Wednesday, 25 November 2015

U.S. Estate Tax Exposure

What may come as a surprise to many Canadians is that they could be liable for U.S. estate tax. The estate tax is based on fair market value of the property owned at the time of death and the tax is assessed on U.S. situs assets. These assets include real property located in the U.S. as well as shares of U.S corporations, either private or public.

If an individual’s U.S. situs assets are more than 60,000 USD then there’s a requirement to file the estate tax return with the IRS. There are various exemptions available, such as a credit that shields the first 5,340,000 of worldwide assets (in 2014, this amount is adjusted for inflation) which means that there’s not necessarily a tax liability however it does not remove the obligation to file the return. This is of particular importance if as a result of death there will be a transfer of title on real estate or if there are investment assets with a U.S. company. To distribute the assets in accordance with the will, the financial institution or lawyer will ask for a transfer certificate. This is a certificate issued by the IRS which shows that the Estate has complied with all the requirements and has no outstanding obligations thus allowing for the transfer to take place.

There are numerous complexities depending on the individual’s circumstances and cannot be covered in general terms. It is important that the estate tax is not forgotten and is appropriately considered when the purchase of assets is planned. Failure to consider this tax could result in a substantial tax liability that could otherwise be mitigated or avoided altogether.


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