For readers of my original article in the November issue of Advisor’s Edge (Read: U.S. estate tax laws are changing), I have reviewed the U.S. estate tax regime for 2009, including the prospects for the extension of the US$3.5 million exemption for future years.

After the article was published, in early December, the U.S. House of Representatives had indeed voted for a one year extension of the US$3.5 million exemption. However, the U.S. Senate — which had 8 years to deal with this — adjourned before the end of the year without addressing this issue.

The result is that presently — under laws passed in 2001 that no one ever thought would see the light of day — there is NO estate tax in the U.S. if you die in 2010.

Zero, zilch, nada.

This would apply to U.S. citizens and Canadians who might own U.S. property that would be subject to U.S. estate tax. There are rumblings that Congress will make the law retroactive to the beginning of this year. However, there are a number of scholars that have already suggested that such a move would be unconstitutional and that if such a move was made, it would likely end up in the courts.

Unless the House and Senate do something to fix this mess, it gets worse next year, as the estate tax exemption goes to US$1 million (from US$3.5 million in 2009) with a maximum rate of 55% (45% in 2009).

It is important to note that this only applies to U.S. estate taxes and not income taxes. If Canadians are renting or selling U.S. real estate in 2010, U.S. income tax (capital gains/losses) and withholding tax implications would still apply.

  • Terry F. Ritchie, CFP™ (U.S.), RFP (Canada), TEP, EA, is a Calgary-based cross-border financial planner with expertise in both American and Canadian tax regimes, and co-author of The Canadian Snowbird in America, The Canadian in America, and The American in Canada.

    (01/07/10)