If you’re planning a move from the U.S. to Canada and have a revocable living trust (RLT) in place, it’s time to hit pause on your estate plan. While RLTs are a cornerstone of estate planning in the U.S., they don’t translate well north of the 49th Parallel. Here’s why, and what you can do about it.
1. Revocable Living Trusts Don’t Exist in Canada
In the U.S., a revocable living trust is a flexible estate planning tool that avoids probate and allows you to manage your assets during your lifetime. But in Canada, there’s no such thing. All trusts in Canada are treated as separate legal entities, and they come with their own tax filing requirements.
That means if you bring your U.S. RLT with you when you move to Canada, the Canadian tax authorities may view it as a Canadian trust and expect you to file annual trust tax returns on Form T3.
You might think, “But this is a U.S. trust, why would Canada care?”
That brings us to reason number two.
2. Canada’s Non-Resident Trust Rules: “Mind and Management” Matters
Canada looks at where the control of a trust is exercised. If the “mind and management” of the trust resides in Canada — meaning the trustee is physically present and making decisions from Canada — the trust is considered Canadian for tax purposes, regardless of where the assets are located or where the trust was created.
In most revocable living trusts, the trustee is the grantor — the person who created the trust and contributed the assets. That’s usually you. So, if you move to Canada and continue acting as trustee of your RLT, the Canada Revenue Agency considers that trust to be Canadian.
And here’s the kicker: Canadian trusts are taxed at the highest marginal rate, often over 50%, on any income retained in the trust. Plus, you’re required to file a Canadian T3 return, but not a U.S. trust return, since your RLT is still considered a pass-through trust under U.S. rules. That mismatch can lead to headaches, high taxes, and confusion.
So What Can You Do?
The good news is: you have options.
- Revisit Your Estate Plan Before You Move: A complete review of your estate plan is critical before crossing the border. You may need to restructure how your assets are held and how your trust is administered.
- Change Your Trustee: If you want to keep your RLT in place and avoid Canadian taxation, consider naming a U.S.-resident individual or a corporate trustee to manage the trust. That way, the “mind and management” stays in the U.S.
- Distribute Trust Income Annually: If you choose to stay on as trustee, you may be able to reduce the tax hit by distributing all income from the trust each year. But be aware, this approach still comes with Canadian filing requirements and potential complexities.
- Coordinate the Timing: In many cases, final restructuring may need to occur after your move, depending on the types of assets you hold and how they must be transferred across the border.
Don’t Go It Alone
Cross-border estate planning is complex, and every case is unique. Your RLT may have served you well in the U.S., but it could become a tax trap in Canada if not handled properly.
Don’t let an outdated estate plan derail your move to Canada. We’ll help you restructure your trust, rethink your strategy, and make sure every piece of your financial life travels smoothly with you. At 49th Parallel Wealth Management, we specialize in helping individuals and families navigate the intricacies of retirement, tax, and estate planning across the U.S.-Canada border. We’re here to make your transition smooth, strategic, and fully compliant on both sides. From the desert to the tundra, we are your cross-border retirement experts!
