Although the impact of COVID-19 has somewhat limited the mobility of clients between Canada, the United States and other countries, we’ve seen a greater interest in individuals and families who desire, or who are considering, for lifestyle, political or other reasons, moving from one country to another. These are typically Americans living in Canada, Canadians living in the U.S. or residents of other countries looking to purchase, or spend time, or currently have property in other countries.

For these types of clients, financial planning is critical and becomes more of a process and not just a transaction or an end to itself. With different immigration income and estate tax rules, a fluctuating currency and the regulatory hurdles from various federal, state and provincial jurisdictions, there are unique financial planning issues that need to be considered. If not taken care of or adequately addressed, this could create not only a rather frustrating headache but potential liability exposure to you and financial losses to your clients.

Therefore, it’s important that advisors are aware of these differences and the sources that you can tap into for additional information and how best to serve those living, or moving permanently or temporarily, between Canada, the U.S. or other countries.

As I am not an attorney, the role of immigration or estate planning counsel or attorneys might also be required as well. As we know, you just can’t move to a country of your choosing just because you want to. There are specific rules and generally a legal immigration framework, or process, that one needs to go through first. There are a significant number of U.S. citizens who live or work abroad. So, there’s a rather large market for potential clients that you might need to serve in this area, and all of these areas have to be considered as part of a comprehensive cross-border financial plan.

If we quickly look at the issues related to U.S. and Canadian immigration, we can see that there are a number of paths that clients can look to, to get them from what I refer to as “from here to there.” So, the first thing that we often look at is where they were born, as this path might then provide them with the opportunity to sponsor their spouse or other family members to live in their country of birth.

Both the U.S. and Canada provide a number of employment, business or investment visas that we can look at for clients to get them from here to there. And, in some cases, this might lead to a U.S. green card, for example, or permanent residency in Canada. With some of these visas, they are temporary, and so if they are temporary, that means the financial and tax implications or planning implications for these clients will be very different for those who are looking for long-term residency, or ultimately, maybe citizenship in Canada or the U.S. Some countries around the world provide retirement visas if you can demonstrate your ability to provide for yourself from a financial, and in some cases a health care, perspective. However, currently, Canada and the U.S. do not have such a visa.

The next area I’d like to discuss is in the area where we see a significant amount of abuse by clients and/or their advisors. Clients generally have bank investments and retirement accounts and insurance products in one country while living in another country or in both countries in many cases. If this is the case, you, as the advisor, and the client might have restrictions on your ability to properly manage or administer accounts and products that the client might have. This is generally because of restrictions imposed by the insurance company or investment custodians that your clients might be working with or that you might be working with.

For you, as the advisor, there are generally regulatory hurdles imposed by federal, state and provincial authorities and your compliance officers as well. Therefore, it is important to know what you and the client can or cannot do with respect to their investment accounts or insurance products that they may hold.

Mistakes in this area can be costly from an income tax perspective and could have legal implications for you and the company that you might have a relationship with as well. Many of the large institutional custodians in both countries, and in other countries, are what I refer to as “booting folks off of their custodial platforms.” This is irrespective of the size of the account or the ultimate tax implications that might be created by the client being booted off the platform. The regulatory liability to the firm and the advisor are the primary considerations for why many institutional custodians are making these choices on behalf of your clients.

What we do not want to see clients or you, as the advisor, doing is using an alternative address to make it look like your client is still living where you are licensed or registered as a means to overcome this significant challenge. This is a really, really big no-no. We see this abuse all the time. And, in many cases, custodians in both countries are able to see where clients are logging into their accounts from. So, if you live in Canada and you have an account in the U.S., we’ve seen larger U.S. custodians catching folks and their advisors that way. They can find out where you’re logging in from. Also, the Canadian and U.S. state taxing authorities are often quick to pounce on folks who are not properly filing returns to reflect tax slips. That might suggest that they live in a specific country or state.

We see this often in the U.S. by virtue of the fact that states need revenue. So, if they need revenue, they are chasing down folks who might look like they are living in California when they are really living in, let’s say, Alberta. So, it might seem like it’s a relatively easy thing to do, to change an address, but this solution can create some significant challenges for you and certainly for your client.

The tax and investment management planning related to your client’s tax residency is critical and could get all screwed up because of different accounting for how cost basis is determined in one country versus the other. Further, certain types of tax-favorable investments in one country might not be tax favorable in another country that your client might reside in.

It’s not uncommon that clients might use municipal bonds or tax-free income in the U.S. as a means to reduce tax there. But if they are a U.S. citizen living in Canada and they are filing tax returns in Canada, those would be subject to tax in Canada.

Finally, in this area, we are looking at banking and currency exchange, and we often recommend for clients, instead of using the bank, that they go ahead and instead use a wholesale foreign exchange provider as opposed to the convenience of their traditional retail bank. The savings for your clients can be significant, and most of these firms will guarantee to beat the retail rates.

The only time that we see the retail banks being competitive is if the client has a significant private banking relationship, and the bank is willing to do whatever it takes to keep their clients happy.

Addressing health insurance issues for cross-border clients

Our clients have worked hard to get where they are, and they are building a strong financial plan. It would be tragic for their plans to be all screwed up in the event of a death, a disability, a health challenge, a lawsuit, an accident or any other tragic risk. So, it’s important that we go ahead and look at ways that we can properly manage those risks in a cross-border context. One of the big considerations for clients who are moving from here to there, let’s say from Canada to the U.S., is health care.

If we are going from the U.S. to Canada, health care can be a bit easier to deal with because in Canada, as many people might recognize, we have what we call socialized medicine here, effectively free health care. I don’t call it “free” because the tax environment in Canada is certainly much greater, but it’s part of the social network that we have in Canada. So, if they come to Canada, will they qualify for the provincial health care programs that exist here? And, if so, when would they kick in? Does it kick in right away or not? The way it works in Canada, in all provinces except Alberta, is that there’s a three-month waiting period before one would be eligible for participation in provincial health care, our health care programs. But for transition purposes, it would be important for clients to get some temporary travel insurance in place before full benefits kick in. I’ve been doing this a long time, and I can tell you stories of clients who didn’t do that — who got sick or had a tragic accident before they were eligible for health care in Canada and ended up paying for it themselves.

On the U.S. side, prior to becoming eligible for U.S. Medicare at age 65, health insurance coverage would be based on one’s age, employment, preexisting conditions and other factors. So, clients might have to choose to participate in a number of different kinds of plans available in the U.S., some under “Obamacare,” other individual providers, or, if they are fortunate to get a job with a new employer and can jump onto the group policies there, that’s an available option. But for those of our clients who are looking to move to the U.S. for retirement purposes, for those who are age 65 or older, they might be eligible for Medicare.

However, Medicare could exist if there is participation in the number of quarters based on earnings over the time that they had been living or working in the U.S. If they have the ability to move to the U.S. through a sponsorship via a spouse and get a green card or through an investment to the U.S., but they have never worked in the U.S., we have to look at their eligibility for Medicare. And if they do not have sufficient quarters in the U.S., there’s going to be a cost that is going to be imposed on their participation in Medicare.

Then the range of monthly premiums for Part B coverage would be imposed as well, which is for medical, for doctors and things like that. The monthly premiums for Part B coverage are based on one’s income level, which is typically derived from your client’s U.S. tax returns. So, if you’ve got a client who moved, let’s say from Canada, and made an investment — let’s say they bought their way into the U.S. through an EB-5 investment, which is a specific visa that’s available for immigration purposes — and they never had any employment in the U.S. and never had any quarters built up, but they could be eligible for Medicare at 65 or after, then their total cost for Part A and Part B would be somewhere close to $1,000 a month for this type of coverage.

Terry Frank Ritchie, RFP, TEP, has been practicing in the areas of financial, investment, tax and estate planning for more than 30 years. Not only does he practice in both Canada and the U.S., he lives in both countries as well and has consulted on behalf of individuals, major corporations, various legal and financial professionals and professional athletes on either side of the border.