It may be surprising to learn that more than a million Canadians, age 55 and over, lead a snowbird lifestyle, regularly spending up to six months of every year in warm-weather spots in U.S. Sunbelt states such as Arizona, Florida, Texas and California.

The dream is the same—to own a small piece of paradise they can truly call home. And while real estate purchases are often emotional, the right way to do it is to make sure your purchase is both cost-effective and tax efficient. That often means consulting a tax lawyer before you make an offer.

“While it’s cheaper and better to obtain good legal advice before you buy, about 50 per cent of buyers come to me after they’ve already purchased their property,”says David Altro, a Florida lawyer and Canadian Legal Advisor and managing partner at Altro Levy, a cross-border law firm with offices in Toronto, Montréal, Calgary, Vancouver, Florida, Arizona and California, which provides tax, estate planning and real estate legal services to high net worth individuals. “In those cases, it’s still not too late. We can generally fix things to accommodate the property owner’s tax and estate-planning wishes.”

While 2015 offers more challenges to affordability than in 2011 when prices in several warm-weather real estate markets in the U.S. touched bottom, the good news is it’s still a great year to buy. U.S. real estate in the Sunbelt is still very affordable and, at the same time, demographic trends guarantee demand for U.S. Sunbelt real estate will be steady over the next few years.

Research is Key

“Canadian buyers gravitate to communities where Canadian expats and snowbirds tend to buy,”says Aaron Bond, a real estate agent with Keller Williams Realty in Tampa, Florida. “Demand this year has been steady and supply is good.”

If you’re interested in buying a home in the U.S., do your research. Find out where popular Sunbelt locales for Canadians are located. Some key ones include Naples and Venice, Florida; La Quinta, California; Yuma, Arizona; and Galveston, Texas. Then visit them, set a budget and start looking at real estate in your ideal area. Also remember that if you buy real estate in the U.S., whether for personal use or as an investment, mortgage lenders will consider it a second home and you’ll be required to put down a larger down payment on it than you would for a principal residence. “Expect to put down 20 per cent,”says Toronto real estate blogger and licensed realtor Romana King.

It’s also key to be informed. That means reading up on the benefits of cross-border trusts if you plan to pass your property down to your offspring and grandchildren in the most tax-efficient way possible. Estate, capital gains and U.S. withholding taxes are all issues you should discuss with a good tax lawyer.

Ownership Structures

Canada and the U.S. have huge differences, especially when it comes to tax rates, probate procedures and the treatment of flow-through entities. “The good news is Canadian wills are valid in the U.S.,”says Altro. “The bad news is all wills are subject to probate proceedings where the real estate property is located. Another challenge arises when it comes to Canadian power of attorney (POA) documents, which may not be recognized in the U.S. For instance, if one person on the title becomes mentally incapacitated, the POA may not be valid and the U.S. property can be frozen. A guardianship procedure may have to be set up were the property is located in such a case. Ownership has to be set up properly to avoid this kind of issue.”

Probate is another complicated process that has to be untangled in the U.S. The entire process can take months to be completed. “Court fees, newspaper disbursements and attorneys’fees may run three to four per cent of the market value of the property, plus worldwide assets may be listed in the probate court available to the public. The key is finding ways to hold title to your U.S. property so probate will not be a factor, while ensuring the structure will not raise questions regarding your tax situation,”advises Altro.

That’s why it’s so important to get advice on the best ownership structure, which should address such issues as probate, incapacity and U.S. estate tax. “Those who own rental properties have two additional concerns: creditor protection and maximizing profits through tax planning,”says Altro. “Partnerships are a good way to protect owners of U.S. rental properties. However, since partnerships must have a profit motive, they’re not the right choice for personal-use property.”That means if you are going to buy and lease out a U.S. property, you should be careful and consider owning the property as a limited partnership or draw up an irrevocable trust to give you creditor protection. “That way, if a tenant slips and falls and sues you for millions of dollars, they won’t be able to take away your Canadian assets, including your home.”

In addition, Canada and the U.S. have different ways of taxing estates upon death. Owning a property in the U.S. gives the Internal Revenue Service (IRS) the right to potentially tax that property on death. Whether that occurs or not depends on whether the value of your U.S. assets is greater than US$60,000 and if your worldwide estate is in excess of US$5.43 million. “Owning a vacation property in the United States could expose an estate to taxes adding up to 40 per cent of the value of your U.S. assets,”warns Altro. “This is very different from the capital gains tax triggered upon death in Canada.”

For these reasons, it’s a good idea to at least consider purchasing your U.S. property as a trust, which will limit your tax exposure. For more information on this and other limited liability partnership structures, Owning U.S. Property the Canadian Way, Third Edition, by David Altro, provides an in-depth look at the pros and cons of different ownership structures. Key tax issues can be avoided with some planning and the help of a cross-border tax lawyer who can navigate the tax rules for you.

David A. Altro, a Canadian Legal Advisor and Florida lawyer, earned his civil law degree from the University of Montréal and his Juris Doctor (J.D.) from Nova Southeastern University in Fort Lauderdale, Florida.

Mr. Altro has been practising law in Canada and the U.S. for more than 30 years and divides his time between his Toronto and Montréal offices. He specializes in cross-border tax, estate planning and real estate for high net worth individuals and has written articles for numerous legal and industry publications. He’s also been interviewed and quoted in the Globe and Mail and the National Post. Mr. Altro is also the author of two books—Owning U.S. Property the Canadian Way and Americans Living in Canada–Smile, the IRS Is Watching You—and is a frequent presenter at legal and tax conferences throughout Canada and the U.S.

For more information on cross-border tax and estate planning services available through Altro Levy, visit altrolevy.com or call 1-800-370-4860.