U.S. to reinstate estate tax

Yesterday, President Obama and the Republican Congressional leadership tentatively agreed to work on draft legislation that would reinstate U.S. estate tax January 1, 2011, with an “exemption” of U.S. $5 million for U.S. citizens and U.S. domiciliaries and a maximum estate tax rate of 35%.

The change would remain in effect for two years and the agreement would also extend the 15% maximum income tax rate on long term real estate capital gains for two years.

One result of the estate tax change would mean that Canadian residents that are nonresident aliens of the U.S. would not be subject to U.S. estate tax if their worldwide assets did not exceed U.S. $5 million at the date of death, and they had made no prior U.S. taxable gifts.

The agreement is only part of a wide ranging agreement on many other tax issues, the details of which must still be decided upon. Further, there is substantial regret amongst many Democrats in Congress that the President has agreed to the overall package of tax issues.