Estate Tax & Death Tax Exposure Check

The US Federal Estate Tax Almost Certainly Doesn't Apply to You

The single most common estate-tax misconception is that a 'death tax' hits ordinary families. In the United States, the federal estate tax only applies to the value of an estate above the lifetime exemption, which sits well over $13 million per person in 2025 — and more than $27 million for a married couple who use portability to combine their exemptions. As a result, over 99% of estates owe no federal estate tax at all. If your net worth is not in the eight figures, the federal estate tax is very unlikely to be your problem, and planning energy is better spent on probate costs and income tax on inherited accounts.

Where the federal tax does bite — estates in the tens of millions — the planning stakes are high and the tools are sophisticated: lifetime gifting against the exemption, irrevocable trusts, valuation discounts on business interests, and charitable structures. The exemption amount is also scheduled to change under future legislation, so high-net-worth families should watch the threshold and revisit their plans as it moves. A key state-level wrinkle: roughly a dozen states levy their own estate tax and a handful levy an inheritance tax, often starting near $1–2 million — far below the federal line — so an estate that owes nothing federally can still owe state tax.

Canada Has No Estate Tax — It Has a Deemed Disposition Instead

Canada abolished estate and inheritance taxes decades ago, so there is no tax on the value of an estate as such. Instead, the Income Tax Act treats you as having sold nearly all of your capital property at fair market value immediately before death — the 'deemed disposition.' Any accrued capital gain becomes taxable on your final ('terminal') return, so the practical death-tax in Canada is capital gains tax plus the income tax on registered accounts. A cottage or portfolio that has quietly appreciated for thirty years can generate a substantial gain in the year of death.

Two mechanics dominate Canadian planning. First, the spousal rollover: property left to a surviving spouse, common-law partner, or a qualifying spousal trust transfers at your original cost base, deferring the gain until the survivor sells or dies. Second, registered accounts: the full value of an RRSP or RRIF is generally added to income on the final return unless it rolls over to a spouse or a financially dependent child — a $500,000 RRIF with no rollover can add roughly half its value to tax at top rates. The principal residence exemption shelters one home per family per year, but only one property can be designated, which is why the family cottage is such a frequent tax trap.

Probate Fees, Registered Accounts, and Funding the Bill

Separate from any income or estate tax, most estates face probate fees — called estate administration tax in Ontario and probate fees elsewhere — charged as a percentage of the estate that passes through the will. These are usually modest compared with income tax, but assets that pass outside the will (registered accounts with a named beneficiary, jointly held property, and life insurance) can bypass probate entirely, which is why beneficiary designations are such a powerful and underused planning tool in both countries. Inherited traditional IRAs and 401(k)s in the US carry ordinary income tax for the beneficiary, and the SECURE Act forces most non-spouse beneficiaries to drain the account within ten years.

The recurring theme across both countries is liquidity: even where no estate tax applies, an estate can owe a large income-tax or capital-gains bill precisely when its most valuable assets — a business, a cottage, a rental portfolio — are the hardest to sell. Life insurance is the classic solution, providing tax-efficient cash to pay the bill without forcing heirs to sell the assets you wanted them to keep. A good plan estimates the death-tax exposure, confirms that deferral tools (spousal rollover or marital deduction) are preserved, and lines up the cash to cover whatever remains.

Related: Wills & Estates Wizards · All Wills & Estates Wizards · Will Drafting Readiness · Beneficiary Designation Review · Power of Attorney · All Legal Wizards