US-Canada Estate Planning

When a family, an estate, or a single asset touches both Canada and the United States, two completely different death-tax systems can reach for the same property at the same moment. Canada taxes accrued gains at death through its income-tax system; the United States imposes a separate estate tax on the value of what a person owned. Neither regime was built to accommodate the other, and the Canada-United States tax treaty only partly reconciles them. The result is that a Canadian who owns a Florida condo, a portfolio of US-listed shares, or a vacation property in Arizona can face US estate tax at death even with no other US connection — while a US citizen living in Canada, or a mixed-citizenship couple, can be exposed on both sides at once. Planning the documents, the asset titling, and the ownership structures during life is what keeps the two systems from compounding. This page explains how each regime treats death, how the treaty bridges them, and where the common cross-border traps sit.

Two death-tax systems that do not talk to each other

Canada does not levy an estate tax or an inheritance tax. Instead, paragraph 70(5) of the Income Tax Act treats a person who dies as having disposed of most capital property at fair market value immediately before death — the so-called deemed disposition. The accrued gain is taxed as a capital gain on the deceased’s final (terminal) return, and the estate pays the resulting income tax. As of 2026 the capital-gains inclusion rate remains 50% (a proposed increase to two-thirds on gains above $250,000 was cancelled in 2025), so half of the accrued gain is added to income and taxed at the deceased’s marginal rate. There is no tax on the value of the estate itself, only on the embedded gain.

The United States works the opposite way. It imposes a federal estate tax on the value of property a person owned at death, with rates climbing to 40%. US citizens and US domiciliaries are taxed on their worldwide estates, with a large exclusion: under the One Big Beautiful Bill Act signed in July 2025, the basic exclusion amount is US$15 million per individual as of 2026 (US$30 million for a married couple), indexed for inflation from 2027. Importantly, that law repealed the scheduled 2026 sunset that would have cut the exclusion roughly in half — so the figure that older planning materials describe as “about to drop” is now permanent, subject to future Congressional change. Because US estate tax is tied to US law, the amount can still move when Congress acts, so any number should be read as “as of 2026.”

Non-resident, non-citizen individuals — the category most Canadians fall into — are a different story. They are subject to US estate tax only on US-situs assets, but the statutory exemption is just US$60,000, far below the citizen exclusion. The Canada-US treaty’s Article XXIX-B closes much of that gap, but the relief is prorated and must be claimed; it is not automatic. Two regimes, two triggers, one death — and no built-in mechanism to ensure the same dollar of value is not taxed twice.

US-situs assets owned by Canadians

The phrase that drives most cross-border estate exposure is “US situs.” For estate-tax purposes, US-situs property includes US real estate, shares of US corporations (wherever the certificate is held, including inside a Canadian brokerage account), and tangible personal property physically located in the United States. A Canadian who has never lived or worked in the US, but who holds Apple shares and a Naples condo, owns US-situs assets and is within reach of the US estate tax at death.

Some assets are deliberately outside the net. US bank deposits not connected to a US trade or business, the proceeds of life insurance on a non-resident’s life, and certain US debt obligations that qualify as portfolio interest are generally not US-situs for estate purposes. Mutual funds and ETFs require care: a US-domiciled fund is US situs even if it only holds non-US stocks, while a Canadian-domiciled fund holding US shares generally is not. This distinction — the wrapper, not the underlying holdings — is one of the most common surprises in a cross-border review.

Where exposure exists, the treaty offers two layers of relief. First, Article XXIX-B(2) gives a Canadian resident a prorated unified credit: the full US unified credit (the credit equivalent of the US$15 million exclusion as of 2026) multiplied by the ratio of US-situs assets to the worldwide estate. A Canadian whose worldwide estate is well under US$15 million will often owe little or no US estate tax once the prorated credit is applied — but the credit must be claimed on a return. Second, the treaty contains a de minimis rule: shares of US corporations and similar property are generally relieved from US estate tax where the entire worldwide estate does not exceed US$1.2 million, leaving (broadly) only directly held US real property potentially taxable below that level.

The Form 706-NA filing trap

A point that catches many families: the obligation to file a US estate-tax return is separate from the obligation to pay. When a Canadian dies owning US-situs assets with a gross value over US$60,000, the estate is required to file Form 706-NA within nine months of death — and that requirement stands even if the treaty’s prorated unified credit reduces the actual tax to zero. The treaty credit and the prorated relief are claimed on that return; skipping the filing means the position is never properly elected. Filing also matters for the heirs, because it documents the step-up in cost basis the beneficiaries receive on inherited US assets. Treating “no tax owing” as “no return needed” is one of the more expensive cross-border misconceptions.

Ownership structures that change the situs result

Because situs is determined by how an asset is held, the structure chosen during life often matters more than anything done after death. Common approaches for Canadians acquiring US property include:

• Holding US real estate through a Canadian corporation — the shares of a Canadian company are not US situs, which can remove the property from the US gross estate, though this can create personal-use benefit and Canadian corporate-tax considerations that need their own analysis.
• A properly structured partnership — used to change the character of the interest, though the situs treatment of partnership interests is fact-dependent and contested, so it is not a one-size solution.
• A cross-border irrevocable trust — to hold US assets outside the individual’s gross estate while addressing Canadian attribution and 21-year deemed-disposition rules. See our cross-border trusts page for how these are built.
• Life insurance — not to avoid the tax but to fund a projected estate-tax liability, so heirs are not forced to sell the very property the tax attaches to.

Each option carries trade-offs on both sides of the border — a structure that solves a US estate-tax problem can create a Canadian income-tax or shareholder-benefit problem if it is not coordinated. The right answer depends on the asset, the family, and the size of the worldwide estate. Our FIRPTA page covers what happens when that US real estate is later sold, and our US estate tax for Canadians page goes deeper on the exposure itself.

Mixed-citizenship couples and the QDOT

The unlimited marital deduction is the cornerstone of US estate planning — a US citizen can leave any amount to a US-citizen spouse free of estate tax. But that deduction is denied when the surviving spouse is not a US citizen, on the theory that a non-citizen spouse might leave the US tax net before the deferred tax is ever collected. For a Canadian-resident couple where one spouse is American, this is a live issue.

There are two principal ways to preserve the deferral. The first is a Qualified Domestic Trust (QDOT) under IRC section 2056A: property passing to the trust qualifies for the marital deduction, and estate tax is deferred until the surviving spouse takes principal distributions or dies. A QDOT requires at least one US trustee, and where the trust holds more than US$2 million in assets, a US bank must act as trustee or the trustee must post a bond or letter of credit equal to 65% of the trust’s value in favour of the IRS. These are substantive, ongoing obligations.

The second route is the treaty’s marital credit under Article XXIX-B(3) — an additional credit, broadly equal to the prorated unified credit (so potentially doubling the relief), available where US property passes to a surviving spouse. To claim it, the estate must waive the marital deduction it might otherwise elect. A QDOT can be the right answer or the wrong one depending on where the surviving spouse intends to live, the size of the US-situs holdings, and whether the deferred tax is ever realistically going to be paid — and the treaty marital credit is sometimes the simpler, cleaner path. These choices are made at the will-drafting stage and shape the surviving spouse’s position for decades. Our guide on cross-border estate planning for mixed-citizenship couples walks through the decision.

The Canada side: deemed disposition, the spousal rollover, and registered plans

On the Canadian side, the central event is the deemed disposition at death. The key relief is the spousal rollover under subsections 70(6) and 73(1): capital property left to a surviving spouse, common-law partner, or a qualifying spousal trust transfers at the deceased’s adjusted cost base rather than fair market value, deferring the gain until the survivor disposes of the property or dies. A US-style will drafted without this rule in mind — for example, one that routes property to a trust that does not meet the Canadian spousal-trust conditions, or directly to non-spouse beneficiaries — can accidentally trigger the full deemed disposition and a tax bill that careful drafting would have deferred.

The principal residence exemption can shelter the gain on a Canadian home but does not extend to US vacation property, which remains fully exposed to the Canadian deemed disposition and, separately, to US estate tax on the same asset. Registered plans add another layer: RRSPs and RRIFs are generally deemed to be fully received as income on death unless they roll to a spouse or dependant, and their cross-border treatment (including how a US person reports them under the treaty) needs to be mapped alongside the estate plan. Families who are also contemplating a move should read this together with our departure tax planning page, since emigrating from Canada triggers its own deemed disposition under section 128.1.

Coordinating the wills

The single most preventable cross-border estate problem is two well-drafted wills that each ignore the other country. A US lawyer unfamiliar with Canadian capital-gains-at-death rules can inadvertently increase Canadian tax — for instance, by directing a distribution that fails the spousal-rollover conditions. A Canadian will drafted with no eye on US situs can leave US-situs assets exposed to estate tax that simple retitling or a different ownership vehicle would have removed. Where a family holds assets in both countries, the documents — wills, beneficiary designations, account titling, and any trusts — need to be read as a single plan that reaches a consistent result on both sides. We work alongside the family’s estate solicitor on the will itself rather than replacing them, so the income-tax and estate-tax analysis informs the drafting.

Common traps

• Assuming “Canada has no estate tax” means no death tax — the deemed disposition can produce a large Canadian capital-gains bill on the same assets.
• Holding US-domiciled ETFs or mutual funds — the fund’s wrapper, not its holdings, can make it US situs.
• Treating “no US tax owing” as “no US return” — Form 706-NA is required over the US$60,000 gross-situs threshold regardless.
• A US-citizen spouse leaving assets to a non-citizen spouse outright — the marital deduction is lost without a QDOT or the treaty marital credit.
• Joint tenancy as a fix — adding a non-owner to title can be a deemed disposition in Canada and a gift for US purposes, sometimes creating two problems to solve one.
• Forgetting the treaty must be claimed — the prorated unified credit, the marital credit, and the de minimis relief are positions taken on a filed return, not defaults.

How Barrett Tax Law approaches US-Canada estate planning

Barrett Tax Law’s cross-border practice is led by Simone Barrett, who is admitted in Ontario and in Florida — so a file can be looked at through both the Canadian income-tax lens and the US estate-tax lens at the same table. A typical engagement starts by classifying every asset by tax situs and by who would receive it under the current will and beneficiary designations. We then model the projected Canadian and US tax position if the person died today, identify the largest exposures, and set out options — usually some combination of revised designations, retitling, ownership restructuring, life insurance to fund a projected liability, and trust planning — with the trade-offs on each side spelled out. We coordinate with the family’s estate solicitor on the will so the documents and the tax analysis point the same way. If you own assets on both sides of the border, or you are a mixed-citizenship couple, you are welcome to book a free, confidential consultation to talk through where you stand. You can start from our cross-border tax overview, and where US property may later be sold, our section 116 clearance page covers the Canadian withholding side of cross-border real estate dispositions.

This page is general information, not legal or tax advice. Cross-border estate planning depends heavily on the specific facts and on the rules of both countries, which can change — the US estate-tax figures in particular are set by US law and are stated as of 2026. Speak with a qualified advisor about your own situation before acting.