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tax & estate
Why to avoid a
foreign executor
In most cases the additional costs — and headaches — aren’t worth it
by James Dolan
Most Canadian estates have executors who are resident in Canada. But what happens if the will appoints someone who lives outside the
An estate
executor could be declared “non-resident” and be subject to different tax rules — and, potentially, greater taxation. The Canada Revenue Agency (CRA) bases residency
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country?
Amy MacAlpine, partner at Hummingbird Lawyers
controlled
on where the central management and control of the estate actually takes place, she says. In practical terms, this means the estate will be resident where the executor resides, rather than where the assets are located.
LLP in Vaughan, Ont., says that foreign executors remain relatively uncommon in her experience: once the pros and cons are discussed, most clients decide it’s not a good idea.
by a foreign
“Newly landed immigrants and first-generation Can- adians often don’t have other family here, so they’re more inclined to appoint someone from back home,” MacAlpine says.
could be
“I’m also seeing a rise in older adult children moving to other parts of the world, and parents wanting to keep them in charge and in control of the family estate.”
“non-
MacAlpine says appointing a foreign executor creates delays, complexity and additional costs. Some of this is logistical — documents need to be couriered to another country and back again, in-person meetings need to be planned well in advance, and executors may need to check in on real estate.
and be
Foreign executors may also be required to post an “estate bond” before they’re permitted to act as exec- utors, he says. The bond ensures the foreign trustee doesn’t abscond with assets to a foreign jurisdiction where the CRA, creditors or estate beneficiaries would find it difficult to enforce a court order or legal claim.
More significant, though, are the tax and legal impli- cations. An estate controlled or managed by a foreign
tax rules
The provincial estate acts will usually determine whether a bond is required, and what the amount should be. Bonds can be obtained from a licensed insurer or from personal guarantors who are Canadian residents. Depending on the size of the estate and the executor’s nationality, the bond could be more than the value of the estate’s assets.
“The last time I had this come up, the bonding com- pany wanted the executor to prove she had personal assets worth $1 million,” Olkovich says.
“They wanted three years of premiums paid in advance. For everything that was jointly owned with her husband, they needed the husband to have independent legal advice to prove he was aware that, if his wife did anything wrong, they could levy a lien or enforce any claims against property that was jointly owned.”
Naming a Canadian trust company to manage the estate is a better alternative, he says. There’s an addi- tional cost, but the savings in time, money and hassle usually make up for it.
“Family is who you’d normally pick as your executor because they’re beneficiaries too, and it’s in their best interests to lower fees and costs,” he says.
“But if you have two brothers from different countries arguing over who cuts the grass at Mom’s house until it’s sold, you’re better off to hire a neutral party to take care of it.” AE
executor
This is why MacAlpine generally encourages clients to appoint a local executor, or at least a local co-executor, to help with the estate’s administration.
declared
Ed Olkovich, principal at Edward Olkovich Law in Toronto, says foreign residents may have to report their involvement with a Canadian estate, or even file tax returns in the jurisdiction in which they reside. Depending on the circumstances, the estate could be liable for addi- tional taxes in that foreign jurisdiction.
resident”
subject to
different
If you must appoint a foreign executor ...
No alternative to a foreign executor? Here’s how to minimize delays, has- sles and costs.
Seek tax advice first
Because of the significant
tax implications associ- ated with an estate being declared
a non-resident trust, testators should consult with an experienced cross-border tax professional before making any appointments.
Appoint a co-executor
A resident co-executor can
do much of the practical work that requires a physical pres-
ence, such as signatures and talking to bank managers.
Think about a corporate executor Appointing a Canadian
bank, trust company, accountant or estate lawyer to manage the estate can help prove that the estate is managed and controlled within Canada.
Address
the estate bond Testators can draft a
provision in their will asking
the court to waive the usual requirement for a foreign executor to post an estate
bond. Such a provision is not technically binding upon a judge, but it can help.
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JUNE 2020