Travel: Snowbirds Need to Plan

Most snowbirds heading to warmer climates every winter understand the challenges that come with having two residences. But some issues can slip by the wayside.

How long will you be away?

It's important to know how long Canadians can stay in the U.S. without being considered "resident aliens," and being taxed on their worldwide income by U.S. authorities. The formula is not a set number of days each year but rather a rolling calculation called the substantial presence test.

This test looks at the number of actual days spent in the U.S. over the past three years. According to the formula, you add the actual days spent in the U.S. in the current year (once you have surpassed the minimum 31 days) to one-third of the actual days spent in the most recent preceding year plus one-sixth of the days spent in the second-most recent preceding year. A resident alien is a person who has been in the U.S. 183 days or more according to that formula.

Those who meet the substantial presence test are taxed in the same way as U.S. citizens. That is, those who don't file an annual form with the U.S. Internal Revenue Service stating their residency ties are with Canada.

Should you buy or rent?

In some U.S. states, snowbirds pay much higher property taxes than their full-time resident neighbours. In Florida, for instance, there is no cap on property taxes for out-of-state people. The two-tier system is partly rooted in a "homestead" exemption dating back many years; it gives permanent residents of the state a $25,000 reduction in the assessed value of their principal residence. In addition, the "save our homes" 1995 constitutional amendment caps the annual increase in assessed property values and taxes at 3% or the rate of inflation, whichever is lower, for principal residences of permanent Florida residents.

There are other factors to consider when buying a vacation property in a sun destination. Do you want to be tied down? Retirement should be a flexible time, with all sorts of options. And the older you get, the more important being near family becomes - and the more expensive the travel insurance.

Where's the dollar going?

When the Canadian dollar drops, the cost of buying food, gas and entertainment in the U.S. rises. Some investors try to balance their portfolios proportionately between U.S. and Canadian investments to reflect the amount of time spent in each country. One solution is to open a U.S. bank account. The Canadian Snowbird Association also has a currency exchange program that allows its members to transfer funds from any Canadian financial institution to any U.S. financial institution at preferred exchange rates.

Take a look at your will.

Valid Canadian wills will apply to property outside Canada. So, if you and your spouse have valid wills, you don't need to draw up second wills in another country. You do, however, need to take copies of your wills with you when you leave Canada.

If you don't have up-to-date wills, you should make sure new wills are written - regardless of travel plans. Those who remarry must remember that a will made prior to their current marriage is no longer valid; if they die without writing a new will, they'll be considered to have died intestate and their wishes about disposition of the Florida vacation property, for example, could be disregarded.

Unlike wills, however, powers of attorney drawn up in Canada may not be valid in some U.S. states. Florida, for instance, may not recognize a POA drawn up in Canada. Consider having POAs drawn up in the state in which you're vacationing.

Health-care directives, or living wills, put your wishes about medical and personal care in writing in the event you become too ill to speak for yourself. Each U.S. state regulates the use of these directives differently, so you may need directives that are valid in the state in which you're vacationing.

Look after the small stuff.

Before you pack up, remember to:

Have your bills sent to you at your vacation home or arrange to have bill payments automatically debited from your bank account.

Make sure home insurance coverage is in force while the house is vacant. Some policies require a house to be checked every few days while owners are away.

Arrange for home security and get someone to shovel the driveway and walk after a snowfall.

Cancel newspaper delivery while you're away and arrange to have a friend or neighbour check the home regularly to collect flyers and mail.

Velma Carroll
Ten Star Financial Services
Burlington, Ontario
905.634.8834

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