In response to an earlier post on Vanguard Total World Stock ETF (VT), reader Doug raised an interesting point — While Vanguard funds have rock-bottom fees, owning US-based assets may result in an estate tax payable to Uncle Sam. Doug also posted a link to a BDO Dunwoody bulletin on U.S. Estate Tax Issues for Canadians which points out that the estate tax is a double whammy:

Unlike the U.S., Canada does not have an estate tax. But, when Canadian residents die, they are deemed to dispose of all of their capital property at fair market value, unless the property transfers to a spouse or a spousal trust. As a result, in the year of death, if you are a Canadian resident and you own U.S. real property, for Canadian purposes you may have a large “deemed” capital gain with respect to such property, in addition to a possible U.S. estate tax liability. In some cases, the combination of the Canadian tax and U.S. estate tax liability could end up being a substantial percentage of the value of the property.

Fortunately, it appears that, as per current rules, Canadian residents will have a U.S. estate tax liability only if their worldwide assets are valued in excess of $2 million. I’m not worried about a US Estate Tax just yet, but am wondering how much of a concern it is for someone nearing retirement with a substantial portfolio.