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Should you file a U.S. estate tax return?

Any Canadian who is not a U.S. citizen and who owns property valued at more than US$60,000 at death must file a U.S. estate tax return.

Property is defined as real estate, such as a condo in Maui or timeshare in Phoenix, tangible property, such as cars, furnishings, boats, etc., shares of U.S. companies even when they are held in a Canadian brokerage account, stock options for U.S. company shares, U.S. mutual funds held in trust in the U.S.

Whether you actually have to pay estate tax is much more complicated.

A U.S. estate tax return must be filed if a deceased Canadian resident who is not an American citizen owned U.S. assets exceeding $60,000 at death. However, if the deceased made substantial lifetime gifts of U.S. property, a U.S. estate tax return may be required even if the U.S. assets do not exceed $60,000. If your total worldwide estate in 2013 is less than $5.25 million U.S. at the time of death, you will likely not have to pay any U.S. estate tax. If the estate is passing to a spouse, a marital credit may also be available.

With the passing of the American Taxpayer Relief Act of 2012, the estate tax on the taxable portion of the estate, if any, is 40 per cent. The exemption of $5 million for 2011 was made permanent, and is indexed for inflation. However, the exemption is prorated for Canadians, based on the value of their U.S. versus worldwide assets.

The total worldwide estate includes:

• Proceeds of insurance on the deceased’s life, generally including proceeds receivable by beneficiaries other than the estate.

• Full value of property the deceased owned at the time of death.

• Property the deceased and a surviving spouse owned as community property.

• Several kinds of transfers the deceased made before death.

• Certain annuities to surviving beneficiaries.

• Property in which the deceased either held a general power of appointment, or used or released this power in certain ways before death.

The deceased is subject to U.S. estate taxation on the fair market value of their U.S. assets at the time of death, including:

• U.S. real estate

• Tangible personal property in the U.S. (cars, boats, etc.)

• Stock of corporations organized in or under U.S. law, no matter where the stock certificates are physically located.

• Certain debt obligations in the U.S.

The key points here are:

• Even though you might not liable to file any U.S. estate tax return do you want to go through the process of filing this return, which is quite extensive?

• Do you want the U.S. government to be in possession of your personal information and thus have you on the IRS radar?

Always consult your advisor before taking any action.

— Stuart Kirk, CIM, is a wealth advisor with Precision Wealth Management. The opinions expressed are those of the author and may not reflect those of Precision Wealth Management. He can be reached at stuart@precisionwealth.ca or 250-954-0247.

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