A U.S. estate tax return must be filed if a deceased Canadian resident who is not an American citizen owned U.S. situated assets exceeding $60,000 fair market value at death. If the deceased made substantial lifetime gifts of U.S. property, a U.S. estate tax return may be required even if the U.S. assets do not exceed $60,000 at time of death.
With the passing of the U.S. Bill H.R. 4853 – Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, the highest tax rate on estates is currently 35% with no U.S. estate tax payable in 2010 to 2012 if the total worldwide estate is $5 million or less, indexed for inflation after 2010.
If nothing is done from a legislation perspective, effective January 1, 2013, the $5 million exemption will go down to $1 million and the tax rate will go up to 55%. Having said that, the Obama administration announced that if they won the election, they have proposed an exemption of $3.5 million with a tax rate at 45%. Now that Obama has been re-elected, the question is will they follow through with implementation by January 1, 2013?
Based on the current bill, the implications are that anyone who has a worldwide net worth in excess of the threshold is liable to pay estate tax. Reducing the threshold results in more financial exposure.
Current – Exemption of $5 million
U.S. Estate – $2 million
World Wide Estate – $4 .5 million
Under current exemption of $5 million, an individual would not be subject to U.S. estate tax.
January 1, 2013 – Exemption of $1 million
Provided no changes are made to the legislation, the exemption will reduce to $1 million and the tax rate increased to 55%. Individuals would be exposed to approximately $850,000 estate tax based on the above example.
What can you do?
Look at options of restructuring ownership of U.S. assets whether it is real estate or investments.