U.S. Transfer Certificates: Unexpected Delays in Distributing Canadian Estates

Though much has been written in connection with the U.S. estate and gift tax regime and the varying effects on Canadians, the requirement to obtain transfer certificates from the Internal Revenue Service (IRS) is often overlooked or unanticipated.

In cases where a non-resident of the U.S. dies owning certain U.S. situs assets (i.e. stocks of U.S. corporations, U.S. real estate, etc.), the individuals or institutions in possession of the property may refuse to follow the direction of a Canadian executor without a U.S. “transfer certificate.” This situation stems from the fact that Canadian executors often are not recognized in the U.S., and ultimate liability for unpaid estate taxes can fall on those U.S. agents absent a certificate. There is no requirement to obtain a certificate if the property is administered by a U.S. executor.

Transfer certificates are documents issued by the IRS that release property of the decedent from any U.S. federal estate tax liens. They certify generally that all required estate taxes have been paid. A transfer certificate may be required for non-resident decedents whether or not they were citizens of the U.S. at the date of death.   

The procedure to obtain a transfer certificate is both cumbersome and time-consuming. It can result in unexpected delays in distributing the estate, and it can have significant adverse consequences should market conditions decline and pending property sales be delayed.

The procedure depends on the value of the decedent’s taxable assets in the United States. The following requirements for obtaining a transfer certificate apply to non-resident decedents who are not U.S. citizens:

• If the value of the taxable assets in the U.S. exceeds $60,000 on the date of death, Form 706-NA (United States Estate and Generation-Skipping Transfer Tax Return) is required, with all applicable attachments. The return is due within nine months after the date of death unless an extension is requested. A six-month extension is available by submitting Form 4768 on or before the original due date of the return.
• If the taxable assets were $60,000 or less on the date of death, the following documents are required to obtain the transfer certificate:
  1. Copies of the decedent's will and any codicils.
  2. One copy of each death tax return or inheritance tax return, and any corrective statements filed with taxing authorities other than the United States.
  3. One copy of the death certificate.
  4. An affidavit (a written declaration made under oath), setting out a number of key details. The affidavit may be in the form of a letter. It must be signed by the executor, administrator or other personal representative of the estate. The affidavit must include all of the following items:
     1. The decedent's date and country of birth.
     2. The date of the decedent's naturalization as a U.S. citizen or a statement that the decedent had never become a naturalized U.S. citizen.
     3. A list of all the decedent's U.S. assets in which the decedent had any interest at the date of death, and their values at the decedent's date of death. For any U.S. bank or investment accounts, the account number is required.
     4. The decedent's citizenship and residence at the date of death.
     5. Whether any of the decedent's U.S. bank accounts were used in connection with a trade or business in the U.S.

Though it is highly recommended that planning steps be taken to efficiently minimize or eliminate exposure to U.S. estate tax, a transfer certificate may still be required to gain authority to manage U.S.-based assets. This practical requirement should be addressed prior to death to determine if additional planning is required to avoid unexpected delays, increased compliance costs, and the administrative burden of obtaining the transfer certificate. Contact your Collins Barrow advisor for more information and guidance.

Jason J. Melo, CPA, CA, CFP, CPA (Illinois), is a Tax Partner in the Leamington office of Collins Barrow.