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In our blog just under a year ago of January 29, 2025,
we speculated on what to expect for U.S. estate tax under a second
Trump administration. With the decrease to about half the current
amount of the lifetime exclusion amount set to occur on January 1,
2026 unless new legislation was passed, it looked like 2025 would
need to be a major year for U.S. estate tax reform.
One Big Beautiful Bill Act
The answer arrived soon enough on July 4, 2025 when the
"One Big Beautiful Bill Act" (the "Act") was
signed into law by President Trump. The new legislation has no
sunset provision and "permanently" increases the U.S.
estate tax exemption amount starting January 1, 2026 to $15M (USD).
From 2027, the exemption amount will be indexed for inflation. As a
result of the Act, commencing in 2026 a married U.S. couple can
pass on $30M (USD) free of estate tax.
While termed a "permanent" tax change, nothing really is
permanent when it comes to legislation. The Act could be amended or
repealed in future, including by a future different administration.
However, the increased exemption amount at least in the near term
provides increased certainty and comfort for many in their estate
planning, and at such a high level reduces exposure to U.S. estate
tax for many.
State Estate and Inheritance Taxes
It should also be borne in mind that there are 12 states –
Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts,
Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington
– and the District of Columbia that have an estate tax. The
federal Act has no impact on them and planning is still required
for those who are subject to them. An estate tax is paid by the
estate before it is distributed to the beneficiaries.
As well, five states have an inheritance tax: Kentucky, Maryland,
Nebraska, New Jersey, and Pennsylvania. An inheritance tax is paid
by the beneficiary, and not by the estate.
What Impact Will the Act Have on Canadians?
For Canadians who are not U.S. citizens, green card holders or
otherwise considered to be domiciled in the U.S. for U.S. estate
tax purposes but who own U.S. situs assets, which include stock in
U.S. companies, U.S. real property and tangible personal property
situate in the U.S. as well as certain other assets at death, the
large permanent exemption is at least one U.S. legislative change
that is helpful to Canadians by reducing their exposure to U.S.
estate tax!
Certain relief is available if your worldwide estate exceeds $15M
(USD) under the Canada-U.S. Tax Treaty based on a formula that
prorates the exemption based on the ratio of the value of your U.S.
situs assets to the value of the assets of your worldwide
estate.
If the value of your worldwide estate is under $15M (USD), U.S.
estate tax is eliminated under another exemption called the small
estate exemption. The higher permanent exemption will help many
Canadians who fall under this threshold in eliminating U.S. estate
tax exposure.
There is also a basic general exemption amount of $60,000 (USD)
which covers U.S. situs assets up to that amount.
For those with larger estates, U.S. estate tax is 40% once the
taxable estate is $1M (USD) or more, and at graduated rates under
this threshold.
Annual Gift Tax Exclusion Amounts
In 2026, the annual exclusion amount for making gifts is $19,000
(USD) for a U.S. person, or for a married couple, $38,000 (USD)
combined. For gifts from a U.S. citizen spouse to a non-U.S.
citizen spouse, the annual exclusion amount is $194,000 (USD). This
annual exclusion is the amount that a U.S. person can give to each
recipient each year without paying any gift tax or using part of
his or her lifetime exclusion amount.
In a world of increasing uncertainty in 2026, the Act provided some
respite and increased certainty regarding U.S. estate tax.
For Further Reading
Here is our entire blog archive on U.S. Estate Tax and related planning
issues.
Here is our entire blog archive on Canada-U.S. cross-border and multijurisdictional
issues.
We wish all of our readers a Happy New Year and all the best in
2026!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
