The U.S. estate tax continues to be debated by our neighbours to the south.
Senator Bernie Sanders (Vermont) shared his views on U.S. estate tax earlier this month in a Huffington Post blog. He plans to introduce legislation that will restructure the U.S. estate tax system. He suggests reducing the U.S. estate tax exemption from the current $5.34 million value to the 2009 exemption rate of $3.5 million. Any estate worth between $3.5 million and $10 million would be taxed at 40%, with the tax rate progressing to 50% for estates valued between $10 million and $50 million and 55% for estates worth more than $50 million. He aims to close estate tax loopholes and introduce a billionaire’s surtax of 10% on estates worth more than $1 billion.
Senator Sanders is motivated by the uneven distribution of wealth in the U.S. and believes that a progressive U.S. estate tax is a reasonable solution to that problem as well as a good strategy for reducing national debt while raising money for government investments.
However, the Tax Foundation recently argued that the estate tax is an ineffective way to raise funds, citing the expense of levying the estate tax and its relatively low amount of yearly revenue (app. $18 billion) among the reasons that this tax should be eliminated.
The outcome of the debate on U.S. estate tax will ultimately be reflected in U.S. law, which has consequences for Canadians with U.S. assets. As the world economy continues to grow and U.S. properties continue to be affordable, Canadian buyers will remain key players in the U.S. housing market; according to the National Association of Realtors’ September 2014 report, “Profile of International Homebuyers in Florida”, 32% of the foreign buyers of Florida real estate purchased between June 2013 and June 2014 were Canadian.
Those Canadians who own U.S. assets in Florida or otherwise may be subject to U.S. estate tax.
For Canadians, estate tax is based on the fair market value of all U.S. assets owned at the time of death, such as U.S. real estate and shares of stock of U.S. companies. It can climb up to 40% depending on the value of the U.S. asset and the value of the worldwide estate. Only those Canadians whose U.S. estate is worth more than $60,000 and whose worldwide estate is greater than $5,340,000 will be subject to U.S. estate tax, however.
If you are subject to U.S. estate tax, there are ways to mitigate it. For a discussion on this issue as well as others that can arise from owning U.S. property as a Canadian, take a moment to read Altro LLP partner Bonnie Altro’s blog about the benefits of owning U.S. property in a trust. For a more in-depth look at U.S. estate tax and owning U.S. property as a Canadian, my book Owning U.S. Property – The Canadian Way, Third Edition is available on the Altro LLP website here.
Altro LLP will continue to update you as the U.S. estate tax debate progresses.
