Canadians who own property or investments in the United States need to be proactive in managing their cross-border estate plans. With evolving tax thresholds, exemptions, and treaty rules, navigating U.S. estate tax laws can be challenging—especially for non-residents.
What U.S. Assets Are Subject to Estate Tax for Canadians?
U.S. estate tax applies to what are known as U.S. situs assets held at the time of death. For Canadian residents, this typically includes:
- U.S. real property (e.g., vacation homes)
- Shares in U.S. corporations—even if held through a Canadian brokerage
- Physical assets located in the U.S.
- Some U.S.-based mutual funds and exchange-traded funds (ETFs)
If the total value of these assets exceeds USD $60,000, the estate is required to file Form 706-NA. However, the actual tax payable depends on the total global estate value and the specific benefits available under the Canada-U.S. tax treaty.
As we approach 2025, cross-border estate planning is more important than ever. Proper planning can help minimise tax exposure and ensure your assets are passed on as intended.
US Estate Tax Exemption 2025: What’s Changing?
In 2025, the US estate tax exemption for U.S. citizens and domiciliaries is expected to drop significantly unless new legislation extends current limits. For Canadians, this affects how the Canada-U.S. tax treaty calculates the prorated exemption.
Here’s how it works for non-residents:
- Canadians receive a pro-rata portion of the U.S. exemption, based on the ratio of U.S. situs assets to their total global estate.
- The expected U.S. exemption is set to fall from $13.61 million (2024) to approximately $6 million (2025) unless extended.
Example: If your worldwide estate is $12 million and U.S. situs assets are $3 million, you may only get 25% of the U.S. exemption, i.e., $1.5 million. Anything above that is subject to tax rates up to 40%.
RELATED: Bare Trusts in Canada – Agreement & Tax Implications
How the Canada-U.S. Tax Treaty Helps
Fortunately, the Canada U.S. Tax Treaty provides relief for many Canadians facing the US estate tax for non residents. Key treaty provisions include:
- Pro-rata unified credit: Reduces tax payable based on total estate value.
- Spousal credit: A surviving Canadian spouse may defer or reduce estate tax.
- Foreign tax credit: Canadian estate taxes may offset U.S. estate tax liabilities.
These treaty mechanisms are essential for optimising your cross border estate planning Canada strategy.
| Year | U.S. Estate Tax Exemption | Notes |
|---|---|---|
| 2024 | $13.61 million | Current law (indexed) |
| 2025 | ~$6 million (expected) | Reverts to pre-2018 levels if the Tax Cuts and Jobs Act (TCJA) sunsets. |
Estate Tax Return Canada: When and How to File
When a Canadian resident passes away owning U.S. assets valued over USD $60,000, the estate representative is required to file Form 706-NA, the U.S. estate tax return for non-residents. This must typically be submitted within nine months of the date of death. While it’s possible to request an extension, interest will begin to accrue after the original deadline.
Essential Points to Keep in Mind:
- Proper valuation of U.S. assets is critical and must be supported by reliable documentation.
- To access treaty-based exemptions, the full value of the global estate must be disclosed.
Working with a cross-border tax advisor is strongly recommended to reduce the risk of double taxation and to ensure compliance with both Canadian and U.S. regulations.
Being aware of these rules can help protect the estate from unexpected liabilities and ensure a smoother administration process.
Avoid Surprises with Proper Cross-Border Planning
In the absence of strategic planning, Canadians may be subject to unanticipated tax obligations to the US inheritance tax threshold. Proactive steps can reduce or eliminate this risk:
- Use Canadian corporations or trusts to hold U.S. real estate.
- Gift assets during your lifetime to reduce U.S. situs property at death.
- Life insurance can help offset potential estate tax costs.
- Consider Canadian testamentary trusts for further protection.
Cross-border estate strategies should be personalised based on asset size, ownership structure, and residency status. Proactive planning broadens strategic flexibility.
Common Misconceptions About US Estate Tax for Canadians
- My U.S. assets are under $60,000, so I’m safe.
Filing may not be needed, but remember, market fluctuations could push your holdings above the threshold unexpectedly. - Only U.S. citizens pay U.S. estate tax.
Misconception. Canadians with U.S. situs assets are subject to estate tax rules as non-resident aliens. - A Canadian will override U.S. tax law.
Not true. U.S. tax law applies to U.S.-based property, regardless of your will’s jurisdiction.
Next Steps for Canadians with U.S. Assets
With the upcoming changes to the US estate tax exemption 2025, Canadian investors, snowbirds, and real estate owners should review their estate plans now. Seek advice from professionals with experience in:
- U.S. tax compliance
- Cross-border estate planning Canada
- International probate and asset transfers
A well-prepared estate plan will not only reduce your tax burden but also protect your heirs from legal complications.
Next Steps for Canadians with U.S. Assets
If you’re a Canadian resident who owns or plans to acquire U.S. situs assets—such as real estate, stocks, or business interests—now is the time to act. With potential changes to the U.S. estate tax exemption in 2025, careful preparation can help reduce your exposure and protect your legacy.
Here are key actions to consider:
- Evaluate Your U.S. Asset Exposure
Start by identifying all U.S. situs assets and assessing whether their combined value exceeds the $60,000 U.S. filing threshold. - Consult a Cross-Border Tax Specialist
Engage with professionals who understand both Canadian and U.S. tax regimes. They can help you navigate the complexities of cross-border estate planning in Canada. - Review Ownership Structures
Explore legal structures such as Canadian corporations, partnerships, or trusts that may offer protection from U.S. estate tax, while remaining compliant with both countries’ laws. - Consider Life Insurance for Liquidity
Life insurance can provide the liquidity needed to cover any unexpected U.S. estate tax liabilities without having to sell off inherited assets. - Update Your Will and Estate Plan
Make sure your will and estate planning documents reflect your current assets and are structured to address ownership in both Canada and the United States. Seamless coordination between Canadian and U.S. legal professionals is essential to ensure your estate plan functions effectively across jurisdictions.
Estate planning goes beyond minimizing taxes—it’s a vital tool for preserving wealth and protecting your legacy. For Canadians with substantial U.S. holdings, the time to prepare is now. Anticipating regulatory changes and taking early action can help you avoid unexpected tax liabilities and ensure your wishes are carried out smoothly.
Preserving Cross-Border Wealth: A Strategic Imperative
Understanding and managing U.S. estate tax exposure isn’t just a matter of compliance for Canadian residents—it’s a deliberate and essential part of long-term wealth strategy. The intersection of Canadian residency and U.S. situs asset ownership creates a complex web of tax obligations that, if left unaddressed, can significantly impact the value of what you pass on to future generations.
With the U.S. estate tax exemption expected to drop in 2025, Canadians with U.S. assets face heightened exposure. What once appeared to be a distant concern for only ultra-high-net-worth families is now a real and growing risk for a broader group of investors, retirees, and business owners.
A well-designed estate plan considers not only tax minimisation but also liquidity, asset distribution, and compliance across jurisdictions. By working with a qualified cross-border financial advisor, Canadians can create a plan that protects both wealth and family harmony.
The decisions made today will define the financial security of tomorrow. Now is the time to take a proactive approach to preserve your legacy, reduce unnecessary tax burdens, and ensure a smooth transition of assets to the next generation.
