Canadians pay probate fees on their estate, but Canada does not charge estate tax or gift tax. This is not the case in the United States (US). If you own substantial US assets and investments at the time of your death, US estate tax may apply. Make sure you get expert advice to help you understand if US estate taxes apply to your estate and how you can reduce any potential US tax bill.
What property will US estate taxes apply to?
US estate tax applies only to estates worth more than $2 million (US). If your estate exceeds this limit, your heirs may face a hefty tax bill. Tax rates on the portion of your estate above $2 million (US) will range from 18% to 45%. This includes taxes on the following US assets:
- Real estate
- US T-bills and bonds
- Shares of US corporations and US mutual funds (even if you held them in Canadian accounts, including your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF)
- Business assets
How can I reduce any potential US tax bill?
It takes careful planning to reduce US estate taxes. A lawyer or tax adviser who understands cross-border issues can help you work out the best strategy. Here are some of your options.
- You can transfer savings and property to your spouse or a spousal trust. Your spouse receives them without triggering probate, capital gains, or US estate tax.
- You can give away US stocks and bonds as a gift instead of leaving them to your estate. As long as you are not a citizen or resident of the US, there is no US gift tax to pay. However, if you make the gift to someone other than your spouse, Canadian tax will be due on the capital gains.
- You can also gift real estate, art, or vehicles that you bought in the US. You can gift up to a total of $125,000 (US) per year tax-free to your spouse if he or she is not a US citizen. If your total gifts in the year to anyone else exceed $12,000 (US), US gift tax will apply.
- You can deduct some US estate tax from the Canadian fees your estate would otherwise have to pay. Deductions include a Marital Tax Deduction, Foreign Tax Credit, and Small Estates Exemption.
Remember: If you hold any US assets, you may have estate tax issues
Make sure you plan ahead to reduce the cost of passing on US property to your heirs. Get expert advice from a US tax adviser.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.