George Steinbrenner, the former billionaire owner of the New York Yankees, is widely known as “The Boss”. This is a fitting moniker: Steinbrenner’s hands-on leadership style pushed the Yanks to win 7 World Series victories during his tenure, an accomplishment that undoubtedly made The Boss proud.
As if solidifying his nickname for all eternity, Steinbrenner passed away in July 2010, which, by U.S. tax measures, is a pretty good year to die; due to Bush-era legislation called the Economic Growth and Tax Relief Reconciliation Act of 2001 (the “Act”), U.S. estate tax has been repealed for the duration of 2010.
It’s safe to say that Steinbrenner showed the IRS who’s boss – he saved his heirs half a billion dollars by dying before the new year.
The Act increased exemption amounts periodically from its 2001 inception, so that by 2009, the effective exemption from U.S. estate tax was $3,500,000 USD, and by 2010, estate tax was eliminated.
The Act’s sunset clause is responsible for the return of U.S. estate tax in 2011, when it will cast a wide net.
As of January 1, 2011, the exemption for U.S. estate taxes will be only $1,000,000 USD. Rates will range from 39 per cent to 55 per cent (with a 5 per cent surcharge for estates over $10,000,000 USD and up to approximately $17,000,000 USD).
This means that if a Canadian passes away in 2011 owning U.S. assets worth more than $60,000 and the value of their worldwide estate exceeds $1,000,000 USD, they will be subject to U.S. estate tax on the U.S. assets only.
The scary part is just how easy it is to hit that million dollar mark; virtually everything is included when calculating worldwide estate values for U.S. estate tax purposes, from life insurance to RRSPs.
And even with the plummeting value of U.S. real estate, it’s almost a given that your U.S. assets will be worth more than $60,000 if you own even one U.S. home. When you consider that “U.S. assets” also includes shares of stock in U.S. corporations, it’s pretty clear that, as of 2011, the IRS is the new boss in town.
If you’re a Canadian whose worldwide value is more than $1,000,000 USD and you own U.S. assets worth more than $60,000 USD, but you’re not sure how much U.S. estate tax you would owe in 2011, you can check out our estate tax calculator now, which computes U.S. estate tax liability in seconds.
Despite much talk that the U.S. government would freeze the exemption level at $3,500,000 USD, or at least deal with the issue prior to 2010, Congress has not yet come to the rescue. So far, legislative attempts to prevent the exemption from returning to the low pre-2001 bar of $1,000,000 USD have been unsuccessful.
If Congress doesn’t take action in the next month, the number of U.S. estates affected by the tax in 2011 will be astronomical. According to the Tax Policy Center, 44,200 estates will pay a whopping total of $34.4 billion in U.S. estate tax.
While the number of Canadians subject to U.S. estate tax may not be quite as high, given the rising number of Canadians purchasing U.S. real estate, there are plenty of snowbirds that will be affected in 2011.
Knowledge is power. You don’t have to sit around and drown your sorrows in hot chocolate, shivering in the Canadian cold, waiting for Congress to act. Instead, you can pro-actively design an estate plan that will defer, reduce or eliminate your U.S. estate tax liability.
We use a variety of estate planning tools, ranging from Cross Border Trusts to Non-Recourse Mortgages and gifting strategies. If you or your client has an estate plan that was created in 2008 or earlier, or if you or your client doesn’t have a plan in place at all, I strongly recommend that you seek out the advice of a cross border specialist.
The fact that the 2011 law could change, doesn’t mean that it will. It’s always best to craft an estate plan with the current law in mind. For now, this means preparing for a $1,000,000 USD exemption.
Take charge of your estate plan today. You might not be The Boss, but you can be the boss of your finances if you do what it takes to plan for your family’s future. And that’s something to be proud of.
Many Canadians looking to scoop up bargain Real Estate in Florida are finding themselves in a whole lot of hot water, instead of on the sunny beaches of their dreams. In fact many are now asking themselves “if we bought it…don’t we actually own it?” For many the answer, sadly, is no.
We at Altro & Associates, LLP are often asked why an attorney is needed if a title company has been appointed in a U.S. real estate transaction. That same question was also asked by Sonja Kleiman, a paralegal at our firm. The present article will shed some light on why!
A few weeks ago, I was contacted by a buyer we represented in a foreclosure closing in Florida and she was concerned about a recent report aired on CBC’s the National- In Depth & Analysis Report covering the Florida foreclosure fiasco, which raised a red flag for any Canadian who has recently purchased or is thinking of purchasing real estate in Florida.
As real estate attorneys practicing law in the wake of the subprime mortgage crisis, Florida, a favorite getaway and even permanent residence for many Canadians, was hit by a tidal wave of bank foreclosure and repossession cases. Unable to cope with the overload, banks and realtors recruited any and everyone to push through paperwork as quickly as they could, foregoing proper title examinations, forging documents, or simply skipping key signatures, formalities and rubberstamping affidavits without properly verifying authenticity in an attempt to move what was rapidly becoming billions of dollars in stagnant inventory.
Although the concept of robo-signing was first coined by investor advocate Nye Lavalle in 1999, things came to a head on October 8, 2010. Bank of America, one of the largest mortgage lenders in the US, declared a moratorium on all foreclosure sales and recalled thousands of transactions they suspected had been robo-signed. Cross border real estate purchases being the complex transactions that they are, unless all steps have been completed, the legal title of the property cannot be considered to have been transferred to the new owners.
There is some debate as to whether robo-signers were simply negligent and careless due to the overwhelming case load, or whether they were following orders to move it out at any cost; either way the result is the same. Suddenly your bargain real estate is no longer what you bargained for, tied up in already bottlenecked County Court for years to determine whether or not you own the property you bought and paid for.
Although Bank of America was first out of the gate to put a national moratorium on foreclosures, they were quickly joined by JP Morgan, Wells Fargo, and Citigroup, all recalling tens of thousands of foreclosures suspected of being robo-signed.
Purchasing Real Estate in the US is a complex transaction; if any one part is incomplete the legal title cannot be transferred and the consequences can be disastrous for the purchaser literally losing their homes. In fact your property could be sold out right from under you and you be obliged to turn to litigation.
Canadians vacation or investment home buyers beware the following statistics for foreclosure trends in South Florida:
- RealtyTrac.com reports 1 in every 155 housing units received a foreclosure filing in October 2010.
- Florida has the second highest foreclosure rate in the US for August, September and October 2010.
- Broward, Palm Beach and Miami–Dade Counties, among the most popular with Canadians, account for nearly half of all of Florida Foreclosures.
Canadians and Americans alike are up in arms over the foreclosure scandal whether they bought winter homes or year round retirement property, scrambling to get answers.
Of course with the Canadian dollar hovering at par and favorable interest rates, there are many good investments to be had in the US. A deal is a deal, but beware: a foreclosure sale may be a dud.
If you have recently purchased a home in Florida or are thinking about investing in US real estate make sure you contact a cross border specialist with experience in these and many more complex issues such as Cross Border Estate and Tax planning.