I have assisted many clients who are immigrants that have lived in Canada for decades. Many still have very close relatives, like children or siblings that live overseas. Hence when these clients write their wills, they naturally name their overseas relatives as their executors. An executor is an individual or entity appointed to carry out the terms and direction of a will. In Canada, the Federal Income Tax Act treats an estate as a trust. The residency of the trust is determined by where the central management and control of the trust takes place. That means if your executor is a non-resident, the estate could be treated as a non-resident trust. Non-resident estates are taxed differently compared to resident estates. Many clients are unaware of the following tax consequences and complications of having a non-resident executor.

1. The non-resident estate could lose the preferential capital gain or dividend tax treatment available to resident estates. The non-resident estate may also be taxed in the country of the non-resident executor.

2. If the estate becomes a non-resident estate during its administration, this may trigger a deemed disposition and potential capital gain taxes.

3. The non-resident executor may be required to post a “surety bond”. This may apply to not just non-resident executors but also out-of-province executors. A surety bond is like an insurance policy that the non-resident executor is required by law to take out to ensure that the executor will properly distribute the assets of the estate according to the terms of the will. Before posting the bond, a non-resident may not be issued a probate certificate and cannot administer the estate. Further, obtaining the bond may be very time-consuming, and the executor may have to pay for the bond’s cost out of their personal assets.

4. Other complications include lack of familiarity with local legislation, regulatory issues related to providing investment instructions to advisors in foreign jurisdictions, and potential expenses spent on traveling to another jurisdiction to complete executor tasks.

Naming an executor is a very important part of a will. Clients need to ensure that they have the right person/entity that will faithfully carry out all the fiduciary duties and terms of their wills. This person/entity should have the time, expertise, and experience to do the job. Naming an executor that lives in another province/country may have serious tax consequences, costs, and other complications such as the amount of time spent. Clients may want to hire professional executors such as a Canadian corporate trustee who can streamline and expedite the process. To learn more, please contact me or one of our team members.

 

The content in this article is for information purposes only and does not constitute tax or legal advice. It is imperative that you obtain professional advice from qualified tax and legal advisors before acting on any of the information in this article. This will ensure that your own circumstances are properly considered and that action is taken based on the most current legislation