Blog by David A. Altro & Jonah Z. Spiegelman

The federal U.S. estate tax is an incredibly important topic for some U.S. citizens and a complete non-issue for others. As such, it is useful to understand the rules, if only to determine whether or not it is something you need to be concerned with.

The first point for every U.S. citizen to remember is that the IRS will impose an estate tax on the fair market value of all assets owned by the deceased, regardless of where they are located, and regardless of where the person lived. Just by virtue of citizenship, the IRS has jurisdiction to tax an American’s worldwide estate.

The second important point is that the U.S. estate tax can be very high. Under the current rules, the maximum tax rate of 40% applies on the value of an estate over $5.34 million. This amount is subject to the availability of Unified Credits and other exclusions. Nonetheless, there is no doubt that the potential exposure to such heavy taxes is worth planning for, and many U.S. citizens who have long lived in Canada have not had complete advice from their Canadian estate planners.

Before getting into the details on how the tax is calculated, which we will do in a future blog, one final important point must be made. The Internal Revenue Code specifically makes the executor of the estate liable for the estate tax. As such, the burden of your failure to properly plan for the estate tax may end up being borne by your family or friends who have done you the favour of agreeing to help settle your affairs.

As will be described in coming blogs, there are many rules that can cause a tax to be imposed on assets that are not at the disposal of the executor. This could mean significant hardships that are rooted in nothing more than bad planning.

Finally, Altro Levy is closely following proposed changes to the U.S. estate tax regime. You can read about U.S. estate tax in the news here.