This article appears in the June 2020 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.
Most Canadian estates have executors who are resident in Canada. But what happens if the will appoints someone who lives outside the country?
Amy MacAlpine, partner at Hummingbird Lawyers 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.
“Newly landed immigrants and first-generation Canadians often don’t have other family here, so they’re more inclined to appoint someone from back home,” MacAlpine says.
“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.”
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.
More significant, though, are the tax and legal implications. An estate controlled or managed by a foreign executor could be declared “non-resident” and be subject to different tax rules — and, potentially, greater taxation.
The Canada Revenue Agency (CRA) bases residency 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.
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.
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 additional taxes in that foreign jurisdiction.
Foreign executors may also be required to post an “estate bond” before they’re permitted to act as executors, 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.
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 company 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 additional 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.”
If you must appoint a foreign executor …
No alternative to a foreign executor? Here’s how to minimize delays, hassles and costs.
Seek tax advice first
Because of the significant tax implications associated 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 presence, 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.