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We have an interest in giving a part of our estate to a sister who lives in Canada and came up with the idea of putting it in a trust so that, if she didn't need the money, it could pass to nieces and nephew. However, we have recently realized that the nieces and nephew are going to inherit plenty from their parents, so we would prefer that any residual go to my son. We realize that there will be nothing preventing the sister from simply drawing all the money, needed or not, but figure that she won't.

If this was all in the states, we would just have our attorney draw up a trust for the purpose, but we wonder about the impact on Canadian taxes of various forms. I.e., is there a form which would mean that she paid tax only on money she used? It would be a shame to whack off a large percentage for Canadian inheritance tax, then have her not need the money, and pass on a reduced portion to my son. We have not succeed thus far in finding a source to advise us about the Canadian part of this transaction.

Ideas? Knowledge? Solutions?
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No knowledge or solution, just a question: Does the money go to the sister, and then the residual to your son:
- at her demise, or
- at her discretion while alive?

Because IMO the latter could put her in an awkward position.
For example, right now DH and I are pretty comfortable, and the next generation is struggling a bit (as we did when we were their age), so on the face of it we don’t “need” more money, and they do.
However, going forward, entry fees to good CCRC’s are up to $3M, so we should be saving up for that; and our children are entering their peak earning years, so they’ll probably be OK without our help. (Of course we do pitch in sometimes on an ad hoc basis.)

We’re comfortable saving our own money and being on standby to serve as a safety net, not knowing what the future holds.
But if we inherited from a sibling, with instructions to transfer to their child whatever we don’t “need”? I would find that confusing. If you haven’t already, I’d suggest a discussion with the sister regarding your and her definitions of “need.”

Or, keep it simple: half to her, and half to your son.

YG
(fan of simplicity)
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Not likely very helpful but for the reverse situation my son received a check from my Canadian sister's estate. It was a small amount so he just deposited it and paid the foreign exchange. So it was an even smaller amount...

In my case, I will receive a larger amount from my parents' estate but it will go to my Canadian account.

So one solution might be for your sister to open a bank account here. That would expose her to FATCA rules I think, so she might not like that.

I don't believe inheritance money is taxable unless it is very large. I think the principle is that the estate owed no taxes at the time and the money was already taxed initially.

IRAs and RSPs (Canadian equivalent) would complicate things and have their own set of rules.

I guess trusts might be similar.

My experiences are all smaller amounts, low 6 figures, not millions.
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For the record, a US dollar is currently worth 1.27 Cdn. And a Cdn dollar is worth .78 US.
Sending the money to Canada (for your sister) and then back to the US (for your son) will be expensive considering that the banks will take about 3% each way on top to the exchange rate.

There's no telling what the rates might be at the time of your demise.

That probably should factor in to the decision.
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He would just be a residual trustee, so when she dies ... if there is any left.

Or, keep it simple: half to her, and half to your son.

The overall split is 30/70 ... this is just rethinking how to handle the 30.
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I don't believe inheritance money is taxable unless it is very large.

True in the US, but not in Canada.

IRAs and RSPs (Canadian equivalent) would complicate things and have their own set of rules.

Yes, I should note that money is currently in 8 Schwab accounts, 6 of which are some flavor of IRA. The only thing substantial that is not there is the house. Current advice is that the Schwab accounts should specify spouse as the first beneficiary and the second beneficiary is a 70/30 split between son and sister.
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Leaving the money in USD denominated accounts except when actually drawn upon would minimize the conversion.
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