The STEP Journal – Treaty Tips and Tricks

May 16, 2018


We are very pleased to share that David Altro and Matt Wolch were asked to prepare an article for the Society of Trust and Estate Practitioners Journal (STEP Journal), which was published in the May 2018 edition. Their article titled “Treaty Tips & Tricks” discusses the application of the US estate tax exclusion amount, tax credits available under the Internal Revenue Code and the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital (Canada-US Tax Treaty) and post-mortem planning that can be incorporated into a will. The article serves as a great analysis of the US estate tax and the tax & estate planning opportunities available to US persons and Canadian residents.

To read the article you can see it in part below, or click here to download a PDF of the STEP Journal article (STEP Journal, Vol 26, Issue 4).

Treaty Tips & Tricks

David Altro and Matt Wolch
STEP Journal, Vol 26, Issue 4
May 2018

Estate tax is a transfer tax levied by the US on the value of assets owned or considered to be owned at death. Estate tax can apply at a maximum rate of 40 per cent. The US allows taxpayers to transfer a certain amount of assets tax free, either during life or on death – the applicable exclusion amount (AEA). The recent US Tax Cuts and Jobs Act doubled the AEA to USD10 million (indexed to inflation) for deaths occurring after 31 December 2017 and before 1 January 2026. The AEA will revert to USD5 million (indexed to inflation) for deaths occurring after 31 December 2025.

US persons v non-US persons

For estate tax purposes, ‘US persons’ refers to US citizens and domiciliaries, i.e. those who have moved to the US with an intention of remaining there indefinitely. US persons and all their assets, including life insurance, are subject to the estate tax regime, regardless of where in the world they reside. Non-US persons are subject to estate tax only on their US-situs assets – e.g. US real estate and shares of US corporations.

The applicable credit and exclusion amount

A US person’s first defence against estate tax is the applicable credit in s2010 of the Internal Revenue Code (the Code), which allows a US person to transfer assets valued at up to the AEA free of estate tax. The applicable credit is equal to the estate tax liability that would result from a taxable estate valued at the AEA. For deaths occurring in 2018, the AEA is USD11.2 million and the applicable credit is valued at USD4.4258 million.1 This means that a US person with worldwide assets valued at less than USD11.2 million will not pay any estate tax if they die in 2018.

To continue reading, please click here to download a PDF of the STEP Journal article (STEP Journal, Vol 26, Issue 4).

1. USD345,800 + [40 per cent * (USD11.2 million – USD1 million)] = USD4.4258 million

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