Canadians with US assets should be aware of potential US estate tax implications. US estate tax applies to the US situs property, which may include US real estate or shares of a US corporation.
Stocks or mutual funds held in Registered Retirement Savings Plans, Registered Retirement Income Funds, and Tax-Free Savings Accounts but issued by a US entity are also considered US situs assets and could be subject to a US estate tax.
US estate tax is imposed on the total value of an estate exceeding a certain threshold (over US$13.61 million in 2024), also known as the lifetime exemption amount. However, it is scheduled to sunset at the end of 2025, lowering the lifetime exemption to around $6 million.
The good news is there are planning opportunities to minimize US estate tax burdens for Canadians. The Canada-US Tax Treaty offers benefits like a reduced withholding rate on US investments and potentially eliminates estate tax on some assets for surviving spouses.
Tax credits and deductions may also be allowed by US tax laws and the Treaty. Canadians can also leverage strategies like maximizing marital deductions or utilizing gifting to reduce their taxable estate size.
Canadians with US assets should keep in mind that even if their estate does not owe any US estate tax, a US estate tax return may still need to be filed.
Consulting with a cross-border tax professional is important for Canadians with US assets to help navigate these complexities and develop a plan to minimize estate's tax burden.