying with and without beneficiaries, considerations for U.S. residents with U.S. and Canadian retirement accounts, and a checklist for estate planning. Bryan emphasized the need for careful attention to beneficiary planning to avoid potential issues.
Retirement Account Beneficiary Planning
Bryan discussed the importance of naming beneficiaries on retirement accounts in the United States, explaining that beneficiaries override wills and trusts and can distribute funds quickly. He provided an example of a client whose ex-girlfriend was set to receive over $100,000 from a 401(k) despite his current marriage, emphasizing the need to keep beneficiary information up to date. Bryan also noted that having named beneficiaries allows funds to pass quickly to cover medical bills and funeral expenses, whereas dying without beneficiaries requires the probate process, which can take months or even a year.
Retirement Account Beneficiary Planning
Bryan discussed the benefits and considerations of naming individuals versus trusts as beneficiaries for U.S. retirement accounts. He explained that, typically, spouses are made primary beneficiaries with children as secondary beneficiaries, as this avoids immediate tax implications and allows smooth asset transfer. Bryan noted that while trusts are sometimes preferred, especially for minors, special needs cases, or complex family situations, naming individuals as beneficiaries is generally more tax-efficient and straightforward for many clients.
Canadian RRSP Beneficiary Designations
Bryan recommended that US residents with Canadian RRSPs or LIRAs name beneficiaries on these accounts, suggesting that the spouse be the primary beneficiary and children as secondary beneficiaries to avoid probate in Canada. He explained that while this process avoids probate costs and delays, it does not eliminate tax issues that would still need to be handled on the US tax return. Bryan shared an example of a client where this beneficiary designation successfully allowed the spouse to inherit the RRSPs within a couple of months after the client’s passing.
Canadian Retirement Account Beneficiary Guidelines
Bryan explained that for Canadian residents, it’s often recommended not to name beneficiaries on U.S. retirement accounts, instead using “estate or will” to avoid double taxation issues. He noted that if single or concerned about secondary beneficiaries, using estate or will designation helps prevent immediate taxation of the entire account balance upon death. Bryan also clarified that while Canadian residents can be named as beneficiaries, they would face higher taxes on withdrawals compared to U.S. residents due to Canadian tax requirements.
Retirement Account Beneficiary Updates
Bryan advised U.S. and Canadian residents with retirement accounts to review and update their beneficiaries, particularly ensuring primary and secondary beneficiaries are designated, especially for married individuals. He recommended checking both retirement and non-retirement accounts, including RRSPs in Canada, and emphasized the importance of having a will in place. Bryan concluded by offering assistance through his company, Retirement and Financial, and inviting listeners to schedule a complimentary consultation.