“Financial Checkup” is an ongoing series that discusses financial planning options. In this issue, Investment Executive speaks with chartered accountant Kim Moody, a partner withMoodys LLPin Calgary; registered financial planner Terry Ritchie, director of cross-border wealth services withCardinal Point Wealth Management LLCin Calgary; and immigration lawyer Steve Trow, partner withTrow & Rahal PCin Washington, D.C.

the scenario: heather, a 35-year-old nurse living in Edmonton, is planning to marry an American and move to Chicago. Heather is pregnant and will have the child in November, so she would like to marry shortly before the birth. She wants to know what she needs to do to move to the U.S. She doesn’t anticipate any problem getting a job in Chicago after her child is one year old.

Heather earns $70,000 a year. She has $200,000 in a vested pension plan, $28,000 in a tax-free savings account (TFSA) and $200,000 in non-registered assets, which she inherited from a grandparent.

Her husband-to-be, Jack, is a 45-year-old doctor who earns US$200,000 a year. He is fully capable of supporting the family without any contribution from Heather, but she still wants to have a job and an income of her own. Jack has $400,000 in a 401(k) plan and $100,000 in non-registered assets. He also owns the house in which the family will live.

the recommendations: The easiest and fastest way for Heather to move to the U.S., Trow says, is to get a job that would sponsor her for a TN (trade NAFTA) visa. Heather has a good chance of getting a job and negotiating unpaid maternity leave with her new employer, given the shortage of nurses in the U.S. Heather also may be able to get U.S. health insurance through her new employer.

If Heather doesn’t want to get a job in the U.S. at this time and the couple want to marry and have the baby in the U.S., Heather can apply for a K-1 visa, which allows the fiancée/fiancé of an American to move to the U.S. provided the marriage takes place and an application for an “adjustment of status” (AOS), sponsored by the spouse, is filed within three months after Heather’s arrival in the U.S. Once approved, Heather will be granted a green card (GC). Obtaining a K-1 visa usually takes four to six months, Trow says, and it must be used within six months.

The processing time for AOS applications varies from about four months to a year, depending on where the applicant resides. Ritchie notes that an issue with this option is that Heather would not be allowed to leave the U.S. until she receives her GC or until U.S. Citizenship and Immigration Services issues to her a temporary travel document, called an advance parole (AP). Application for that document must accompany Heather’s AOS application. The AP would allow her to return to Canada while her GC application is being processed. Three years after Heather has her GC, she can apply for U.S. citizenship – but that is not mandatory.

The other option is for Heather to enter the U.S. as a tourist and, once she and Jack are married, Jack would sponsor Heather for both an AOS and a GC. Trow advises against this method because it can “raise messy issues of preconceived intent and entry fraud.”

If Heather and Jack decide to marry in Canada and stay here for the birth, Jack would start an “immigrant visa” application following the wedding. This usually takes nine to 12 months and, Ritchie notes, Heather’s final interview would be in Montreal, which would add some costs to the immigration process.

In this case, Heather could visit the U.S. but, as Trow says, Heather “may have problems at entry.” Jack, however, could visit Canada frequently.

The couple’s child will be a U.S. citizen automatically, regardless of where he or she is born. All children born in the U.S. are U.S. citizens unless the parents have diplomatic immunity. When a child is born outside the U.S. with one parent a U.S. citizen and the other non-American, Trow explains, the rule is that the child is a U.S. citizen – as long as the American parent has been physically present in the U.S. before the birth of the child for an aggregate of five years, including two years after the age of 14. The child would need a U.S. passport to go back and forth across the Canada/U.S. border.

Heather needs to sever her residential ties to Canada as of a particular date. There is the Canada Revenue Agency’s Form NR-73: Determination of Residency (Leaving Canada) – but both Ritchie and Moody strongly advise against filing this form. In most cases, this form is not necessary. It’s a “tricky” form to fill out, Ritchie says, and it can lead to a host of otherwise avoidable problems.

Most of Heather’s non-registered financial assets will be deemed to have been sold on the day she officially severs her Canadian residency ties. In Heather’s final Canadian tax return, she will have to report any capital gains from the deemed disposition, as well as all income earned in Canada that year. In this tax return, Heather’s deductions and credits need to be prorated for the amount of time during the year that she was a Canadian resident.

Heather also will have to file a U.S. tax return for that year, with any deductions and credits similarly prorated. The taxes Heather pays in Canada will be a credit on the U.S. return. Along with that U.S. tax return, Heather needs to file an “election” for an adjusted cost base for any securities she holds, which would raise the cost base to the date at which she left Canada. If Heather doesn’t do this, Ritchie says, the U.S. will use Heather’s original cost base when calculating the capital gains taxes due when she sells the securities.

Heather, as a resident in the U.S., must have a U.S.-licensed financial advisor to manage her U.S. assets. There are a few Canada-based firms, such as Ritchie’s, that can manage both Canadian and U.S. financial assets.

Any mutual fund units held by Heather should be sold. Canadian mutual fund companies, Ritchie says, don’t provide the detailed information about income generated that is required by the U.S. Internal Revenue Service (IRS).

Finally, Heather’s TFSA should be collapsed. The IRS does not recognize TFSAs as registered savings vehicles, so all income earned in a TFSA would be fully taxed in the U.S. Furthermore, there are onerous IRS compliance forms – 3520 and 3520-A – that would have to be filed, Ritchie says, if Heather keeps the TFSA. The penalty for failing to file these forms is up to 35% of the value of the assets in the TFSA.

Ritchie doesn’t think a prenuptial agreement is critical from Heather’s perspective because most of her financial assets are in a pension plan. However, Jack may wish to have a prenuptial agreement, particularly because he owns the house.

Much more critical is having wills and naming a guardian or guardians for the child. When a child has relatives in different countries, it’s essential to specify where and with whom the child will live should both parents die in an accident, as well as the desired amount of access to the child for relatives living in the other country. Ritchie also recommends that the wills include a provision for the guardians to renovate their house to accommodate the child or to purchase a larger house.

Moody mentions another point: the U.S. has an inheritance tax for American citizens’ estates with an inflation-adjusted exemption threshold, currently US$5.25 million. However, this exemption does not apply to non-Americans who are resident in the U.S.

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