Vital Lessons Canadians Can Learn From U.S. Estate Tax

The late musical legend, Prince; who passed away recently is known to have an estate worth of 300 million U.S. dollars, and it seems to be growing daily because of the worth his tracks that were left unpublished. There was no will left by him, nor anyone to inherit any of his properties when he passed away, so the property is yet to be dealt with despite the recent claiming of distant family member who have shown face hoping to get a piece of his wealth. On the other hand, the main beneficiary of Prince’s wealth is likely to be Uncle Sam, because the United States has estate taxation that allows the asset go to the market value when a U.S citizen passes away. Most of Prince’s estate would end up in the assets of the state government and feds, with the country’s tax rate at 40 percent and Minnesota 16 percent rate.

The United States estate tax was endorsed in 1916 and was meant to be revoked totally in 2010, which was part of the previous president George Bush’s reform package. However a sunset section that was found in the policy meant the estate tax could only be abolished for a year and continued again in 2011. An exception of $5.45 million US dollars was indexed per annum on inflation. When comparing this to Canada, where there is no tax imposed on estate on the death of a person grounded on a reasonable market worth a person’s asset. Rather, tax is only imposed on unrealized indebtedness of a property upon death, other than a primary property that can be inherited without tax.

Is it possible for Canadian residents to be subject to the U.S estate tax? American citizens living in Canada, as well as dual and non-US citizens who have a “U.S situs property” after passing away, will have to account for a U.S property tax. Examples of U.S. situs property can be defined as real estate in America, this includes U.S bonds, Florida or Arizona condo, even when seized by Canadian brokerage accounts, either listed or not. The RRIFs, TFSAs and RRSPs are also included.

Canadians who live in the U.S but are not U.S. citizens can be given a prorated $5.54 U.S million dollar excluded by the Canada-U.S tax treaty, according to the portion of the worth of a person U.S. situs property shared by the worth of their estate globally. When calculated, there will be a full exemption from the U.S. estate tax if a person’s total estate value is lower than $5.45 US million dollars. Rich Canadians with the possession of a U.S. situs property with properties worth more than $5.45 US million dollars may be exposed to a U.S estate tax, therefore they need guidance on taxes from a professional.

To lower the chances of being exposed to this, change the ownership of a U.S property while alive using a Canadian optional trust to possess the property or get a non-recourse mortgage against the U.S, estate. It is possible to have stock of U.S. business and investments with a change of ownership tax-free to a Canadian stock holding establishment.