Thousands of Canadians identify themselves as snowbirds who spend the cold winter months in the warm southern states. They may be surprised to find out that owning U.S. assets may be subject to US estate tax upon death. This can include property located or having a connection to the United States such as:
- Real Property,
- Shares in U.S. publicly trades companies
- Shares in U.S. private companies
- Debts owing by a US debtor.
- Investment accounts with U.S. brokerage firms
Any assets that are considered “U.S situs”, property that is located within the United States is subject to tax.
$60,000 Limit
When a Canadian taxpayer passes away while owning US property such as stocks, bonds, real estate, etc. of $60,000 or more, the executor would have to file Form 706-NA regardless if no tax liability is owed. This form would notify the US government of the estate but no tax would be owed if the worldwide estate is less than $11.4 million USD. If the worldwide estate is higher than $11.4 million USD (2019), then US estate tax may be payable.
In 2017, President Donald Trump signed the Tax Cuts and Jobs Act which increased the estate exemption threshold to $11.4 million USD from $5.49 million. This was welcomed news for Canadians who owned property in the United States.
This exemption of $11.4 million has a sunset clause as it will revert back to $5 million USD, adjusted for inflation by 2025. The November 2020 presidential elections could also change this threshold.
U.S. Estate Planning Strategies
As US assets are taxed at a maximum federal tax rate of 40%, it’s important to be aware of the potential tax liability even thought your worldwide estate is likely under $11.4 million. For high net worth families, we’ve listed some common tips below:
- Purchase life insurance to cover the US Estate Tax bill
- Selling your U.S. assets before death – be aware that the sale of assets could trigger capital gains in Canada
- Hold assets in joint tenancy
- Hold assets in a corporation instead as an individual
- Gifting assets to family members
- Invest in Canadian mutual funds that hold US securities
