Are you subject to U.S. estate tax?

If you own assets in the U.S, you need to familiarize yourself with U.S. tax rules.

The estate tax is based on the fair market value of all U.S. assets owned at the time of death. It can reach 40%, depending on the value of U.S. assets and the worldwide estate.

But not all Canadians who own U.S. assets will be subject to U.S. estate tax. A look at the tax rules will help you determine whether you’re exposed.

U.S. estate tax rules

On January 2, 2013, the American Taxpayer Relief Act of 2013 was signed.

Your U.S. estate tax liability now depends on the answers to the following two questions:

• Is the value of your U.S. estate more than $60,000?
• Is the value of your worldwide estate greater than US$5.43 million in 2015, or US$5.45 in 2016?

If the fair market value of U.S. assets is less than $60,000 on the date of death, then there is no U.S. estate tax. If the value of U.S. assets on death exceeds $60,000, you may still be exempt if the value of your worldwide estate upon death is less than $5.43 million in 2015 (or US$5.45 in 2016).

Everything counts when calculating your worldwide estate — including RRSPs and life insurance. And if you’re married, it’s important to calculate the value of your spouse’s estates as well.

What are U.S. assets?

Here’s a complete list of U.S. assets subject to U.S. tax.

• Real estate property located in the U.S.
• Certain tangible personal property located in the U.S., such as furniture, vehicles, boats and airplanes
• Golf club equity memberships
• Shares of U.S. corporations, regardless of the location of the share certificates (even inside RRSPs or RRIFs)
• Interests in partnerships owning U.S. real estate or carrying on business in the U.S.
• U.S. pension plans and annuity amounts (IRAs and 401K plans)
• Stock options of a U.S. company (public or private)
• U.S. mutual funds
• Money owed to Canadians by American persons
• Money market accounts with U.S. brokerage firms

The following is a list of U.S. assets not subject to U.S. estate tax.

• U.S. bank deposits
• Certain debt obligations, such as U.S. government bonds
• American depository receipts
• Term deposits/guaranteed investment certificates
• Real estate situated outside the U.S
• Canadian mutual funds denominated in U.S. dollars that invest in U.S. stocks
• Life insurance proceeds payable on the death of a Canadian citizen and resident who is not an American citizen
• Non-U.S. stocks, bonds and mutual funds

To reduce your tax liability, consider an alternative ownership structures for some of your U.S. holdings, such as corporations, cross-border trusts, or limited partnerships. These structures avoid probate and guardianship proceedings in the case of incapacity.

As for any U.S. stocks you hold, consider selling or creating a Canadian holding corporation so you can transfer the stocks on a tax-free basis.

There are a variety of strategies that can protect you from the new rules. But first, determine whether you’re exposed.

David A. Altro is a Florida attorney, Canadian legal advisor and the managing partner at Altro Levy. He can be reached at 416-477-8155 or daltro@altrolevy.com.

Article updated in June 2016.