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.
Example:
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.
For further information, call me at (905) 633-6332 or email me at .(JavaScript must be enabled to view this email address)
