In The Communist Manifesto, Karl Marx and Friedrich Engel called for the “Abolition of all rights of inheritance.” Simon Black reports that the United States inheritance tax will go up from 35% on the everything after the first $5,000,000 to 55% on everything over $1,000,000.
US Expats, what are you waiting for? Consider the price of my house: In 1997 when we bought it, it was worth $200,000 or about $150,000. Now it is worth $460,000 CDN or US $460,000. At that rate, in 15 years, when I’m ready to retire, my house will be worth 1.38 million, and if in another 15 years, if I die at the ripe age of 80, my house will be worth $4.14 million, and since my half will be worth 2.07 million, it would be subject to $588,500 in estate taxes to the US–if I hadn’t relinquished my US citizenship. The US could potentially expect my wife to sell the house to pay the taxes. But she is Canadian. Why should she pay taxes to the United States on her inheritance in Canada.
Do you have someone, a spouse or a child who depends on you for whom you wish to leave an inheritance? Do you want the United States to lay claim to 55% of your estate, whatever happens to be over $1,000,000? No? Then, get yourself to a nearby US Consulate and renounce already.
@Petros, Although Canada doesn’t have an inheritance tax, it does tax the accumulated capital gains upon inheritance. In your example, I think Canada wouldn’t tax the capital gains of the house where you live, but I think it would tax accumulated capital gains on other assets. I’m not sure. But anyway, Canada doesn’t do the absurdity of taxing inherited money or assets that had no appreciation, which other countries do.
The inheritance/estate/gift/wealth/property/transfer tax is the tax that I despise the most. There is simply no justification for it because the money or assets have already been taxed. I prefer Sweden, with the very high income tax rates but no inheritance, gift or wealth taxes. If the Republicans are smart, they could bargain with the Democrats by accepting the higher income tax rates but abolishing the estate and gift taxes. It’s double taxation, less than 1% of the population pays it, it’s less than 1% of the federal revenue, and more money is spent on compliance and avoidance than on the taxes themselves. Similar to citizenship-based taxation and FATCA.
@Petros/Shadow Raider
Upon the death of a Canadian, all assets (not the principal residence) are deemed to be sold and any capital gain on the assets is thus ‘realized’ on the final tax return. If there is a surviving spouse, the assets can be passed to that spouse at Adjusted Cost Basis and therefore the tax on the capital gain would not be ‘owing’ until the death of the 2nd spouse.
All inflation must be taxed. Printing money has a beneficial effect upon tax generation. Home appreciation in good neighborhoods has been a doubling over 10 years, although slowed slightly by the economic crisis. There is no relief in most countries for home capital gains, especially if one does not buy up afterwards. It’s all a good reason to go to the Arbuck.
https://www.facebook.com/events/163591980431439/
Sponsored by END THE FED Arkansas and the Libertarian Party of Arkansas, the Little Rock rally will raise awareness about the privately controlled Federal Reserve’s reckless control of the US monetary and banking systems, its impact on our food and fuel prices, and the continued devaluation of the US dollar.
At the rally, END THE FED Arkansas will introduce the ArBuck, an alternative currency to serve as a more stable medium of exchange and to strengthen local Arkansas economies.
Also the idea that if I hadn’t renounced and my wife were to inherit from her parents (all of whom are non-USPs with no connections to the USA) that inheritance would be construed as taxable in the USA simply makes me sick.
@notamused, it looks like you’ve got the inheritance tax thing a bit muddled.
The US taxes the estate of the deceased. You — even if you were still a US citizen — inheriting from non-USPs isn’t in any way taxable to the US. Suppose though that as a US citizen you later want to pass that on to non-USP children or a non-USP spouse. That’s when the US would want its estate tax cut (or gift tax cut, if you give it away). By renouncing you’ve sidestepped the entire issue.
@Watcher Thanks for the clarification. I’m still wondering, however, how that would work in a FATCA world if an inheritance was deposited to a joint account with a non-USP spouse. The balance would certainly be reported and how would one explain where it came from? Perhaps I would have to pay gift tax on my spouse’s inheritance in the joint account?!? As you say, it’s not my problem anymore, but others may be interested in that issue.
@notamused, look at IRS form 3520, “Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts”. The IRS demands that you send this in if you’ve received a gift or bequest larger than $100k in a year. No added tax liability, just another stealth “information-only” form with a huge workload and an IRS trademark massive penalty for non-filing.
@Watcher Thanks again. So effectively (albeit indirectly) it does indeed result in US taxation of funds (over the limit), as I suspected. Isn’t that just wonderful.
@notamused, just to be clear, form 3520 results in no added taxation. It’s just a “reporting” obligation. A US citizen can inherit $100MM from a great aunt in Peru, and as long as they tell the IRS that you did on this form they’ll pay no US tax. It’s only when they try to pass that along later to non-US person relatives that the US may want to dip into it…
Ah, OK – ta.
@Watcher
Well, almost the entire issue. If the US suddenly decides that your children are US persons, and you’re a covered expatriate, then it will try to charge them inheritance tax on any gift or bequest they receive from you. It’s exactly like the estate tax without the exclusion. See 26 USC § 2801.
Someone (I think it was geeez) posited a scenario in which the US tried to attribute US citizenship to the children of renunciants in the name of “saving lost Americans who are being stripped of the Greatest Citizenship on Earth by their selfish tax-evading parents”. If you ever see that happening, the inheritance tax is the reason why.
@all can’t believe no one mentioned the next plank of the Communist Manifesto, right below “3. Abolition of all rights of inheritance” … “4. Confiscation of the property of all emigrants and rebels”.
@Eric, yes indeed, and why I was very careful to write “non-USP children or non-USP spouse”. I’ve lost count of the places where I’ve read blanket statements saying that gifts and bequests to US citizens are never taxable. One example from a site that really should know better:
Post-HEART it’s hard to imagine that a covered expatriate would give money directly to a USP. Far better to gift to a non-USP non-covered expat, some other family member say, and then let that person gift — completely unconnected, of course! — to the USP in question.
You’d almost think the US doesn’t want inwards investment…
@Eric, I was saving that bit about emigration for another post. The actual list of measures that Marx and Engels called for was really quite a surprise for me reading it yesterday. People say that capitalism is at fault for the economic woes in the world. Certainly that is not the case, because free-market capitalism has not been in place in most of the world for a very long time. When most of the Marxist agenda is already implemented in the West, it’s a wonder than anyone can actually talk about capitalism. The worst of all is the state-run education. Have you heard that Ron Paul is now working on a book about home-schooling, and in his farewell speech to Congress he decries the need for an intellectual awakening in the United States? That is truly an understatement when both the Republocrats and Demolicains think that they can forever defy the laws of mathematics, despite the observations of history, by their continual abUSe of the US currency.
Ron Paul on sound money prospects in the USA (where he talks about his coming book on homeschooling briefly):
Eric, I don’t remember that situation, but if the law is on the books, then it will eventually be used at some point. I CAN tell you for sure that with gifts, citizen and non-citizen spouses have different limits.
There’s also a 2%-8% gift & inheritance tax in Brazil on property, which is handled by the state taxing authorities. This is in addition to the 2% transfer tax and 1,5%’ish notary fees. There are only a couple of narrow exceptions. Hopefully I can get rich and move to one of those tax havens, like Eduardo Saverin did 🙂
Peter, just take a look the article on Wikipedia of the US Dollar. It’s now worth roughly 3 “original” pennies now. First lesson I’m going to teach my kid: never save money in any national currency. It’s a recipe for distaster. Even if I had it, I wouldn’t even keep large amounts of money in US dollars, Canadian Dollars, Swiss Francs, Euros, any currency. If politicians have control over it, you are guaranteed to lose.
I still can’t figure out why we, as humans, can’t see this story repeating itself over for thousands and thousands of years……….
I am starting to review this site to get some answers for my 95yr old aunt. She has dual citizenship (cdn/usa). When she was 80, she thought it would a good idea to obtain her dual citizenship which she did at that time. She has never worked or lived outside of Canada. Since obtaining her US citizenship she has been filing US taxes.
Now as she is really trying to ensure all her monies/estate is in good shape (as she is 95), and I am helping her, we were wondering if there are tax implications for her estate; and anyone she wishes to leave an inheritance to. I expect her US tax accountant can help answer those questions, but would appreciate any comments and suggestions. Thank you
IMO it largely depends on whether or not she has US assets and/or US heirs.
If substantial US assets such as a vacation property, on the sale of the asset the funds would be tied up until there was proof that an estate tax return had been filed. Therefore any substantial US assets might well best be sold sooner rather than later.
If no US assets life becomes simpler. If no US heirs, simpler still. If no to both the US can be ignored
There is a 5.25 million exemption to estate taxes in the US- soon to go to 10 million
The mere act of filing a US estate tax return is expensive and onerous even when no taxes are owed- best avoided.
If she is wealthy, professional advice is warranted. I’m not a pro.
This is a very old thread and comments might soon disappear.
‘Ask your questions -expat taxes’ might be better
In hindsight, it’s a pity your aunt decided to document her US citizenship and begin filing US taxes. But if there are no US assets or heirs and the estate is not huge, the whole tax business can probably be ignored.
thank you for your comments. The estate may be between 1-2 million CDN. Of the heirs, 2/6 are US citizens.
Will ensure the tax guy ensures this is all okay…
Are the US citizens also US residents and/or US tax compliant?
‘The estate may be 1-2 million.’. If none of the assets are in the US, there is no problem. If they are, I would sell them now. The Canadian gov will exact capital gains taxes. The US gov. won’t be owed a penny . (or a nickel). Filing a US estate tax return would be optional. -somewhat expensive.
Her choice of executor and/or tax guy is especially important if there are no US assets. If that is the case, she needs to find reliable people who will not subject her totally Canadian estate to the US tax system merely to cover their own asses. Filing a US estate tax return could cost the estate $7-$10k US even if no tax is actually owed. There was a considerable discussion of this very subject on a recent thread.
Found it: http://isaacbrocksociety.ca/2017/12/06/estate-matters-for-former-us-citizens/
In this case she is not a former US citizen but the discussion is relevant nevertheless.
to answer the question from Nononymous – yes, the 2 US citizens who are likely to be in receipt of the inheritance are US tax compliant. However, one of the other 4, I believe just became a US citizen (not sure if he has dual citizenship) , but I think he may have relinquished his Canadian citizenship.. but not sure. I don’t know the details of how he files taxes. I expect files cdn and usa taxes as he lives in Washington state, owns a home in Washington, but works in Canada.
Maz57 makes an essential point. I think you should pay particular attention. If you go with abig trustco or a lawyer with US connections as executors they will cover themslves before they look after the estate’s interests. Because their US connections oblige them to.