Trump’s Overhaul of US Estate Tax – What does it mean for Canadians?

25 octobre 2017 | Jag Gandhi

( Disponible en anglais seulement )

On September 27, 2017, Donald Trump released his “unified framework for fixing our broken tax code”, which included a one-line statement that would significantly impact taxation on death for many Americans and even some Canadians: “The framework repeals the death tax and the generation skipping transfer tax.”

Given the lack of details beyond the above statement, it is natural for people to wonder what this proposal really means and how the changes will impact them, particularly for Canadians.

As a reminder, US estate tax, which Trump calls the “death tax”, is a federal estate tax that applies at a rate of 40% on individual estates over $5.49million or $10.98million for married couples. The US estate tax affects Canadians who are dual US citizens and even Canadians who own US situs property, which includes both real property and US-based securities (whether registered or not). There is a significant amount of cross border estate planning that  Canadian-US citizens or Canadians owning US situs property engage in to help mitigate the effects of US estate tax.

While the repeal of US estate tax and generation skipping transfer tax would have a significant impact on the very rich Americans and how much tax that they would pay on death, such a repeal would also relieve some of the complicated estate planning required by many Canadians trying to avoid US estate tax from applying to their own estates.

However, such relief should be taken with caution, as the one-liner fails to address or explain whether the “death tax” will be repealed in its entirety or whether there will be exceptions for non-Americans owning US situs property. It would be difficult to imagine the US government giving up the opportunity to collect money from non-Americans who might be benefiting from being part American or owning US property.

Also, such repeal of tax, even if it does apply to both Canadian-US citizens or Canadians owning US situs property, would not alleviate any disclosure or filing requirements that many Canadians have as a result of their US connection. How that collected information will or could be used against dual citizens or Canadians owning US property is still unknown. Could another type of tax be created to collect money from non-Americans?

Therefore, while such repeal may seem exciting for Canadians, the news should be taken with a grain of salt until all the details become available. Until the reform moves through the US judicial system and more details are provided, we will not know how such a change will really affect cross border estate planning going forward.

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