The growing popularity of snowbirds flying south for the winter months to escape the cold and bask in the sun has created much discussion on planning and succession of ownership of U.S. vacation property. The most recent discussion on the enforceability of U.S. tax liabilities on an Ontario estate has been addressed in Dyjack v. Shaw, 2025 ONSC 1937 (“Dyjack case”) which is referenced in the case summary provided in this article.
The facts of the Dyjack case were clear that the intention of the joint tenancy on the Florida property was to negate the applicable U.S. Estate Tax on the property by way of right of survivorship. However, the change in the vested interest in the property had unintentionally triggered a deemed disposition. The capital gains tax on the property was not settled prior to date of death of the deceased and the Ontario estate trustees were held liable to settle the tax owing to the U.S Internal Revenue Service. The enforceability of U.S. tax liability against an Ontario estate has not been applied in previous court decisions until recent.
How to Properly Plan for U.S. Property?
If a client is considering purchasing or currently owns U.S. real property, the best option for ease of administration and avoidance of U.S. Estate Tax is to settle an irrevocable trust in Canada to acquire the real property (the “U.S. Property Trust”) rather than owning the real property personally.
If U.S. Estate Tax is a concern for the client, the contributor (i.e., the individual purchasing or owns the U.S. property) cannot be the trustee or a beneficiary. The trustee could be a family member or close friend and there is no requirement to appoint a third party (i.e., a lawyer or trust company). The family member or close friend holds the property in trust for the benefit of the beneficiaries listed in the trust deed.
The settlement of the U.S. Property Trust does not evade capital gains as the 21st anniversary of the trust’s settlement would still apply pursuant to the Canadian income tax laws. Further, capital gains may be accelerated if the contributor previously owned the property personally and then later settled the property into the U.S. Property Trust. However, the contributor would be limiting the expected U.S. Estate Tax upon death of the owner which would have avoided the issues addressed in the Dyjack case outside of settling tax liabilities in the U.S.
The main advantages of the U.S. Property Trust are as follows:
- Ease of administration by not requiring a Certificate of Appointment to sell or transfer the U.S. property;
- Avoid potential creditors against the settlor or beneficiary(ies) asserting claims over the U.S. property;
- Avoid or limit U.S. Estate Tax Liabilities; and,
- Intention of disposition of the U.S. property expressly defined in the trust deed.
In summary, capital gains tax cannot be avoided, but if you wish to limit further taxation and ease of administration for your beneficiaries a U.S. Property Trust would be suggested over joint tenancy. If you are considering purchasing real property in the U.S. it would be beneficial to consult an estates and tax advisor on both sides of the border to confirm if the U.S. Property Trust is a suitable option.