With increasing globalization of people and their assets, a growing and often hidden threat is multiple taxation on death. Different countries tax in different ways on death, and when those laws collide, the same assets can be exposed to double and even triple tax or more.
While this winter in Toronto has been blessedly mild, colder weather makes many of us wonder why we live in a cold climate, or at least envy those who have vacation homes in warmer climates. While a vacation home in Florida or Arizona or other southern destinations may be a wonderful thing, planning is usually necessary to prevent it from becoming a burden after death for your family and executors. As an example, directly owning a vacation home in Florida or Arizona may give rise to the onerous process to probate a will in those jurisdictions. This is in addition to any U.S. estate tax exposure your estate may face due to direct ownership of U.S. real estate.
There are many things that we think about and plan for when we move--furniture, movers, schools, utilities... I could go on and on. There are even more things that we plan for when we move to another jurisdiction-language, taxes, visas, driving laws... and so it goes. But one thing you might never think about if you move to another jurisdiction is the impact of the matrimonial regime of your new home on your estate plan. Matrimonial laws can have a major impact on your estate plan, and not knowing what those effects might be can make the difference between your estate plan working the way it was meant to and not.
Perhaps I should refrain from re-stating the obvious, but it bears repeating--we live in an increasingly global and mobile society, where people move from jurisdiction to jurisdiction with relative ease. And when we're not picking up and moving residences, we're travelling to foreign destinations and buying property, opening bank accounts or acquiring other assets there. Then there are inherited properties abroad, or property held before the move to Canada.
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.
Perspective is important and illuminating--only about fifteen years ago, or perhaps even less, it was not common to have to consider the impact our Canadian and U.S. tax and legal regimes have on estate planning and our affairs in general. The 49th parallel and the world's longest undefended border symbolized separate tax and legal regimes, and there was little recognition of the need to consider the impact of the laws on either side of it, notwithstanding many Canadians living south of it and many U.S. citizens living north of it.
High net worth individuals have been criticized (especially during election years) for not paying their fair share of taxes. These individuals often take advantage of legitimate tax planning strategies to lower their taxes. A portion, though, utilize evasive strategies that rely on a general lack of tax transparency between countries and laws that promote secrecy.
In this blog, we highlight some special opportunities available where a non-Canadian resident passes assets on death to a Canadian resident. To illustrate, a couple of common examples:
A warm welcome to our inaugural blog post.