Can a Non-Resident Be An Executor For A Canadian Estate?
Can a Non-Resident Be An Executor For A Canadian Estate?
In today's technologically advanced world it's strange to think that the residence status of an executor could be problematic. Surely with the advent of videoconferencing, e-mail, and e-signatures, this is a concern of the past. Right?
Perhaps not. While a non-resident can legally be the executor of a Canadian estate, several concerns arise.
What is an executor?
Before we begin, we must understand the role of the executor.
The executor is responsible for carrying out the wishes of the deceased found in the Will. A Will (more formally known as a Last Will and Testament) is a unique legal document since it deals with the wishes of a deceased and since the Will maker will not be around to explain the decisions they made when it is time to administer the estate.
An executor is appointed in the Will to execute the terms of the Will. The executor has special permissions and obligations to make sure they effectively carry out the deceased’s wishes.
In the eyes of the law, the executor becomes the legal owner of the deceased’s property, though this ownership is exclusively for the benefit of the beneficiaries. They must perform their obligations in good faith, acting only in the beneficiaries’ best interest. For this reason, they must act honestly and cautiously.
What are the responsibilities of an executor?
The executor is responsible for wrapping up a person’s affairs after they pass away. This can be overwhelming and take up to a year (or longer!) so it requires a thoughtful approach.
First and foremost, they have to familiarize themselves with the terms of the Will. For example, they must understand:
What property they are responsible for
Who the beneficiaries of the Will are
What the beneficiaries are entitled to and in what proportions
Some of these roles are administrative in nature. For example, they may relate to aspects of the funeral or ensuring any open accounts (e.g., utilities, credit cards) are closed.
Other responsibilities are more unique and depend on the terms of the Will. For example, if the deceased’s estate includes rental property, the executor will be responsible for managing the property, keeping it in good order, and collecting rents.
Who is a resident and who is a non-resident?
Now that we understand the role of the executor, we must understand the concept of residence, which has administrative, practical, and Canadian tax implications.
How is residence determined?
Residence is determined on a case-by-case basis, and not by any single factor. It’s important to consider whether or not a person has established and maintained the following “residential ties” with Canada.
Significant residential ties with Canada include:
A home in Canada
A spouse or common-law partner in Canada
Dependants in Canada
Secondary residential ties may include:
Personal property in Canada
Social ties in Canada, such as memberships to a religious organization
Existing Canadian bank accounts or credit cards
A Canadian driver’s licence or passport
Canadian health insurance
What issues may arise?
Now that we know how residence is determined, we may consider what happens if you appoint a non-resident executor.
Certificate of appointment of estate trustee
A certificate of appointment, also known as probate, is the process by which one applies for a certificate to be appointed as the estate’s trustee.
Generally, there are two instances that may necessitate a certificate of appointment of estate trustee:
When the deceased dies with a Will; or,
When the deceased died without a Will.
If approved, the court will issue a certificate confirming the estate’s trustee.
The requirement to post a bond
Depending on the estate property, the executor of a Will may be a third-party person (i.e., not a beneficiary of the Will). This is especially likely when managing the property of the estate requires sophistication and experience. For example, where the estate holds a portfolio of investments.
In order to protect beneficiaries from an executor who has improperly administered the assets of the estate, the executor is required to post insurance —known as bond.
The amount the courts will charge for this bond insurance differs based on residency.
where the appointed executor is not a Canadian resident or a resident of another Commonwealth country, the amount is equal to twice the value of the estate.
Where the appointed executor is a resident of Canada or of a Commonwealth country, bond is not statutorily required.
For tax purposes, the residence of a Will is determined by considering the location of those managing and controlling the estate. For example, though the property may be located in Ontario, if its decision-makers are located elsewhere, the Will may be subject to foreign taxes.
The following indicators may be used to determine the location of those managing and controlling the estate.
Investment decisions should be made by the executors in the desired jurisdiction.
The location of meetings.
The location of the primary bank account.
The location of material trust assets.
Executors in the desired jurisdiction should play an active role in decision-making (rather than “rubber-stamping” the decisions of others).
Decisions should not require approval by others in another jurisdiction.
The residence of the Will determines several tax factors.
The residence of a Will determines:
Whether the Will is subject to Canadian federal tax on its worldwide income as a resident trust or, whether the trust is a non-resident only subject to Canadian tax on its Canadian source income. A Canadian Will is liable for Canadian income tax on worldwide income from all sources. In contrast, non-residents are only liable for Canadian income tax on Canadian source income and income from property (that is, income arising from the disposition of certain property situated in Canada). Similarly, residence determines which provincial tax regime is applicable.
Another implication relates to obligations. One of the duties of an executor includes tax reporting duties and disclosure requirements. For this reason, the residence of the executor, and by extension the residence of the Will, determines which reporting obligations the Will must adhere to.
Practically speaking, it may be challenging for a non-resident to act as executor. Getting things done may take more time, and there may be added costs as well.
For example, a foreign executor may not be accustomed to domestic laws and regulations. While they may familiarize themselves, it may cause a more lengthy and complex administrative process. Especially when the executor is not a beneficiary, executors are compensated for their time. As such, any additional time needed to acclimate themselves will come at a cost to the estate.
As well, it may be challenging to act as an executor from a distance (even in today’s technologically advanced world). There may be instances where a physical presence is necessary. For example, when valuing real estate. While travelling back and forth is certainly possible, travel expenses may come at an additional cost to the estate.
For this reason, it is prudent to select an executor who lives close to you or at least in the same province.
While a non-resident executor is permissible, it may complicate the legal and practical elements of estate administration. This includes the ability to apply for a certificate of appointment of estate trustee, the estate’s jurisdiction for tax purposes, and the requisite bond expense.
Practically, non-resident executors may not be familiar with important laws or may need to travel back and forth to administer the estate. All of which may lead to additional costs. For this reason, residence is important to consider when appointing a potential executor.