A failure to take into account taxes on death can often defeat an estate plan. It can result in a smaller estate being available for distribution and it can also result in some beneficiaries bearing a disproportionate amount of the estate's tax burden. While most estate plans take into account domestic taxes arising on death, such as income tax and probate tax, foreign taxes, however, are too often ignored even though a dollar of tax paid to a foreign government is no different than one paid to a domestic government.
With the arrival of fall, many readers may be preparing to escape the pending cold by travelling to warmer climates for extended stays. In our February 12, 2014 blog post we highlighted the potential concerns and practical issues if you become incapable of making either financial or personal care decisions (whether permanently or temporarily) while outside your 'home' jurisdiction, including if you have assets located there.
When a client dies leaving assets in more than one country, conflict of laws rules (also known as private international law or PIL rules) step in to help determine which country's law should govern succession of the estate. As outlined in our earlier blog post of July 16, 2013, to achieve more clarity and certainty, the European Union passed a law known as the Succession Regulation in July 2012. It is now fully operational in all EU member states as of August 17, 2015 (except in Denmark, the U.K. and Ireland, which decided to opt out).
Persons emigrating from Canada are deemed to have sold all of their property, with some exceptions such as real estate in Canada and retirement plans, for fair market value proceeds and are subject to tax on any resulting gains. Once resident in another country, a person may be subject to tax in both Canada and the other country on income and gains earned on such property depending on the nature of the property and the relevant tax treaty, if any. Double taxation may also result on future withdrawals from Canadian retirement plans.
For many, borders between home and foreign jurisdictions increasingly matter less and are easily overlooked when acquiring new assets, like a second home in another country and bank accounts and other financial assets. Updating your estate planning to reflect the new status quo of foreign asset ownership, however, doesn't always keep pace and is often an afterthought. Multijurisdictional wills and separate situs wills--important yet underused planning tools for an effective and comprehensive estate plan--help streamline and add greater certainty to administering an estate with foreign assets.
The world is only getting smaller, not bigger.
If you've been following the recent Federal Budget changes to testamentary trust taxation, the proposed (but now defeated) Ontario Budget with its increased taxes on higher-income earners, tobacco and airplane fuel, and the recent changes to the Ontario Estate Administration Tax Act (see my December, 2012 blog "The New Ontario Estate Administration Tax Regime - What you need to know"), you may be thinking you need to move tax planning further up in priority on your "to do" list. But there is good news: if you have assets outside Ontario, you can effectively plan for the administration of such assets on your death while avoiding the necessity of paying Ontario Estate Administration Tax (also known as probate fees) on the value of such assets.
Now that we've heard the predictions from a few furry prognosticators that winter is expected to last another six weeks, some of us may be planning extended stays at vacation properties in warmer climes. In the event that you became incapable of making either financial or personal care decisions--whether permanently or temporarily--while on one of those protracted sojourns, would you have documents in place that would allow someone to act for you in that jurisdiction?
When considering your estate planning, an important decision is who will be your estate trustee responsible for administering your estate on your death, and as well who will be your attorney under a continuing power of attorney for property to manage your assets during your lifetime in the event that you become incapable of doing so. When choosing your estate trustee(s) and your attorney(s) under a power of attorney for property (your "representatives"), in addition to their relationship to you and their abilities, you may wish to consider where they reside.
When a person dies leaving assets in more than one country, conflict of laws rules (also known as private international law or PIL rules) step in to help determine which law should govern succession of the estate. These rules are often tricky and confusing to navigate.