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The cliff that never came
For seven years, American estate planning had a deadline attached to it. The exemption that doubled in 2017 was scheduled to fall by roughly half at the end of 2025, and an entire industry organized itself around getting ahead of that date. Gifting strategies. Trust funding. Insurance sized to a liability that was supposed to arrive.
It never arrived. The law signed in July 2025 set the US federal estate tax exemption at $15,000,000 for 2026, up from $13,990,000, made it permanent, and indexed it going forward. The cliff was removed.
If you are a Canadian who owns US assets, none of that was for you.
Your exemption is $60,000. It did not move. It has not moved in decades and it is not indexed to inflation. The gap between what an American neighbour can pass free of federal estate tax and what you can is now 250 to 1, and it widened in the same legislation that was reported as tax relief.
This is the kind of exposure that never shows up in a portfolio review. There is no line item for it. It surfaces at the worst possible moment, in the nine months after somebody dies.
What actually counts as a US asset
Here is where most of the damage happens, because the definition is considerably wider than people assume.
US situs property includes US real estate, which surprises nobody. It also includes shares in US corporations, publicly traded or private. And it does not matter where those shares are held.
Read that twice, because it is the part that catches people. US-listed shares held in a Canadian brokerage account are US situs property. Held inside an RRSP, they are US situs property. Inside a RRIF or a TFSA, the same answer. The account wrapper is invisible to the IRS for this purpose.
US-listed ETFs count. US mutual funds count. Cash sitting in a US brokerage account counts. So do 401(k)s and IRAs, and tangible property physically located in the United States, down to a car left in a garage in Arizona.
Some things do not count, and the exclusions are just as worth knowing. A personal US bank account, the ordinary chequing or savings kind not connected to a US business, is not US situs. Neither are US Treasury bills. Neither are American Depositary Receipts where the underlying company is not American.
And one more, which is the most useful item on either list. We will come back to it.
The filing obligation that arrives even when the tax does not
Once US situs assets exceed $60,000, a US estate tax return is required. Form 706-NA, due within nine months of death, with a six month extension available if it is requested in time.
Required. Not advisable, and not conditional on tax being owed.
This reverses the usual intuition, which is why it gets missed. Most people assume a filing obligation follows a tax bill. Here the filing obligation comes first, and in a great many cases the treaty then reduces the tax to nothing. The return still has to be filed. An executor who reasons that no tax means no form has created a compliance problem on top of a grief problem.
And $60,000 is not a high bar. A modest condo clears it on its own. So does a single meaningful position in an American company held patiently for twenty years.
What the treaty gives you, and what it does not
The Canada-US tax treaty does real work here, and it is more generous than most people expect.
Article XXIX B(2) lets a Canadian resident claim a pro-rated share of the full US unified credit instead of being stuck with the $13,000 credit that corresponds to a $60,000 exemption. The formula is proportional. Take the value of the US situs assets, divide by the value of the worldwide estate, and apply that fraction to the full credit, which is $5,945,800 for 2026.
The practical effect is that where the worldwide estate sits below roughly $15,000,000, the pro-rated credit usually eliminates the tax entirely.
Article XXIX B(3) adds a marital credit where the US assets pass to a spouse. It is broadly equal to the pro-rated credit, so it can roughly double the relief. You cannot claim both the marital deduction and the marital credit, so this is a choice to be modelled rather than a benefit to be stacked.
Now the parts that get missed.
The word spouse means legally married. Common-law partners do not qualify for US estate tax purposes. Canada treats common-law relationships as spousal across most of its own tax system, which makes this genuinely counterintuitive, and it is the trap that shows up most often in practice. A couple together for thirty years, everything else in good order, and the marital credit is simply unavailable to them.
The credit is also claimed rather than granted. It goes on Form 706-NA with Form 8833 attached, supported by documentation of the worldwide estate. Which means the estate has to disclose its total worldwide value to the IRS in order to access the relief. Some families find that uncomfortable. It is the price of the credit, and it is worth knowing about in advance rather than discovering it in month seven of nine.
The lever most people miss
Back to that final exclusion.
A Canadian-domiciled ETF or mutual fund holding 100% US equities is not US situs property.
The IRS does not look through the fund to the underlying portfolio. It looks at the fund. A Canadian-domiciled fund is a Canadian situs asset, regardless of what sits inside it.
So two investors can hold the same economic exposure to the same American companies, and one has a US estate tax problem while the other does not. The difference is the domicile of the wrapper, not the content of it.
That is an unusually clean planning lever. It needs no trust, no holding company and no restructuring. For someone building US equity exposure from scratch, choosing the Canadian-domiciled version of substantially the same fund removes the exposure before it is ever created.
It is not free. Switching an existing US-listed holding means realizing accrued gains in Canada, so the arithmetic depends on the embedded gain, the time horizon and the size of the position. Cost and tracking differences between fund families matter too. This is a calculation, not a rule, and it is worth doing with actual numbers rather than in the abstract.
Other structures exist and each carries its own trade-off. A Canadian corporation removes US situs assets from the estate, but creates a taxable shareholder benefit in Canada if anyone uses the property personally. Discretionary trusts work. Alter-ego and joint-partner trusts do not. A Canadian limited partnership is unreliable here, because the IRS may look through it.
Where this leaves you
None of this is urgent the way a market headline is urgent. That is exactly why it sits unaddressed for decades.
The numbers don’t lie. $15,000,000 and $60,000 are both real, both apply in 2026, and which one applies to you depends on a fact about your life rather than anything about your portfolio. The treaty closes most of the gap for most families. The families it does not close it for are usually the ones who never checked.
So it is worth a look at your own statement. How much of it is American, and what is the wrapper around it?
Frequently asked questions
What is the US estate tax exemption for Canadians in 2026?
For a non-resident who is not a US citizen, the US federal estate tax exemption is $60,000 of US situs assets, corresponding to a unified credit of $13,000. This figure is not indexed to inflation. The $15,000,000 exemption widely reported for 2026 applies to US citizens and domiciliaries, not to Canadians who simply own US assets. Treaty relief can substantially reduce or eliminate the resulting tax, but it has to be claimed.
Do US stocks held in my RRSP or TFSA count for US estate tax?
Yes. Shares of US corporations are US situs property regardless of the account they are held in. An RRSP, RRIF or TFSA does not shield them, and neither does holding them through a Canadian brokerage. The registered status matters a great deal for Canadian tax purposes and not at all for this.
Do I have to file a US estate tax return if no tax is owed?
If US situs assets exceed $60,000 at death, Form 706-NA is required within nine months, whether or not tax is ultimately payable. In many cases treaty relief reduces the tax to zero and the return is still required, because the relief is claimed on the return itself. A six month extension is available on Form 4768 if requested in time.
How does the Canada-US tax treaty reduce US estate tax?
Article XXIX B(2) allows a Canadian resident to claim a pro-rated share of the full US unified credit, calculated as the ratio of US situs assets to the worldwide estate multiplied by the full credit of $5,945,800 for 2026. Article XXIX B(3) provides an additional marital credit where the assets pass to a spouse. Both are claimed on Form 706-NA with Form 8833 attached.
Do common-law partners qualify for the treaty marital credit?
No. The marital credit under Article XXIX B(3) requires a legal marriage. Common-law partners do not qualify for US estate tax purposes, even though Canadian tax law treats common-law relationships as spousal in most other contexts. For long-term common-law couples with US assets, this is one of the most consequential and least known gaps in cross-border estate planning.
Can I avoid US estate tax by holding a Canadian ETF that invests in US stocks?
Generally yes. A Canadian-domiciled fund is treated as a Canadian situs asset and the IRS does not look through to its underlying holdings, so the same US equity exposure held through a Canadian-domiciled fund is outside the US estate tax net. Switching an existing US-listed position triggers a Canadian capital gain, so whether the change makes sense depends on the embedded gain, the position size and the time horizon.
Sources: IRS, What’s New: Estate and Gift Tax https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax | IRS, Frequently Asked Questions on Estate Taxes for Nonresidents Not Citizens of the United States https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxes-for-nonresidents-not-citizens-of-the-united-states | IRS, About Form 706-NA https://www.irs.gov/forms-pubs/about-form-706-na | Canada-US Tax Convention, consolidated text, Department of Finance Canada https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997-2007.html | Scotia Wealth Management, US estate tax planning considerations for Canadians owning US assets, January 2026 https://enrichedthinking.scotiawealthmanagement.com/2026/01/26/u-s-estate-tax-planning-considerations-for-canadians-owning-u-s-assets/
This article is for general informational purposes only and reflects conditions as of September 14, 2026. It is not investment, tax, or legal advice, and it does not account for your personal circumstances. Sartorial Wealth Inc. does not prepare tax returns. Please consult qualified professionals regarding your own situation.
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