The annual migration of Canadian snowbirds to warmer climes in the U.S. Sunbelt is turning into a high-stakes flight due to ever-changing residency, tax and estate laws. And shifts in demographics and economics mean that the issues facing Canadians seeking shelter from harsh winters will only get more complicated and onerous in coming years.

Canadians are heading south in record numbers, with visits this winter set to exceed one million for the first time. That’s a function of the aging of the huge demographic of retiring baby boomers, their accumulated wealth and the strength of the loonie relative to the U.S. dollar.

In fact, the currency parity, combined with the dramatic decline in the U.S. real estate market, has turned many snowbirds from renters to buyers. In Sunbelt states, Canadians account for almost two out of every three foreign buyers, accounting for 58% of sales, according to Toronto-based Royal Bank of Canada‘s wealth-management division, which serves the No. 1 share of the snowbird market (serving about 140,000 snowbirds) through its U.S. subsidiary, RBC Bank (Georgia) N.A.

“Canadians are really taking advantage of what we like to call the ‘perfect storm’ of a strong Canadian dollar with a good economy in Canada, low interest rates and the boomer demographic trend,” says Alain Forget, director of sales and business development with RBC Bank in Fort Lauderdale, Fla. “When Canadians purchase U.S. assets such as real estate, there is unfortunately a gap of understanding of the cross-border issues that come with owning U.S. assets as a Canadian citizen or resident.”

Canadian snowbirds who have seized the opportunity to buy sunbelt real estate in destination states such as Florida, Arizona, California and Texas need to know that owning property in the U.S. could involve estate headaches upon death, as their estate could be subject to U.S. estate taxes based on the market value of their U.S. real estate.

Another worry is looming: as of 2013, the maximum U.S. estate tax rate is scheduled to increase to 55% from 35% – and, Forget warns, the value of a Canadian’s worldwide estate will have to exceed only US$1 million (vs the prior threshold of $5 million) to expose the estate to U.S. estate taxes on their U.S. assets.

“[Canadians] need to be aware of that change in the estate tax law,” Forget says. “And they should seek proper advice to look at mitigating those issues of tax and estate impacting their family and their wealth. They need to seek advice from their financial advisors, their private bankers or financial consultants. There are solutions, there are strategies to mitigate [the issues that come with owning U.S. property].”

Canadian snowbirds who spend more than four months in the U.S. every year should file a U.S. tax form annually to avoid any chance that they are deemed a U.S. resident for tax purposes. As well, Canadian snowbirds should make sure their wills and other paperwork are in order well before they plan their trip south. For example, any power of attorney needs to be valid in the U.S. as well as in Canada.

The current maximum period of time that Canadians can stay south of the border is six months, but even that may change if U.S. lawmakers get their way. A proposal destined to tap into even more snowbird spending is on the table, introduced by two U.S. senators.

This bill allows for a special visa for Canadian travellers aged 50 and over. If made into law, the change would allow Canadians to spend as much as eight months of every year in the U.S.

© 2012 Investment Executive. All rights reserved.