# Take US Spouse off Joint Accounts & Property?



## gopostal

Hi,

I am a Canadian, my spouse is a US/Canadian dual...American by birth only. Just learned this year all this US tax stuff. Yep, it's been a pleasant surprise as we've started working through it.

Thankfully we're relatively young and haven't begun to save a whole lot (never thought I'd say that) so we can make investment plans with eyes wide open rather than be surprised later in life. That doesn't mean we don't have some stuff held jointly, such as an RESP for our children and a house. 

We're looking into putting the RESP just in my name. Is that straightforward on a US tax basis? Or does it head into "gift tax" territory or something like that? Anyone else have experience with this?

Regarding our house, wondering if we should re-do the ownership to put it just in my name, avoiding future potential complications should we sell it and get stuck in the capital gains trap. My guess is, though, that doing so will be considered a sale? Again, any thoughts or experiences I'd love to hear. 

Thanks!


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## Bevdeforges

To some extent, it might simplify matters if you kept all or most of your financial affairs separate, though it's not absolutely necessary.

There are varying opinions on the RESP but I'll let those with experience guide you there.

As far as the house is concerned, in the event of a sale, she would only ever have to report one-half the capital gain - and she's still entitled to the $250,000 exemption from taxation on that, as long as you've been living in the house up to the date of sale (i.e. it is your primary residence). Basically, if her share of the gain doesn't exceed the $250,000 then she doesn't even have to report it (or that's how it was explained to me when my parents sold their house).
Cheers,
Bev


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## BBCWatcher

There could actually be some U.S. tax advantages with joint accounts. Joint accounts tend to be treated as 50-50 joint ownership, and generally you're responsible for _half_ the interest and dividends as a joint owner. Half is better than all if the account would otherwise be non-joint.

But read the fine print carefully.

Some people don't like joint accounts because it means those accounts must be reported on either/both IRS Form 8938 and FinCEN Form 114 ("FATCA" and "FBAR"), and they don't like the idea of naming their joint account holders. Bridge already crossed for you since the accounts exist and they're joint.

I prefer Payable on Death (PoD) accounts for the purpose that joint accounts are generally used (easy access to funds by the surviving spouse), but I don't have strong opinions.


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## Nononymous

BBCWatcher said:


> Some people don't like joint accounts because it means those accounts must be reported on either/both IRS Form 8938 and FinCEN Form 114 ("FATCA" and "FBAR"), and they don't like the idea of naming their joint account holders. Bridge already crossed for you since the accounts exist and they're joint.


The existence of joint accounts is one bridge. It can be uncrossed.

Reporting the accounts is another bridge. Fairly low risk going forward to uncross the first bridge without having crossed the second.

Possibly this is a failed metaphor.


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## BBCWatcher

No, the bridge (legal requirement to report) has already been crossed. There are other bridges that follow, after a Y junction. One bridge is compliance, and another bridge is violating the law.

As Richard Nixon learned, the cover-up is always worse than the crime -- which isn't always or even very often a crime. And now you understand why FATCA and FBAR exist. They are primarily "cover-up tests," or honesty tests. It's an age-old technique all governments employ from time to time.


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## byline

BBCWatcher said:


> Some people don't like joint accounts because it means those accounts must be reported on either/both IRS Form 8938 and FinCEN Form 114 ("FATCA" and "FBAR"), and they don't like the idea of naming their joint account holders.


OK, I am familiar with FBAR, but I am not familiar with IRS Form 8938 and don't see it among the forms that my tax preparer did for me in 2014. Could someone explain this and when/why it is necessary?


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## CanadianMoose

You can read the poorly worded instructions for Form 8938 here: http://www.irs.gov/pub/irs-pdf/i8938.pdf ... 

"Unless an exception applies, you must file Form 8938 if you are a specified individual that has an interest in specified foreign financial assets and the value of those assets is more than the applicable reporting threshold."

There is a bit of confusion with the wording and the examples... the instructions imply that both people are US citizens in a marriage, which in your case is iffy (While it may be eradicated by getting your spouse an ITIN, to me it's unclear). Basically you supply a 8938 as an unmarried individual if you has assets worth over $200,000 USD at the end of the tax year (Or over $300,000 at any point of the year)... that is doubled if you are married though the instructions specify that both people in the marriage living in a foreign country are US citizens so I would call and ask the IRS or your tax preparer about that. If you didn't have financial assets worth over $400,000 at the end of the year or $600,000 at any given time during the year, that is why it was not filed


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## byline

CanadianMoose said:


> If you didn't have financial assets worth over $400,000 at the end of the year or $600,000 at any given time during the year, that is why it was not filed


That would indeed be why. Sometimes it pays to not have much money, LOL!


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## Nononymous

BBCWatcher said:


> No, the bridge (legal requirement to report) has already been crossed. There are other bridges that follow, after a Y junction. One bridge is compliance, and another bridge is violating the law.
> 
> As Richard Nixon learned, the cover-up is always worse than the crime -- which isn't always or even very often a crime. And now you understand why FATCA and FBAR exist. They are primarily "cover-up tests," or honesty tests. It's an age-old technique all governments employ from time to time.


The first bridge - the existence of the joint account - is also the legal requirement to report. They are one in the same.

To mess with the metaphor a little further, it's not really a Y junction. 

(1) You can cross the second bridge and report. 

(2) You can sit where you are and remain noncompliant. Technically this is violating the law. But it's scarcely a cover-up if you've done nothing active to hide yourself; you've simply done nothing whatsoever, and you can easily plead ignorance. Of course if you know in your heart exactly what it is you're doing, you've committed a grave sin, surely to be punished in the afterlife, but unless the IRS has hired the folks who used to work at Abu Ghraib, they're likely not able to peer into your conscience too deeply.

(3) You can reverse direction, remove that legal reporting requirement going forward, and assume that no-one is going to give a rat's ass about what happened in the past. I guess this qualifies as a cover-up. But it's probably trumped by the rat's ass.


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## BBCWatcher

Except that ignorance, even real ignorance, is not a viable defense against all possible penalties here. The U.S. Treasury really can impose penalties if there's a violation (unintentional or otherwise), if it chooses. At the moment Treasury is in a very lenient mood, but I don't know anybody expecting that current mood to last forever.

By the way, it got tougher to plead ignorance, and the penalties increase substantially when the Department of Justice can prove you were not ignorant. In a recent case DOJ established that the delinquent FBAR filer answered a question on his accountant's annual questionnaire incorrectly -- he was asked if he had foreign accounts in that private questionnaire and said "no" -- and that was more than enough to find him guilty of willful (non-ignorant) violation and thus ramp up the penalties. It was the first "standalone" FBAR prosecution, and it was successful -- an interesting legal accomplishment. "Standalone" means there was no other alleged violation prosecuted concurrently, though in fairness Treasury and the DOJ considered the defendant to be "notorious." I don't recommend antagonizing government agencies, at least not if it's avoidable.


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## Nononymous

I have no intention of antagonizing anyone. I'm very quiet - except here.

Remember of course that US tax penalties cannot (currently) be collected against Canadian citizens living in Canada.

Of course it's not a good thing to lose travel privileges or have warrants out for your arrest and all that, but FBAR fines are not going to be hoovered directly out of our bank accounts.


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## CanadianMoose

Nononymous said:


> I have no intention of antagonizing anyone. I'm very quiet - except here.
> 
> Remember of course that US tax penalties cannot (currently) be collected against Canadian citizens living in Canada.
> 
> Of course it's not a good thing to lose travel privileges or have warrants out for your arrest and all that, but FBAR fines are not going to be hoovered directly out of our bank accounts.


Well, if you have enough money (For the IRS/Treasury to want to even go through the trouble) and the bank you use has even a single branch location within the US it's possible...


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## BBCWatcher

And certainly any assets in the U.S. are fair game -- including your person if you decide to step foot there -- if government pursuit becomes reality. I suppose they could add you to a Denied Parties List as another option, and alluding to CM's suggestion.

I don't underestimate the U.S. government's abilities to pursue its interests vigorously...if motivated.


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## Bevdeforges

BBCWatcher said:


> And certainly any assets in the U.S. are fair game -- including your person if you decide to step foot there -- if government pursuit becomes reality. I suppose they could add you to a Denied Parties List as another option, and alluding to CM's suggestion.
> 
> I don't underestimate the U.S. government's abilities to pursue its interests vigorously...if motivated.


And I would add... "and if the amounts involved are significant." 
Cheers,
Bev


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## BBCWatcher

I think it's a bit more complicated than the dollar figure at stake.


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## Nononymous

CanadianMoose said:


> Well, if you have enough money (For the IRS/Treasury to want to even go through the trouble) and the bank you use has even a single branch location within the US it's possible...


I'm not sure that's actually the case. The late Jim Flaherty was very clear on Canada's refusal to assist collecting penalties. I highly doubt that the IRS could take money directly out of your Canadian account just because your bank has a US branch - I believe that the retail operations in the US are set up as independent companies. (FATCA withholding penalties are another matter, that's the club with which the US threatens foreign banks if it deems them noncompliant.)


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## CanadianMoose

Nononymous said:


> I'm not sure that's actually the case. The late Jim Flaherty was very clear on Canada's refusal to assist collecting penalties. I highly doubt that the IRS could take money directly out of your Canadian account just because your bank has a US branch - I believe that the retail operations in the US are set up as independent companies. (FATCA withholding penalties are another matter, that's the club with which the US threatens foreign banks if it deems them noncompliant.)


If a bank's branch is in the US, that bank unless specified under treaty has to operate under US banking laws and regulations... unless they somehow separate your account from that US branch it is very possible that they can do this as I see no such agreement disallowing the US government from doing this. With Scotiabank they do have locations and offices set up in the US, but because they don't allow access to specific bank accounts from those locations they don't have to follow banking regulations... though for RBC is the opposite since they are a 'registered' bank within the US which quite possibly gives the US government access to your banking assets.


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## Nononymous

I would be very surprised if that was the case.

The RBC web site makes it all look like one big bank, with free transfers between accounts in each country and all that, but the fine print is pretty clear:



> RBC Bank means RBC Bank (Georgia), N.A., a subsidiary of Royal Bank of Canada.
> 
> RBC Bank is a wholly-owned subsidiary of the Royal Bank of Canada, Canada’s largest bank and one of the largest banks in the world, based on market capitalization. For more than a decade, RBC Bank has offered U.S. cross-border banking solutions to fulfill Canadians’ stateside banking needs.


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## BBCWatcher

I'd have to assume that RBC Bank (Georgia), N.A. must follow U.S. government denied party listings, for example. Thus that marketing blurb could be rewritten as: "For more than a decade, RBC Bank has offered U.S. cross-border banking solutions to fulfill Canadians’ stateside banking needs -- provided those Canadians are individuals the U.S. government legally allows RBC Bank (Georgia), N.A. to do business with."

Maybe your RBC ATM card would work in Canada but not in the U.S., for example. Or, better yet, maybe the card would "work" in the U.S. -- but the funds transferred to the U.S. are instantly frozen before the machine spits out the cash.


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## Nononymous

I read it as being two completely separate entities that cunningly appear to be one by offering to move your money between them for no fee (with a crappy exchange rate of course) and a common online banking interface. 

Nowhere does it say "PS because we own this separate American bank based in Georgia that's called RBC, we'll give the US government direct access to all of our Canadian accounts."


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## Bevdeforges

Banking law in most countries takes precedence over wherever the bank holding company may have its headquarters. (Have certainly run into this more than once over here in Europe.)
Cheers,
Bev


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## maz57

The Canadian government (and the tax treaty between the two countries) specifically states that the CRA will not assist the IRS in collecting a US tax debt levied upon a Canadian citizen resident in Canada if that person was a Canadian citizen at the time the debt was incurred. Similarly, the USG will not assist the CRA in collection of a Canadian tax debt if the person is a US citizen resident in the US and was a US citizen at the time the debt was incurred. All governments jealously guard their taxing authority; mayhem would result if they were to allow otherwise. So our wimpy Canadian government folded under extortionate threats and signed the stupid FATCA IGA and (might) fork over some information. They didn't sure as hell didn't give up their exclusive right to tax in Canada.

When you deposit money in your local Canadian bank, you are not depositing money in that bank's US subsidiary or even a branch in another province or another city. You are depositing money in a specific branch of a specific Canadian bank. Even for a Canadian creditor, in order for funds to be frozen or seized that creditor must obtain a court order in the appropriate local court ordering that specific branch to enforce the action. (For example, a judgement in an Ontario court, would not be valid against an account in a BC branch even though the bank does business and has branches in both provinces.)

So for Canadian citizens resident in Canada the IRS will not get help from the CRA and the IRS' only resort would be to persuade a local Canadian judge to order the seizure. It is extremely unlikely the IRS would even attempt action in a Canadian court and it is even less likely a Canadian judge could be convinced to rule in the IRS' favor against a Canadian citizen resident in Canada. The fundamental injustice of the US attempting to tax Canadians in Canada would be obvious to a Canadian judge even if the US doesn't see it that way.

So for those who find themselves in IRS non-compliance or who put themselves in that position they would do well to have no US situated assets and stay out of the US if they actually get into trouble with the IRS. Until there is some fundamental change to a lot of laws and the tax treaty, there is close to zero risk of the IRS successfully seizing Canadian assets.


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## BBCWatcher

And no U.S.-oriented _interactions_, I would add, assuming the worst case. Such is the nature of DPLs (Denied Parties Lists). If you're on a DPL, and I am not legally permitted to do any business with a DPL'ed entity, then you won't be able to get whatever it is I'm selling or providing. Worse yet, you might (foolishly) pay me something but then I have to freeze your payment and (probably, eventually) turn it over to the government authority that put you on the DPL. Whereupon you have no legal recourse except to try to clear yourself from the DPL.

You don't generally end up on a U.S. DPL for run-of-the-mill low dollar value tax evasion, but "big fish" probably do.

This gets at least awkward if, for example, you need a spare part for a tractor manufactured in Illinois and you're on a U.S. DPL.


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## jbr439

gopostal said:


> Hi,
> 
> ...
> 
> Regarding our house, wondering if we should re-do the ownership to put it just in my name, avoiding future potential complications should we sell it and get stuck in the capital gains trap. My guess is, though, that doing so will be considered a sale? Again, any thoughts or experiences I'd love to hear.
> 
> Thanks!


Did anyone respond to this part of the post?
I suspect moving ownership of the house to just be in your name would be considered a gift, and thus there would be gift tax implications. Whether there are depends on the value of the gift (1/2 value of the house).


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## gopostal

About the house, thanks jbr439. That was my thought as well, that it would be considered a "gift."

Are "gifts" taxed on the person who gave the gift, or just the receiver? If my wife would be taxed on giving over 1/2 the value of the house to me, then it would obviously make much more sense to hold onto it together and claim the housing exemption upon the eventual sale, no? Provided it doesn't gather too much capital gains (should the house gain lots of equity).

It's the same "gift" question that I've been thinking about with the RESP stuff.


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## Nononymous

Not sure why the RESP would be a gift. The beneficiary is the child, not the parent.

Someone here on the forum, dual in Canada, took her name off the RESP without any problems. Sounded very straightforward. Can't remember who, but search, you might find more info, or contact them.


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## Bevdeforges

jbr439 said:


> Did anyone respond to this part of the post?
> I suspect moving ownership of the house to just be in your name would be considered a gift, and thus there would be gift tax implications. Whether there are depends on the value of the gift (1/2 value of the house).


Are you talking here about US or Canadian gift tax implications? In the US, it's the giver of the gift who is responsible. And in most situations, any taxes to be paid are simply settled up when the giver has died (as part of their US inheritance taxes). Since the threshold for inheritance tax is so high in the US (something like $3 or 5 million these days), most "normal" gifts wouldn't incur gift tax anyhow - they just are supposed to be declared. 

Now, as far as Canadian gift taxes are concerned - I have no clue.
Cheers,
Bev


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## BBCWatcher

The lifetime U.S. inheritance/gift tax exemption is now $5.34 million (2014). That figure does not include the additional gifts made during the course of one's life that fall below the annual limit. Normally household, medical, and educational expenses you pay for someone else are also not considered gifts.

The annual gift limit to non-resident alien spouses is now $145,000 (2014). The annual gift limit otherwise is $14,000 (2013 and 2014). Gifts to U.S. resident/U.S. citizen/U.S. national spouses (opposite or same sex) have no annual or lifetime limit.

So, to net it out, unless your net worth is greater than $5.34 million, nobody is paying any U.S. inheritance or gift tax when you become generous (before or after you die). If your U.S. resident/U.S. citizen/U.S. national spouse inherits your estate, you can be the richest person in the world and neither you nor she will pay a dime in U.S. inheritance or gift tax. (This is actually a very good reason for your lucky non-citizen spouse to become a U.S. citizen, and many do only or primarily for this reason.) If, let's say, your net worth is $6 million then it can be very smart to "spread the wealth" in annual gifts before you die and to pay lots of household, education, and medical bills for others. Take your non-resident alien spouse to every fancy restaurant he or she wants, as one example. Dress him or her to the nines, to pick another. And that plastic surgery your niece always wanted? No problem. Colloquially those things might be "gifts," but to the IRS they aren't (generally -- check the rules).

And if all that's not enough, there's something called "estate planning." But there aren't too many people with net worths exceeding $5.34 million.

The U.S. isn't the only country in the world, so you may have some international considerations. Japan, for example, is a lot less generous in these matters. (I just happen to know that.)


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## Bevdeforges

I think you may be getting way too complicated (or at least detailed) for this situation here. If I understand correctly, this is a US-Canadian couple where the US partner is the wife, who has little or no income (probably not even enough to file).

If the house is held in joint ownership I'm supposing this would be the US wife "gifting" her share to her husband. It could be taken out of the "gift" category altogether simply by transferring money to the wife's name (account) as the "purchase" of the other half of the house. (Yeah, you get into the "fair market value" of a half interest in the house - but I don't think even the IRS is going to mess with that at distance unless the $s involved are significant.)
Cheers,
Bev


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## jbr439

I live in a part of BC where house prices have appreciated a ridiculous amount and perfectly average houses can go for over $1 million.

So, I see 2 issues with the transfer being a sale, rather than a gift.
1) With a sale, there are potential capital gains. Selling 1/2 of a $1 million house results in a gain of $500 thousand which handily exceeds the $250 thousand exclusion.
2) Where would the selling spouse find $500 thousand to give to the buying house? That's a lot of money.

Even if the gain is less than $250 thousand, #2 likely still comes into play. (this is assuming everything is done "by the book").


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## jbr439

Nononymous said:


> Not sure why the RESP would be a gift. The beneficiary is the child, not the parent.
> 
> Someone here on the forum, dual in Canada, took her name off the RESP without any problems. Sounded very straightforward. Can't remember who, but search, you might find more info, or contact them.


If you're gifting to a non-resident alien spouse, as BBCWatcher says, you have the $145 thousand annual gift limit. 
Since it's highly unlikely that the RESP exceeds that amount, it's mostly moot. It's a gift but requires no reporting.
That was likely the case with the person you're talking about.

It's a different story for a common-law spouse.


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## Nononymous

jbr439 said:


> Even if the gain is less than $250 thousand, #2 likely still comes into play. (this is assuming everything is done "by the book").


Again, how is the US going to know about your real estate transactions in Canada?

This is called the "partial compliance" approach. Comply with anything that's likely to be discovered; ignore anything that isn't.


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## jbr439

Nononymous said:


> Again, how is the US going to know about your real estate transactions in Canada?
> 
> This is called the "partial compliance" approach. Comply with anything that's likely to be discovered; ignore anything that isn't.


I did say: 'this is assuming everything is done "by the book"'


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## BBCWatcher

Nononymous said:


> Again, how is the US going to know about your real estate transactions in Canada?


Google, metaphorically at least?

Real estate transactions in Canada are military secrets? Ah, no. _Much_ information is reliably ascertainable given sufficient motivation.


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## Bevdeforges

BBCWatcher said:


> Google, metaphorically at least?
> 
> Real estate transactions in Canada are military secrets? Ah, no. _Much_ information is reliably ascertainable given sufficient motivation.


In which case you submit a return that does not give the IRS any motivation to search deeply into your affairs. 

The IRS does not have the manpower to conduct elaborate searches on each and every tax return submitted. What they do check is the math on the return, and they run their data base of reported income (W2s, 1099s, etc.) against the returns received to match SSNs. Those are easy, machine intensive checks you can be assured are run on all submitted returns.

Those that "pop out" will be subject to further review for "suspicious" items. So I leave it to your imagination to figure out what items on your tax returns you need to check yourself before submitting the forms each year to avoid further review.
Cheers,
Bev


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## BBCWatcher

That's not a fair description of the full extent of the IRS's analyses _currently_, much less in the future. Give them at least a little credit, please.


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## Bevdeforges

For those in higher income brackets, there may well be additional checks. But for the standard "salary income well under the FEIE limits plus a few hundred in bank interest" I don't think they do much more unless they have some reason to suspect some sort of mis-reporting.
Cheers,
Bev


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