Choosing A U.S. Resident as Your Executor Requires Caution

Written by Carson Hamill CIM®, CRPC®, Associate Financial Advisor & Assistant Branch Manager & Dean Moro BComm, CIM®, Financial Advisor & Associate Portfolio Manager

In the domain of estate planning, the choice of an executor and trustee stands as a crucial decision, directly influencing the smooth transfer of wealth to the next generation. However, the growing global nature of Canadian families, driven by career aspirations and lifestyle preferences, introduces an added layer of complexity to this process. Specifically, if your selected executor resides in a foreign jurisdiction such as the United States, a range of issues may emerge, including tax implications, administrative hurdles, and portfolio management considerations.

Implications for non-resident executors include the following:

• The Estate’s Jurisdiction for Tax Purposes
• Non-Resident Beneficiaries
• Requirement to Post a Bond
• U.S. Reporting Obligations
• Portfolio Management Concerns

The Estate’s Jurisdiction for Tax Purposes

A primary concern when appointing an out-of-country executor is the potential classification of the estate as a non-resident of Canada for tax purposes by the Canada Revenue Agency (CRA). This classification may trigger adverse tax consequences, including the loss of preferential capital gains and dividend tax treatments. Even if the executor takes initial steps to relocate to the United States or another jurisdiction during the estate’s administration, the trust could be deemed non-resident, and subject to adverse tax consequences.

To mitigate these issues, Canadians can opt to name an executor in Canada, naming an executor in Canada in conjunction with someone residing abroad may help to maintain Canada as the tax residency of the estate, although this is determined on a case-by-case basis. Individuals with family members living outside Canada might consider engaging a Canadian corporate trustee as an executor.

Non-Resident Beneficiaries

Tax implications may also extend to non-resident beneficiaries of a Canadian estate. Withholding tax on specific payments and considerations for tax-free characterization of assets, such as stocks or property, present additional challenges. Lastly, while Canada taxes estates before they are distributed, some countries may impose an additional inheritance tax on the beneficiaries upon receipt of an inheritance.

Requirement to Post a Bond

Many Canadian jurisdictions mandate non-resident executors to post a bond as security, as an added layer of protection for creditors and beneficiaries. In Ontario, for example, a surety bond is required if the executor is not a resident of Ontario, except in limited circumstances where a judge agrees to waive the bond. If the executor is not resident in Canada, the bond is unlikely to be waived. U.S. residents may face this requirement, potentially causing delays and additional costs. While exceptions may be possible with a Canadian co-executor, or if the U.S. executor is a major beneficiary, there are no certainties, leading to potential estate administration complications.

U.S. Reporting Obligations

U.S. executors also face additional reporting obligations, to the Internal Revenue Service, adding difficulty to the process. Disclosure requirements and penalties for non-filing can be daunting, raising concerns about privacy for the executor.

Portfolio Management Concerns

Regulatory constraints in the investment industry may restrict a Canadian investment advisor from accepting instructions from a U.S. resident executor. This limitation impacts the executor's ability to follow the testator's wish for trusted advice, introducing additional hurdles in the estate management and administration process.

Summary

Non-resident executors add complexities to the administration of a Canadian estate. And the challenges referenced above persist regardless of the executor's citizenship. Residency, not citizenship, is the determining factor. Careful planning and consultation with a professional estate lawyer are imperative to ensure a smooth transition of wealth to the next generation, especially in the context of an increasingly interconnected global landscape.

Next Steps

If you are planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please call or email our team at Snowbirds Wealth Management, as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have an integrated team in your corner.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate financial advisors with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.To schedule an introductory call, please click here.

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