A Canadian who is a non-U.S. Citizen or non-U.S Tax Resident should plan in advance prior to buying real estate in Washington State, which is very different from buying real estate in B.C. and Canada.
- Before buying Washington real estate understand that you and your estate may be subject to U.S. and Washington State taxes. Similar to Canada there may be capital gains or losses in the event of a future sale of your Washington real estate. However, unlike Canada, your estate may be subject to U.S. and Washington Estate Tax upon your passing. Whether any estate tax will be due is generally determined by the fair market value of your Washington real estate and other U.S. based assets as well as the fair market value of your Canadian and worldwide assets on the date of passing. Although the U.S. Federal Estate Tax exemption is very high at $13,990,000 U.S. Dollars approximately in 2025, the Washington Estate Tax exemption is much lower at $2,193,000 U.S. Dollars approximately. In other words, if your estate has assets with a gross fair market value of greater than $2,193,000 U.S. Dollars (less any applicable deductions) on the date of your passing then there will likely be Washington Estate tax to pay (even if you are a Canadian tax resident). Likewise, if your estate has assets with a net value of greater than $13,990,000 U.S. Dollars on the date of your passing then there will be U.S. Federal Estate Tax. It is recommended you consult with a U.S. Tax Advisor to determine what if any estate tax may be due. If potential estate tax will be incurred in the future you may wish to reconsider buying Washington real estate in the first place.
- Before you buy consider possible alternatives to hold title of your Washington real estate. A common misconception is that Washington real estate held “jointly” automatically transfers to the survivors. However, that is not likely not true in Washington. While Joint Tenancy with Rights of Survivorship is a common way to hold title in Canada, it is not often recommended in Washington. A Discretionary Spousal Trust based in Canada may be beneficial for a Canadian husband and wife and their estate planning but otherwise a Trust is not a favored entity by the Canada Revenue Agency (CRA) to hold Washington real estate. It is recommended you consult with your Canadian Tax Advisor prior to purchasing Washington real estate. And then also consider the best way to hold title in Washington.
- Canadian husband and wife buyers should be aware that Washington State has Community Property Laws which specify that all property acquired in Washington during marriage belongs to the marital community (50%/50% for each spouse) even if you are a Canadian Citizen and Resident. And if one spouse purchases the Washington real estate in his or her name only it is likely that the other spouse who was not named on record title will be presumed to have a 50% interest in the real estate regardless based upon Community Property Laws.
- Before you buy consider how to plan for the passing of your Washington real estate. Most of the time it is best to have your own Washington State estate plan in addition to your B.C./Canadian Will and Estate Plan. It is not recommended you rely on your B.C/Canadian Will to transfer your real estate in Washington State. Canadian Courts have no authority to transfer Washington/U.S. real estate (or order a B.C./Canadian executor to do so). Also note that a B.C. Power of Attorney is often not recognized to transfer title in Washington.
- Purchase and Sale Agreements (PSA) are normally necessary to buy and sell Washington real estate. Washington has mandatory requirements which must be included in a PSA, which essentially serves as a road map to Closing.
- Closing documents to finalize the purchase and sale are usually prepared by an escrow agent (who is normally affiliated with a Title Insurance Company), and not by an attorney or notary public which is common with a completion in B.C./Canada.
- South of the Border, Title Insurance Companies not only prepare the Closing documents but also insure the ”title” (although certain matters are not covered or excluded). Beware that it is possible for a property owner to lose property rights over time by boundary disputes, adverse claims or prescriptive uses in Washington. So the property legally described in a deed or conveyance may not be the property which the buyer is legally entitled. It is the “Wild West” down here. So there are often risks in any real estate purchase in Washington which are not typical when purchasing property in Canada. In order to reduce the risks, it is recommended that a buyer obtain a survey and perform other due diligence before completing the purchase of Washington real estate. I recommend you read my blog article about 7 Tips when-buying Washington Real Estate. And of course obtain legal counsel to assist you with the purchase of the Washington real estate.
The above is information is by no way exhaustive. And the above is not intended to be legal advice but is general information provided as a courtesy.
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