Many retired clients like to skip winter altogether and head to balmy regions in the U.S. These snowbirds may have worked and planned for years to achieve this lifestyle, often with your help. But your job is not finished once a client joins his or her flock.
Here are some important reminders to share with your snowbird clients:
> Don’t overstay your welcome
To avoid paying U.S. taxes, snowbirds need to be hyper-aware of how long they are spending in the U.S. each year, says Brian Wruk, financial planner and founder of Transition Financial Advisors Group Inc. in Gilbert, Ariz.
If a snowbird client exceeds the stipulated number of days (more than 182) in the U.S. for any given year, he or she is considered a resident and will have to pay taxes, Wruk says.
But there’s another formula, which looks at a visitor’s time in the U.S. over the past three years, that the Internal Revenue Service (IRS) uses to establish “substantial presence,” another measure of tax status. Many snowbirds would fail this test, according to Wruk, but a simple step could avoid any ensuing headaches. By filing form 8840 with the IRS, Canadians can claim the “closer connection” exception. This step demonstrates that the client pays taxes in Canada because that is the country to which he or she has a closer connection; it’s where the client has a home, family and community.
“If you file that form,” Wruk says, “all is well with the world.” But, he adds, many snowbirds avoid that step, believing they are better off not drawing attention to themselves. Wruk warns that the IRS and U.S. Border Service are becoming more closely connected: “There will be alerts popping up saying [they] overstayed.”
> Carry a kit
Wruk and his team recommend snowbirds carry “border binders” whenever they travel to the U.S. The kit should include documents such as property deeds or titles, utility bills and recent tax returns to indicate an intention to return to Canada.
Says Wruk: “You really want to demonstrate to the U.S. immigration officer that you’re coming back.”
> There’s more to health than Vitamin D
Snowbirds should ensure they don’t lose provincially funded health care benefits by living out-of-province for longer than stipulated (for Ontario residents, it’s 212 days per 12-month period).
They should also purchase additional health insurance to cover them should they fall ill outside of Canada. This insurance can be more difficult — and expensive — to obtain for clients with certain illnesses and conditions.
Additionally, Wruk says, snowbirds should understand that insurance companies will almost always choose to fly patients back to Canada rather than pay U.S. hospital bills.
> Understand currency risk
Remind your snowbird clients that the current Canada/U.S. exchange rate is unusual and unprecedented. Clients who are paying the expenses on a property in the U.S. using Canadian-dollar cash flow may be unprepared for currency fluctuations, says Wruk: “We might start seeing people having to bail on their U.S. properties.”
Snowbirds should put money aside in their US$ accounts when the C$ is strong, he says, to protect against future drops.