If you are a Canadian who owns property in the United States such as US real estate or if you are an American living in Canada, you may have heard about US Estate Tax. The Internal Revenue Service (“IRS”) levies this tax against your estate upon your death on (i) the fair market value of all assets comprising your worldwide assets if you are a US citizen or Green Card holder (even if you live in Canada) or (ii) only on the fair market value of your US situs assets if you are a Canadian citizen and resident.
US citizen or a Green Card holder
For a US citizen or a Green Card holder, if the fair market value of his or her worldwide estate is below the US federal Estate Tax exemption amount of $11.4 million USD, his or her US estate tax is zero regardless of whether he or she lives in the United States, is an American living in Canada, or lives elsewhere in the world. If, however, the worldwide estate’s value exceeds the US federal Estate Tax exemption amount of $11.4 M USD, then US Estate Tax may be owed barring certain additional credits and planning strategies for eliminating and deferring US Estate Tax. For a US citizen or Green Card whose worldwide estate’s value exceeds the US federal Estate Tax exemption amount, a US Estate Tax return (Form 706) must be filed to declare these assets and any US Estate Tax owing.
Canadian citizen with US assets
For a Canadian citizen and resident who owns US situs assets such as US real estate or shares in US corporations, a two-pronged test is applied to determine if US Estate Tax is owed. Under the first prong, the value of the Canadian’s US situs assets is determined. If their value exceeds $60,000 USD, a non-resident US Estate Tax return (Form 706-NA) must be filed. If, however, their value is equal to or less than $60,000 USD, then no US Estate Tax return (Form 706-NA) needs to be filed.
The second prong is only applicable if the Canadian’s US situs assets’ value exceeds $60,000 USD. Under this prong, the value of the Canadian’s worldwide estate is determined. If the value of the worldwide estate exceeds the US federal Estate Tax exemption amount of $11.4 M USD, US Estate Tax may be owed barring certain additional credits and planning strategies for eliminating and deferring US Estate Tax. If, however, the value of the worldwide estate is less than the US federal Estate Tax exemption amount, no US Estate Tax is owed.
Specific attention must be paid in calculating the value of a person’s worldwide estate for US Estate Tax purposes because everything counts in calculating US Estate Tax liability, including life insurance proceeds. Moreover, assets held in certain trusts, which are intended to be excluded from a person’s estate, may nevertheless be included in calculating his or her worldwide estate.
On our website, we provide a US Estate Tax calculator for estimating your potential US Estate Tax liability. To use this calculator, please click on the link below.
In a companion blog entitled “Canadians Owning US Property: Watch Out for State Estate Taxes and State Inheritance Tax”, we present the State Estate Taxes and State Inheritance Taxes that are still in effect in a number of US States and which may apply to Canadians who own property in these States, whether they are Americans, Americans living in Canada, or solely Canadian citizens and residents.
If you fall into any of the aforementioned categories of persons, our team of experienced cross border tax and estate planning professionals can advise you on all of the applicable tax and estate planning issues.
U.S. Estate Tax Calculator
If you hold U.S. assets, we recommend that you consult one of our cross border experts to discuss solutions and strategies for U.S. estate tax, probate and other cross-border tax and estate planning issues.
*In order to calculate your exposure, use the calculator below. Please note that the calculator reflects the changes to U.S. estate tax effective January 1, 2019. The calculator is updated annually to reflect annual adjustments to the exemption amount.
The comments offered in this article are meant to be general in nature and are not intended to provide legal advice regarding any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate for your circumstances.
About the author
Sergei Titorenko is an Associate at Levy Salis LLP and a member of the Quebec Bar. He devotes his practice to US and Canadian tax and estate planning, Canadians doing business in the United States, Americans living in Canada, US real estate transactions for Canadians, and cryptocurrency transactions.