Recently, we’ve had discussions with clients heading south to sanity in this wicked weather environment. Come winter, many “snowbirds” head south. If you plan to escape Canada for the winter, be certain your financial life is in order before you go.
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. Our job is not finished once a client joins his or her flock. There are two critical elements to ensuring you’ll be in good financial shape: Make sure your affairs at home can be managed in your absence, and arrange access to cash and financial services while you’re away.
Electronic banking and investing
Whether through automated teller machines (ATMs), the Internet or telephone – make all of this easier than ever. But you still need to prepare.
Here’s a checklist to get started:
Arrange bill payments – Take inventory of bills that must to be paid while you’re gone. Among others, these include credit cards, loans, income and property taxes and membership dues and subscriptions. Make sure you can pay them while outside the country, or arrange for someone to take care of them for you. Internet banking is a great way to keep track of expenses and bill payments. And don’t forget unexpected bills that may show up in your mailbox.
Ensure access to cash – If you’re wintering in the U.S. or another country with easy access to international networks through ATMs, a bank card may be all you need to get cash. But take a backup in case your card gets lost. If you spend time in the U.S., you can open a U.S. dollar account at a Canadian financial institution that will allow you to write cheques. In fact, you may want to consider holding U.S. dollar investments that can provide you with income in U.S. dollars while you’re there.
Ensure access to financial accounts – You might need to make investment or banking transactions while you’re away, or monitor accounts. If you’ll have Internet access, make sure you’re registered for online financial services, or use automated telephone services. If electronic access isn’t possible, make other arrangements with your financial institutions or have someone manage your affairs.
Put investments in order – Meet with your financial advisor to determine whether your portfolio is in good shape. And make arrangements for investments that will mature while you’re away, such as Guaranteed Investment Certificates (GICs), term deposits and bonds. Also, be sure your advisor knows how to contact you.
Cover your legal bases – Your powers of attorney should be up to date in case something happens to prevent you from managing your affairs. Have a current will in place, and let someone know where your legal documents are kept. Also, be aware that depending on how long you have stayed in the U.S., you may be considered a resident of the U.S. for income tax purposes. Before you leave, check with a cross-border specialist to confirm your tax status. We’ll discuss this in more detail below.
Here are some other important points of consideration:
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. If a snowbird 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.
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, 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 you pay taxes in Canada because that is the country to which you have a closer connection; it’s where you have a home, family and community.
If you file that form, all is well with the world. Many snowbirds avoid that step, believing they are better off not drawing attention to themselves. The IRS and U.S. Border Service are becoming more closely connected.
Carry a kit
Snowbirds should carry or consider carrying “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. You really want to demonstrate to the U.S. immigration officer that you’re coming back.
Understand currency risk
The current Canada/U.S. exchange rate is unusual and unprecedented. People who are paying the expenses on a property in the U.S. using Canadian-dollar cash flow may be unprepared for currency fluctuations. We might start seeing people having to bail on their U.S. properties. Snowbirds should put money aside in their US dollar accounts when the Canadian dollars is strong to protect against future drops.
There’s more to health
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).
When you’re out of the country, medical insurance is a must. Without proper coverage, your financial life could be thrown into turmoil if you become ill or are the victim of an accident. Even a brief illness in a foreign country can put you deep in debt if you don’t have adequate insurance. The older you get, the more complex and costly insurance can be, so ensure your needs are being met with the policy you select.
Snowbirds should 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 certain illnesses and conditions. Snowbirds should understand that insurance companies will almost always choose to fly patients back to Canada rather than pay U.S. hospital bills.
Changes are regularly happening that snowbirds should be abreast of before travelling. Consulting with your Financial Life Planner can be your best advice before heading south. As a start, he will ensure your southern sojourns are planned for well in advance. With your financial affairs in order, you can head south and enjoy a relaxing winter while Keeping Life Current.