A basics guide for first-time snowbirds

With winter just about here, snowbirds are busy packing their bags for warmer climes. First-timers will want to take with them a few money tips to make the pilgrimage a smooth one.

For starters, open a U.S. bank account.

“Snowbirds should have a U.S. banking relationship,” says Alain Forget, RBC’s head of sales and business development, who’s based in Ft. Lauderdale. “There are a lot of differences between U.S. and Canadian banking, and snowbirds — who spend between one and six months down south — need to be knowledgeable about them.”

For instance, you can’t write post-dated cheques in the States.

“Let’s say they purchase a condo and have to give condo fees monthly and want to give a series of cheques for 10, 12 months ahead of time; they can cash those cheques right away,” Forget says.

You can either open a U.S. account with a Canadian financial institution or at an American bank, though there’s no guarantee you’ll get accepted at the latter.

“Each bank has its own rules with regards to this,” says Jolene Laing, associate director of global wealth management at ScotiaMcLeod in White Rock, B.C. “Generally you will need government-issued ID, like a passport or driver’s licence and perhaps a recent piece of mail — a bill is best — to prove your current address in Canada [to apply].

“You may be required to keep a minimum balance in your chequing account or be subject to a low credit-card limit until you build U.S. credit,” she adds.

Real estate

Canadians continue to take advantage of the soft real-estate market in the U.S., purchasing properties estimated at $13.8 billion in value from 2013 to 2014 alone, according to the Canadian Real Estate Association.

Getting a mortgage in the U.S. is more complex and typically takes longer than in Canada, Forget explains, noting that RBC uses people’s Canadian credit history to help secure a loan. It also doesn’t charge a foreign national premium fee.

“Many U.S. banks charge Canadians a foreign national premium, and that can be 1 to 3 per cent to your mortgage rate,” he says.

U.S. lenders also require homeowner’s, or hazard, insurance to protect the investment if the property is damaged or destroyed. Forget recommends establishing an escrow account to ensure that property taxes and homeowner’s insurance are paid yearly on purchasers’ behalf.

Keep in mind other expenses involved in a purchase.

“There will be costs such as a home inspection prior to purchase, a land survey to ensure that you know the actual property lines, legal fees with regards to the cost to handle the property title change, and sometimes there is a county or state title change registration fee,” Laing notes.

Taxes

Buying a recreational property can have significant tax implications, so financial experts urge snowbirds to familiarize themselves with all the potential consequences.

If they’re planning on renting their property, snowbirds may pay tax on the rental income in both Canada and the United States, and if they wish to sell or gift the property, more tax could be payable in both countries.

Differences in the Canadian and U.S. tax systems may result in double taxation, with no foreign tax credit relief, if you gift your U.S. vacation property,” writes CIBC managing director of tax and estate planning Jamie Golombek in a recent report called “Your U.S. vacation property could be quite taxing”.

Communication services

Another basic for snowbirds to check off the list is a decent cellphone plan.

“Ensure to update to a North American plan or buy a U.S. SIM card when you get down there and get a pay-as-you-go plan,” Laing suggests.

And don’t forget about health insurance.

“I would never travel down south without adequate travel health insurance, which includes the cost of repatriating you and a family member if you become ill or incapacitated,” Laing says.