Picture the following ....... A young man born in the United States, while vacationing in Canada, meets and falls in love with a Canadian woman. They get married and thereafter make their home in Vancouver, Canada, for the rest of their lives. The wife is highly successful in her career and accumulates significant wealth, nearly all of which is ultimately held in Canadian brokerage and bank accounts belonging solely to her and in her name. The wife dies suddenly in 2003, leaving her entire estate to her husband. He dies six years later, in 2009.
Following the husband’s death, the Trustee of his estate comes across a document evidencing his U.S. Citizenship. He mentions this to his counsel, who, after seeking advice from her U.S. colleagues, discovers the following:
1. The fact that the husband was a U.S. citizen, never having renounced that, means that he was required to file a U.S. income tax return for each year of his life during which he earned income, including the years he spent living and working in Canada.
2. As a result of his late wife having left him her entire estate, their now combined estates are subject to U.S. Estate Tax. After certain limited available deductions, the estate will be taxed at approximately 35%. Had his Canadian wife not left him her estate, but rather passed some or all of it directly to their children, there would have been no U.S. tax liability on her estate, as she was a Canadian citizen who never resided in the U.S. or had U.S. citizenship....
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