Strategies should take into account beneficiaries living abroad or assets located outside Canada
Canadians are people on the go, from those who came here as immigrants with extended families abroad to our highly mobile workforce and snowbirds with vacation properties in warmer climes.
For estate-planning purposes, cross-border living presents complications, experts say, with beneficiaries, assets and executors in different jurisdictions – even the province next door – leading to potential technical and tax challenges.
“This issue touches everybody in a cross-border situation,” says Dan Derhy, notary and legal counsel at Derhy Trusts & Estates in Montreal, noting that provisions of wills and trusts can even be rendered meaningless in multi-jurisdictional situations. “In cross-border tax and estate planning, it’s very important to drop our domestic reflexes. Principles you may think are obvious and clearly expressed documents might not be applicable in another jurisdiction.”
Getting proper advice from legal and tax experts who understand global estate issues, especially the relevant rules in such jurisdictions, is critical to implement the right strategies, he says. “You can avoid substantial headaches, costs and delays to avoid messy situations.”
He says that terms of a will or trust that seem “crystal clear” in one jurisdiction may not be recognized or produce the desired effect in another. For example, France imposes a hereditary reserve on estates so that individuals do not have the complete power to will their estate in the manner they want. Therefore children, at whatever age or level of competency, automatically get a portion of the proceeds.
A person’s residence, where he or she happens to live at the moment, is key for tax purposes, Mr. Derhy says, while domicile, a person’s permanent home jurisdiction, is fundamental for estate planning and settlement purposes. He says clients are often surprised to find out that estates are taxed not only in the jurisdiction where the deceased resided but also where the control is, meaning where the executor resides.
Grant Gilmour, an international tax partner at Gilmour Group Chartered Professional Accountants, a Vancouver-area firm that specializes in cross-border tax issues for companies and individuals, says that “the executor should be your next-door neighbour, not someone in another province or country.”
Many people realize there are global estate complications only after a person dies and the executor visits the accountant. “Generally, you hope that they have a will in the jurisdiction where they currently live,” he says, and it’s best if the executor is there as well, or has been given the flexibility to appoint someone else to be executor.
“The biggest issue I see with global families is that they don’t plan to be global, and instead are reactive rather than proactive in estate planning,” Mr. Gilmour says. “They end up with a set of circumstances that force them into a tax corner.”
This is one of the most important reasons for people to write a will with expert advice and update it as the family situation changes. “People may write a will, but they never actually walk their brain around the issue of ‘what would happen if?’” he says. Indeed, he’s seen wills prepared by lawyers who aren’t aware that the client has cross-border assets and heirs.
“People put more thought into buying a new car than into updating their will,” he says, noting that especially when multiple jurisdictions are involved, “rules change, life circumstances change and the relative value of assets change.”
People with beneficiaries in different jurisdictions should consider proactive strategies such as putting in place trusts and directions outside of the will or transferring assets before they die, he suggests. “Bite the bullet and hold a family meeting and ask who wants what, and make sure that it fits into the who-lives-where issue.”
Most of the time, strategies can account for situations such as beneficiaries living abroad or assets located elsewhere, adds Mr. Derhy. “There are often interesting solutions,” he comments.
“It’s critical to run the numbers and look at the costs/benefits of the different options. Once you have all the information, you can make a sound decision.”