In my Blog of October 26, 2010, I described how the U.S. estate tax regime was in a state of flux.  Without action by Congress before the end of 2010, U.S. estate taxes are set to revert back to the rates and exempt amount in effect in 2001.  At that time, the unified credit would only shelter the first U.S. $1Million of assets.  (Compare this to the U.S. $3.5Million amount that could be sheltered at the end of 2009.)  Any assets above that amount would be subject to tax at a rate of 55%.  (Compare this to the 45% rate in effect at the end of 2009.)

On December 6, 2010 a small sigh of relief was breathed by those of us who engage in estate planning that involves a cross-border aspect.  I say small sigh because the relief announced is once again subject to a sunset clause.  In other words, this relief is also short-lived being set to remain in effect for only the next two years.

The relief came in a tentative agreement reached by President Obama and the Republican leadership of Congress on December 6, 2010.  In particular, an agreement was reached to prepare legislation that would bring back U.S. estate taxes effective January 1, 2011 but with a unified credit that would exempt U.S. $5Million of assets for U.S. citizens and would impose estate taxes for assets above that amount at a rate of 35%.  These measures would remain in effect for only two years.  At which point, much like what happened at the end of 2009, without permanent legislation enacted, these temporary measures would again sunset.

As discussed in my Blog of November 29, 2010, Canadian citizens and residents may also be subject to U.S. estate taxes if they own U.S. situs assets.  What the proposed temporary measures mean for Canadian citizens and residents is that if their worldwide estate does not exceed U.S. $5Million and assuming they pass away during the next two years when these temporary measures are in place, their estate will not owe any U.S. estate taxes.

While this announcement does provide a welcome bit of relief from the 2001 unified credit of U.S. $1Million of assets and an estate tax rate of 55%, the temporary nature of the measures once again leaves practitioners and clients in a position of planning for the unknown.   We can only hope that over the course of the next two years, the required attention is paid to the need to put in place a permanent set of legislative provisions.

Stay tuned!