Montreal sits 221 miles north of Albany, and for plenty of families in the 518 that distance is personal. Parents stayed in Quebec or Ontario while their children built careers in Troy, Schenectady or Clifton Park. Holidays mean a drive up the Northway with passports in the glovebox.
When one of those parents dies, the estate is settled under Canadian rules and the inheritance lands under American ones. Neither system is hard on its own. The friction sits where they meet, which is the everyday ground of a Cross-Border Financial Advisor and worth understanding before the paperwork arrives.
Who Pays Canadian Tax When a Parent Dies?
The estate does. Canada has no inheritance tax and no estate tax. Instead, it taxes the person who died. At death, most capital property is treated as sold at fair market value, and any gain lands on the final return.
Registered savings follow the same idea. RRSP and RRIF balances are generally added in full to that final return unless they pass to a spouse or another qualifying beneficiary. A family cottage that has climbed in value since the 1980s can produce a large bill. The principal residence exemption usually shelters the main family home.
The estate pays that tax before heirs receive anything. So a son in Delmar normally inherits what is left after Canadian tax, rather than a Canadian tax bill. The final return is due April 30 of the following year, or six months after death if the parent died in November or December.
How Does a Canadian Estate Get Settled?
The executor, called the liquidator in Quebec, works through a fixed order. Skipping a step can make that person personally liable for the parent’s unpaid tax.
- File the final returns. That means the federal return and, in Quebec, a separate provincial return.
- Request a federal clearance certificate. The executor sends Form TX19 to the Canada Revenue Agency before distributing property. Without it, the executor can be liable for unpaid tax up to the value handed out.
- Get Quebec’s certificate too. Revenu Québec requires its own certificate before succession property is distributed, whatever its value. Urgent expenses up to $12,000 related to the death can be paid first.
- Distribute the property. Only then do the funds or assets move to the heirs.
A clearance certificate is a written confirmation that the estate’s tax is paid or secured. These can take months, so patience is part of the process.
Meanwhile, cash often sits in a Canadian bank account. Eligible deposits there carry CDIC deposit insurance up to $100,000 per category, with joint accounts and registered plans insured separately. An heir who is also the executor and lives in New York should get advice early. Where the people managing an estate live can affect where the estate itself is taxed.
What Does the IRS Want to Know?
The good news comes first. An inheritance is not taxable income to a US heir, so the money itself does not appear as income on a federal return. The IRS still wants to know it arrived, and the forms carry real penalties.
- Form 3520. This is an information return, not a tax bill. A US person who receives more than $100,000 in a year from a foreign estate or a nonresident parent reports it. The penalty for missing it can reach 5% of the amount per month, capped at 25%.
- FBAR. If you hold, or can sign on, Canadian accounts worth more than $10,000 combined at any point in the year, you file a separate report with FinCEN.
- Form 8938. For a single filer based in the US, the trigger is $50,000 in foreign assets on December 31, or $75,000 at any point.
Every figure goes in US dollars. For the FBAR, the government publishes quarterly Treasury reporting rates for converting Canadian balances. Keep a note of the rate you used each year.
Should You Keep Inherited Canadian Assets?
Some assets travel well across the border and some do not. The table below shows how three common ones behave for a New York heir.
| Asset | Canadian side | US side |
| Canadian mutual funds and ETFs | Gain already taxed at death | Often treated as PFICs, with Form 8621 and harsh tax rules |
| Family cottage | A non-resident seller notifies the CRA within 10 days of a sale. Without a certificate, the buyer may withhold 25% | Cost basis generally steps up to fair market value at death |
| RRSP or RRIF | Generally taxed on the parent’s final return | Treatment depends on how it is paid out, so check before cashing it |
The cottage often carries the most emotion and the most paperwork. Canadian tax on a later sale can usually be credited against the US tax on the same gain. A PFIC is a passive foreign investment company, and most Canadian funds qualify. That makes mutual funds the trap. Many heirs sell them quickly rather than file PFIC forms every year.
A Family Conversation Worth Having Early
Most of the stress in these estates comes from surprises. A few steps while parents are still well make the eventual process far calmer.
- Ask where the will is kept and who the executor or liquidator will be.
- Make a simple list of accounts, institutions and the cottage deed.
- Check whether any account names a beneficiary directly.
- Talk about whether US-based children want to keep Canadian property at all.
Families who cross the border for winter road trips already know how to plan a drive north. An estate deserves the same planning.
Frequently Asked Questions
Is an Inheritance From Canada Taxable In the US?
Generally no. An inheritance is not taxable income for a US heir, and Canada taxes the estate rather than you. Income the inherited assets earn after you receive them is taxable in the usual way.
When Is Form 3520 Due?
It is due on the same date as your income tax return, including extensions. You file it when foreign estate distributions or gifts from a nonresident exceed $100,000 in a year. It reports the money but does not create tax.
Can I Be Executor for a Parent In Canada if I Live In New York?
Usually yes, though rules differ by province and Quebec calls the role liquidator. A non-resident executor can create extra filings and may affect where the estate is taxed. Advice before accepting the role is wise.
Should I Keep My Parent’s Cottage In Canada?
That depends on family use, cost and paperwork. Selling later as a non-resident triggers Canadian reporting and possible withholding. Your US cost basis generally starts at the value on the date of death.
