Avoid a foreign executor
Most Canadians (who have a proper will in place) have named a Canadian resident as an executor. But there are still many out there who have appointed someone who lives outside of our country.
I’ve had this come up a few times recently so thought it would be worth discussing why a foreign executor is almost never a good idea.
So, what happens if you have a foreign executor? An estate controlled by a foreign executor will typically face additional costs and headaches as they’re often subject to different tax rules.
Let me explain. An estate is considered an entity in its own right and if the executor is based outside of Canada, the CRA will deem it to be a “non-resident” entity for tax purposes, even if all the assets held in the estate are located in Canada. This can cause the estate to face higher taxes and leave less for the estate’s beneficiaries.
A non-resident entity like this could also be subject to both Canadian taxes as well as taxes in the local jurisdiction that the executor resides in.
In addition, provincial estates acts may require a foreign executor to post an “estate bond” before they’re permitted to act as an executor to ensure the foreign trustee doesn’t abscond with the assets in the estate since the legal repercussions may not be enforceable.
But what happens if you have nobody that lives in Canada to consider naming as your executor? This situation happens regularly with newly landed immigrants as well as those whose adult children have moved abroad.
If you find yourself in this situation, make sure to get proper tax advice before making any decisions. You might consider appointing a Canadian resident “co-executor” so that your (foreign) first-choice executor has somebody local to sign documents, etc. You might even consider addressing the estate bond in your will directly – while a request to have this bond waived is not legally binding, it may help.
Alternatively, consider appointing a corporate executor instead of a friend or family member. I typically tell people to avoid doing this with your bank since the fees they charge are very high. But an independent trust company can help to provide these duties at a cost that is reasonable. Doing so would alleviate any concerns of a foreign executor and also help to ensure that your estate is handled properly at the same time. As a side note – a trust company is often the better choice for those who do have a Canadian based family member named as their executor currently.
Everyone’s situation is unique, and your estate plan should be custom tailored to you. With a large percentage of Canadians living with no will at all, the first step for many is to simply draft a will. But when you do, or when you are reviewing the one you already have in place, make sure to avoid a foreign based executor if at all possible.