This article is one in a series of related topics on Canadians owning & renting property in the United States. Prior to implementing any strategies contained in the articles, individuals should consult with a qualified tax advisor, accountant, legal professional or other professional to discuss implications specific to their situation.
There are several strategies that you can consider to minimize your exposure to U.S. estate tax. These include gifting/ selling property prior to death; holding property in a trust, Canadian partnership or Canadian Corporation; or acquiring life insurance to cover the potential tax liability. Note that if you use the property for personal purposes, a Canadian holding company or partnership may not work. On the Canadian side, you may have a shareholder benefit. From the U.S. point of view, they may look through the two structures and deem that you own the property personally anyway.
For additional information on U.S. estate taxes and on strategies to minimize your exposure, please ask your advisor for a copy of our article on U.S. estate tax for Canadians. Before implementing any of the strategies to reduce exposure to U.S. estate tax, you should consult with a qualified cross-border tax advisor to ensure your individual circumstances are considered and potential tax implications are evaluated.
For example, gifting real estate located in the U.S. can trigger the U.S. gift tax for Canadian residents if the value of the gift exceeds certain minimum amounts. If the total value of all gifts to any individual is US$13,000 or less (2011 value) in a given year, these gifts will not attract U.S. gift tax. This threshold rises to US$136,000 (2011 value) if the gift of tangible property is made to a spouse who is not a U.S. citizen. If you exceed these amounts, you are subject to gift tax and will not be able to use the $5,000,000 (for 2011 and 2012) lifetime gift tax exclusion since it is only available to U.S. citizens, U.S. green card holders or U.S. resident aliens who are domiciled in the U.S.
Another example that may trigger adverse tax consequences worthy of consideration is the potential U.S. and Canadian capital gains tax that may be triggered on the sale of U.S. real estate property that has appreciated in value since the original purchase date.