US Estate Tax Appears to be Here to Stay
Earlier this year, President Obama’s first budget for 2010 contained a proposal which would permanently extend the US estate tax. If this budget is passed into law, planning for US estate tax will continue to be very important.
US estate tax applies to the fair market value of the world-wide property of a US citizen, a Green Card holder and an individual resident in the US at the time of their death. In addition, US estate tax applies to property situated in the US that is owned by non-residents of the US. In calculating an individual’s taxable estate, deductions for debts and certain expenses are permitted. However, for Canadian residents the permitted deductions are prorated based on the value of their US gross assets over their world-wide assets, meaning that US estate tax can apply on any US-situs assets, such as US real property or US securities, even if the value appears to be below the exemption levels for the application of the tax.
US estate tax is calculated using a graduated set of rates. Under existing US law that was passed in June 2001, US estate tax was to have been repealed in 2010 (which meant that no US estate tax would be levied on any estates where the individual died in 2010) and then would revert to the old exemptions and rates for 2011 if there were no further legislative changes (the old top US estate tax rate is 55% and the effective exemption amount is $1 million US). There has been a great deal of uncertainty in recent years as to whether this tax would be repealed permanently or whether the tax would continue in some form.
Obama’s budget proposal for 2010 appears to answer this question. Under this proposal, the US estate tax, as it is in effect for 2009, will be permanently extended and indexed to inflation. For 2009, the top US estate tax rate is 45% and the exemption is $3.5 million US.
If this new proposal is enacted, it will confirm that US estate tax is here to stay. Planning to mitigate the impact of this tax will continue to be a key component of tax planning for an individual’s estate.
If you have any questions on US estate tax issues, contact your BDO advisor.
This is a publication of BDO Dunwoody LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this document is current as of August 31st, 2009.
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© 2009 BDO Dunwoody LLP
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