Appointing an estate trustee who does not reside in Canada has several negative implications. A non-resident estate trustee is required to post a bond (which is costly and adds delay), and he or she may not be eligible to make certain financial investments available to Canadian residents (e.g., stocks, bonds, Canada Savings Bonds).
Even if a Will states the contrary, Canada Revenue Agency may view that the estate resides where the estate trustee resides. The residence of the estate trustee could determine the residency of the estate for income tax purposes, resulting in the complication and expense of currency exchange and having to file a tax return in another country in addition to the following potential tax consequences:
- Losing the preferential tax treatment for capital gains and Canadian source dividends that as are flowed through to Canadian resident beneficiaries;
- Losing the ability to split the tax burden between the estate and its Canadian resident beneficiaries;
- If a Canadian resident sole estate trustee ceased to be resident in Canada, the estate would be deemed to have disposed of all its assets at the departure date, making it a taxable event; and
- Potential taxation of the estate in the country where the estate trustee resides. In certain situations the estate could be deemed to be resident in both countries and subject to tax in both jurisdictions
Where resident and non-resident estate trustees co-exist, the residence of the estate would be that with the person with most, or all, of the following powers or responsibilities:
- Control over changes in the trust’s investment portfolio;
- Responsibility for the management of any business or property owned by the trust;
- Responsibility for any banking, and financing, arrangements for the trust;
- Control over any other trust assets;
- Ultimate responsibility for preparation of the trust accounts and reporting to the beneficiaries of the trust; and
- Power to contract with and deal with trust advisors (e.g., auditors, lawyer)
How to Avoid these Tax Implications
To prevent the potential tax consequences of appointing a non-resident estate trustee, appoint an estate trustee or co-estate trustee that permanently resides in Canada (e.g., a corporate trustee). You should also specifically assign management responsibilities to the resident estate trustee in you Will.
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