Someone you love has passed. They left assets on both sides of the border. And now, on top of grief, you have a paperwork problem that most families are genuinely not equipped to solve.

Because the tax side is where cross-border plans get complicated, see our cross-border tax and estate planning service.

This is the field guide I wish every cross-border heir had before they needed it.

We covered the foundational differences between Canadian and US estate systems in an earlier post. This one is different. This is about what you actually do, step by step, when you are the person receiving the inheritance. What questions to ask. What traps to avoid. And where the real money tends to get lost.

Step One: Establish What You Are Actually Inheriting

Before anything else, you need a clear picture of the asset categories involved. The rules are different depending on what is in the estate.

For most cross-border estates, the assets will fall into one of these buckets:

•  Non-registered investment accounts (taxable brokerage accounts in either country)

•  Registered accounts (RRSPs, RRIFs, TFSAs in Canada; 401(k)s, IRAs, Roth accounts in the US)

•  Real property (a home, cottage, or investment property in one or both countries)

•  Business interests (shares in a private company on either side of the border)

•  Life insurance and annuities (treatment varies significantly by jurisdiction)

Each category has its own tax treatment, its own timing rules, and its own documentation requirements. Treating them all the same is how families leave money on the table.

The Probate Reality

Probate is the legal process of validating a will and authorizing an executor to distribute the estate. The critical thing to understand is that probate is jurisdictional. An estate with assets in both Canada and the US may need to go through probate in multiple places.

In Canada, probate fees are provincial. Ontario charges roughly 1.5% of the estate value above $50,000. British Columbia uses a sliding scale. Quebec operates under civil law, which works differently from common law provinces.

In the US, probate is administered at the state level. California, Florida, and New York all have their own rules and timelines. Some states are fast. Some are not.

If the deceased held US real estate, that property will almost certainly need to go through probate in the state where it is located, regardless of what the Canadian will says. You may need a second executor, sometimes called an ancillary executor, authorized under US law to act in that state.

Frankly, this is one of the most overlooked complexities in cross-border estate administration. Get legal counsel in both jurisdictions early. The cost of doing it right is far less than the cost of doing it twice.

Source: Uniform Law Conference of Canada, “Wills, Estates and Succession Act” overview; American Bar Association, Guide to Wills and Estates

Inheriting Registered Accounts: The Tax Surprises

Registered accounts are where many cross-border heirs get blindsided. Here is what you need to know.

If you are a Canadian resident inheriting a US IRA or 401(k), the Canada-US Tax Treaty generally allows these accounts to remain tax-deferred. You do not pay Canadian tax on the growth until you take withdrawals. However, you must elect treaty protection on your Canadian tax return. The election is not automatic. Miss it, and the entire account value becomes taxable income in the year you inherit it.

If you are a US person inheriting a Canadian RRSP or RRIF, the situation is more complicated. The US treats the RRSP as a foreign trust. The treaty provides some relief, but you must file IRS Form 3520 and Form 3520-A annually to report the account. The filing requirements are strict and the penalties for non-compliance are significant.

The TFSA is not recognized under the Canada-US Tax Treaty at all. If you are a US person inheriting a Canadian TFSA, the growth inside that account is generally taxable in the US, even though it is tax-free in Canada. This asymmetry catches people off guard every single time.

Source: Canada-US Tax Convention (1980, as amended); IRS Publication 597, “Information on the United States-Canada Income Tax Treaty”; CRA Income Tax Folio S5-F3-C1

The Cost Basis Advantage — and the PFIC Trap

Here is some genuinely good news. When you inherit a non-registered investment account in the US, you typically receive a stepped-up cost base equal to the fair market value at the date of death. This means all of the gains accumulated during the deceased’s lifetime are effectively forgiven for US tax purposes. You only pay capital gains tax on appreciation after the date you inherited.

Canada does not have an equivalent provision. When you inherit a non-registered Canadian account, you inherit the original adjusted cost base. The deemed disposition at death is taxed on the deceased’s final return, but your ongoing capital gains calculations start from that original ACB, not from the date of death. Keep detailed records.

Now, the trap. If you are a Canadian resident who inherits US mutual funds, you may be inheriting a Passive Foreign Investment Company, or PFIC. The IRS applies punishing tax treatment to PFICs held by US taxpayers. But if the estate is coming from a US person and you are a Canadian resident, the issue flips: those same US mutual funds may now be subject to PFIC reporting rules if you are also a US person or green card holder.

The fix is usually to liquidate US mutual funds and reinvest in ETFs or individual securities before or shortly after inheriting. But timing matters, and the window to act cleanly is narrow.

Source: IRS, “Passive Foreign Investment Companies” (IRC Section 1291); CRA, Adjusted Cost Base and deemed disposition rules (IT-170R)

Currency and Timing Are Not Afterthoughts

Cross-border estates involve currency conversion at multiple points, and the exchange rate on the date of the transaction matters for tax purposes.

In Canada, all income and capital gains must be reported in Canadian dollars. The conversion rate used is the Bank of Canada’s published rate for the date of the transaction or, for a deemed disposition, the date of death. If the Canadian dollar weakens significantly between the date of death and the date you actually receive the funds, your tax liability in Canada may be higher than you expected based on the nominal US dollar amount.

Timing also matters for US estate tax. The executor has nine months from the date of death to file the US estate tax return (Form 706 or 706-NA for non-residents). There are extensions available, but they require a request. Missing the deadline entirely creates penalties and interest.

And in Canada, the deceased’s final tax return is typically due six months after the date of death or April 30 of the following year, whichever is later. There is also an optional rights and things return that can split income advantageously. Your Canadian tax advisor should be evaluating both.

Source: Bank of Canada, exchange rate methodology; IRS Instructions for Form 706-NA; CRA, Guide T4011, “Preparing Returns for Deceased Persons”

Get the Right Team in the Room

I say this directly: you need advisors registered in both countries. Not an advisor who is vaguely familiar with the other side. Actually registered and practicing in both jurisdictions.

The reason is simple. Tax law in this space is highly specific. A Canadian accountant who has never dealt with IRS Form 3520 is not equipped to handle an RRSP inheritance by a US person. A US estate attorney who has never navigated a deemed disposition is going to miss things on the Canadian side.

The questions to ask your cross-border team:

•  Has the US estate tax filing obligation been assessed and addressed?

•  Are there any treaty elections that need to be made, and by what deadline?

•  Have we identified any PFIC exposure in the inherited accounts?

•  Is there a currency conversion strategy to reduce tax friction?

•  What is the probate situation in each jurisdiction where assets are held?

•  Does the inherited estate include any TFSA accounts, and how will those be handled?

If your advisor cannot answer these questions fluently, find one who can.

The Bottom Line

Cross-border inheritance is not complicated because the rules are obscure. It is complicated because there are two full sets of rules, and they do not always point in the same direction.

The families who come through this cleanly are the ones who get organized early, build the right team, and resist the urge to make quick decisions under pressure. The families who struggle are the ones who assume it will work itself out.

It does not work itself out. But with the right guidance, it does work.

If you are navigating a cross-border estate and want to understand your specific situation, this is exactly what we do at Sartorial Wealth. Reach out. We will give you a clear picture of where you stand.

This article is for informational purposes only and does not constitute legal or tax advice. Cross-border estate and inheritance rules are complex and jurisdiction-specific. Always consult qualified legal and tax professionals in each relevant country before making decisions.