In this article, we are going to shed some light on the issues that are recognized when a person dies and his/her estate has mutual connections with jurisdictions outside of Canada.
Many complications and issues arise from a multijurisdictional estate condition, as well as special rules and jurisdictional rules that apply in some specific circumstances. These types of complications are recognizable and determined according to different circumstances. When the person dies in Ontario and his/her assets are mostly situated there, then certain rules are applied. The same goes for a person who dies outside of Canada and has most of his/her assets outside as well.
We will establish most of the legal matters in Ontario as well as the issues that are equally applicable to other Canadian provinces and territories.
Practical Issues and Challenges:
When a person’s estate has a multijurisdictional or foreign connection, several challenges arise no matter where the deceased lived or held his assets. These challenges include:
- Locating and creating an asset list for various jurisdictions.
- Locating and determining if the deceased had more than one will (separate situs wills). Also, determining whether these wills are valid.
- Analyzing each will for the assets of each estate, especially where multiple wills provide the same entitlement for each beneficiary or just for the same set of beneficiaries.
- Dictating all of the deceased jurisdiction’s debts and tax liabilities as well as determining who has to pay them.
- Analyzing the jurisdictions that need advertising, where to advertise, what makes it desirable to ensure the “estate trustee” protection, and the cost of doing all of the above.
- Dealing with different challenges like foreign languages that create translation issues, obtaining the right translation for the documents, and communicating in an appropriate manner with the estate holders, creditors, beneficiaries, and so on.
- Manage any extra costs or time delays that may arise with foreign estate processes and beneficiaries.
- Comprehending all the rules and legal regulations that are recognized when handling estate funds.
- Controlling foreign documentation certification and requirements as some jurisdictions require specific certification like a copy of court-certified “apostille,” and of course, any other type of copy isn’t accepted in these cases. However, Canada is not a signatory to the 1961 Hague Convention Abolishing the Requirement for Legalization for Foreign Public Documents, which means that documents must be authenticated by the Government of Canada and foreign embassies that involve a few extra steps to achieve.
Foreign Connections Estate:
An estate of Ontario can face a series of complications and challenges when:
- An owner of the estate dies and turns out to have multiple citizenships, or different places of birth.
- Foreign residency is recognized on the beneficiaries.
- The person owns assets in foreign countries.
In those cases, it is clearly stated that the U.S. and Eritrea are the only two countries that tax according to residence and citizenship. On the other hand, other countries tax worldwide income according to the person’s residency in the country, but not citizens residing in another country.
Moreover, in some cases where the person has emigrated from a jurisdiction, it is still possible that he/she still has tied connections and assets to the country of origin. This situation must be considered for the deceased might have relatives or friends that he/she benefits from. These benefits might be holding his/her assets and debts, which should be taken into consideration when analyzing this type of case. In addition to that, if the deceased does have these connections then you might need to consider the fact that there are some specific foreign laws that affect the deceased’s estate and its beneficiaries. That’s why you should always investigate these circumstances to make sure nothing gets overlooked.
Foreign Resident Beneficiaries:
Common Issues:
A number of complications and issues can arise when an estate has foreign beneficiaries. These issues are recognized in particular when managing foreign exchange and currency in:
- Gathering in assets and making distributions to non-resident beneficiaries.
- Complexities of making distributions when sending a cheque by mail.
Income Tax Complications:
Distributing non-resident beneficiary may conclude in some tax income issues that include:
- Withholding Tax—According to the Canada Income Tax Rules, income that is payable or paid to a non-resident beneficiary is considered as a non-resident withholding tax issue. The estate holder/owner is then liable for a tax withhold of an appropriate rate of 25% and should fill out the required filling.
- No rollover issue—When a Canadian resident’s estate is distributed to a non-resident beneficiary (that can trigger capital gains), then there is no “rollover” of those capital gains, even if they are triggered and payable by the estate on post-death capital gains. However, a rollover will be applied if a taxable Canadian property is distributed.
- Canadian or Ontario corporation Interest—When a foreign beneficiary (under domestic tax laws) holds an interest in an Ontario or Canadian private corporation, many issues can be recognized.
- Section 116 certificate requirement issues—According to the Income Tax Act of Canada, under section 116 it is stated that a non-resident person needs to obtain clearance certification when disposing of a property that is considered taxable Canadian property. Taxable Canadian Property includes:
o Property located in Canada
o Assets that are used in a business in Canada.
o Private Canadian corporation shares that have more than 50% of the shares are obtained from real property or certain resources in Canada.
Any distribution of capital interest in a trust to a beneficiary, in accordance with the rules above, will be considered as a disposition if the value of the estate was more than 50% (within 60 months previous to the distribution) obtained from Canadian real property. Although, if the distribution was made with cash from the trust or estate, then there is no taxable gain to be generated, and some simple and routine filling needs to be made instead. On the other hand, personal liability for any unpaid tax to the estate owner will be implemented, and other complications under section 116, if he/she fails to ensure the proper regulations that need to be taken.
Foreign Situs Assets:
Forced Heirship:
In most civil law jurisdictions, a form of forced heiring rules is recognized, which are sometimes known or addressed as “mandatory family” protection rules. These rules indicate the different mindset between common and civil law jurisdictions regarding testamentary freedom and inheritance issues.
For each civil law jurisdiction, there are certain rules that accommodate the portion of an estate that is affected by forced heirship. It is also considered to which family member was the estate entitled to and in what proportions. In addition to that, rules of “clawback” that take into consideration the gifts given during the deceased’s lifetime.
For certain Islamic countries that follow Sharia, they have similar legal rules that are applicable to assets in Islamic countries, of course, even if the estate owner is a non-Muslim living in the country.
On another note, if in some cases the deceased:
- Is a national or citizen of the jurisdiction.
- Has any affiliation with the jurisdiction that has forced heirship rules.
- Owns assets in the foreign jurisdiction.
- Has beneficiaries in Ontario and/or in the foreign jurisdiction.
Then the estate owner is obligated to these forced heirship rules.
Foreign Family Law Regimes:
This law can vary from one country to another, as it can affect who is entitled to the estate when the estate owner is dead. The main concern of this section is how does this law determine the ownership of the property to go to which spouse of the deceased.
This is considered a very important issue for sometimes the case of the last common habitual residence of the spouses wasn’t indicated in Ontario. Section 15 of the Family Law Act (Ontario) provides that the couple’s last common habitual residence applies in the determination of matrimonial property rights, of course, the rule won’t apply if they had no such common residence.
Note that if the matrimonial regime is a form of “community of property,” meaning that this property is obtained by the spouse from marriage and owned jointly under exceptions, then the spouse is limited to what he/she can dispose of in their will.
Succession to Assets on Death Laws:
Any foreign pensions and accounts are most likely to be affected by the jurisdiction law of the country where those assets are held or situated. In addition to who benefits from these assets as a result is also taken into consideration when determining the rules that apply. Many civil-law jurisdictions state that the beneficiaries usually inherit the assets of the deceased, and, in conclusion, are held responsible for his/her debts and liabilities. The payment of debts in other jurisdictions is affected by these rules in the process as well.
Foreign Tax Considerations:
When it comes to tax filing in multiple jurisdictions, it is required for the person to fill out the required documents completely and, of course, after taking the right advice from a professional. It’s highly recommended to consult a professional when dealing with multijurisdictional estate administration. It’s good to know that Canada only has two treaties that regard taxation on death which are the United States and France.
On another note, there are some conditions where there isn’t any tax treaty between Canada and the jurisdiction where the asset is located. In this case, double taxation is recognized, which in turn creates even more difficulties. Furthermore, these processes need to take into consideration the privacy and confidentiality of the tax filing.
Some people consider that for a foreign jurisdiction to indicate your asset’s taxes is not possible, for the authorities might not even take the time in investigating your situation. Well, think again. For the estate holders in Ontario, there are severe consequences if you don’t report foreign assets. You need to know that now global governments are taking aggressive measures of making information exchange transparent so that no tax revenue is left unreported.
Foreign Tax Liabilities and Filling Responsibility:
A very important fact that needs to be mentioned in this section, is that the courts of one country can’t enforce claims made for taxes of a foreign government on an estate holder of that country, according to the rule of private international law. Therefore, a country cannot enforce tax liabilities in a foreign jurisdiction against a holder of an estate in a foreign country.
However, there have been some protocols and precautionary masseurs that are being implemented between jurisdictions that may modify this private international law rule. These conventions are placed between Canada and other jurisdictions. Many countries have stated that it’s in their benefit that foreign tax obligations are enforced in their jurisdiction to obtain promising tax income.
Obligations on Income Tax and Debt Payment, and Multiple Wills:
It’s very important that an Ontario estate holder takes into consideration which person in which will take control and be held responsible for the liabilities and filing of tax returns in each jurisdiction on death. The person likely needs to divide the liabilities among the estate holders in the will and, of course, the language of each will needs to be carefully reviewed while taking legal and professional advice is recommended. The careful interpretation of the will is very important to avoid any conflict or dispute among the estate holders.
Great care needs to be taken if an estate doesn’t have enough assets to even divide in the first place to the multiple estate holders according to the will.
Other Legal Requirements (Foreign Probate):
For most countries like Europe, America, and Latin countries their civil law jurisdictions don’t require probate. However, other common law jurisdictions (Commonwealth jurisdictions and U.S. states) require probates on wills. Other African and Asian countries follow either civil or common law jurisdiction rules depending on their development history. Moreover, Muslim countries basically follow Sharia, which is similar to civil law and includes a type of forced heirship.
In some cases, due to probate restrictions, local rules can create difficulties in obtaining authority, for an Ontario estate holder, to act in a foreign jurisdiction. It might also require a resident of the country to act or take probate in this matter. Furthermore, a non-resident estate holder is required to file a bond unless the estate doesn’t require a bond in that jurisdiction then the process is useless. It’s important to know that these processes take time and might be frustrating for Ontario estate holders, for the legal processes in many foreign jurisdictions do not move at speed.
If the estate holder does not qualify for a probate or bond application, per the rules, then he/she needs to find a person that is a resident of the foreign jurisdiction to act on their behalf. Also, the local rules of the foreign jurisdiction, which differ from Ontario rules, may create some complications to the spouse or dependent of the estate.
Ontario or Canadian Connections to a Foreign Estate
Ontario Resident Beneficiary:
When an estate holder is an Ontario resident then it’s very likely that no complication would emerge in the process of any additional income taxation on the foreign estate. In addition to that, Canada provides a capital gift to the estate holders that aren’t considered taxable in any way.
Note that any distributions from trusts or corporations have other rules and regulations that work under the taxation of income.
Deceased Canadian Citizen:
No difficulties or complications would face a person dealing with the estate of a deceased Canadian citizen, thanks to his/her citizenship. Nevertheless, it’s really necessary to inform the government about the person’s death, for tax income reasons.
It’s known that Canada does not incur taxes on a person based on his/her citizenship, or even impose on an estate required taxes. It’s actually not in that sense at all, Canada taxes based on deemed or actual tax residence in Canada, or on income that has been made in the country. Not to mention the taxes imposed on the capital property is located in Canada when they are disposed of or deemed to be disposed of.
Note that if the non-resident Canadian citizen deceased did not own any Taxable Canadian Property at death or earned income in Canada in the year of death, then the estate holder of the deceased’s estate doesn’t have to file income returns.
Non-resident Estate Holders:
Concerning the probate and tax rules, if a person dies and turns out he/she is a non-resident of Ontario and had assets there, then this might create some difficulties both in Ontario and the foreign jurisdiction for the estate holder.
Authority to Act in Ontario:
According to common law rules, a foreign estate holder has absolutely no authority or control over the assets of the deceased person in Ontario. This rule is under the influence of a foreign court, or the authority might be given to the court, according to another law in a certain jurisdiction. This means that the estate holder needs to obtain a probate grant in Ontario to act upon the assets. However, there have been some exceptions made for these circumstances, it is still the asset holder’s choice to accept a foreign grant as proof of authority in such cases or require a local grant.
It’s highly recommended that the foreign estate holder obtains an Ontario probate grant confirming their authority over the asset, even if the deceased person already owned real property in Ontario and there were some exemptions regarding the Ontario probate grant.
Usually, the requirements for an Ontario grant are waived for non-resident estate holders by the financial institutions. However, financial institutions are considered risk-averse in these types of conditions, and avoiding an Ontario grant wouldn’t be considered a smart move. So, in a situation involving non-resident estate holders, it’s advisable to apply for an Ontario grant.
Original Grant Jurisdiction:
In some cases, the deceased might have multiple assets spread across different jurisdictions, and this will allow the person to choose in which jurisdiction the original grant of probate should be obtained. Of course, he/she needs to consider these conditions:
- Know in which jurisdiction the financial institution, or other third parties, require you to obtain probate.
- Need to know the requirements of each jurisdiction in cases like:
o Original or secondary grant of probate is more suitable.
o If obtaining an original grant will create complications in another jurisdiction, and its requirements.
- Know the probate fees in each jurisdiction and compare the difference in fees between original and secondary grants.
- Know the costs and legal fees in each jurisdiction for obtaining probate.
- Need to know the bonding requirements, costs, and availability in each jurisdiction.
- Knowing the qualifications for applying for a grant in each jurisdiction.
- Need to know which courts oversight an estate administration in each jurisdiction.
- Knowing if protection is facilitated to the estate and its holder when obtaining a grant and if this type of protection is advised in a jurisdiction.
Non-resident Estate Holder Grant (Ontario):
The type of court grant will be determined on the position of the estate holder in a commonwealth jurisdiction and if the deceased has a will or not. Moreover, after considering all of the necessary precautions it will be clear if an estate trustee is entitled to apply for a court grant.
In the case where the estate of the deceased is entitled to a non-resident person, and the deceased didn’t have a will in a non-Commonwealth jurisdiction, this won’t entitle the person to apply for a court grant. This means the person has no authority over the asset left to him by the deceased. Although, an Ontario court might find some exceptions in certain situations.
It doesn’t matter if the deceased died with or without a will, attainment of a bond is required for the estate holder that lives in a non-Commonwealth jurisdiction. However, in some cases, the Ontario court can reduce the amount on the bond depending on the circumstances at hand. On another note, it is hard for the non-resident estate holder to find or acquire a bond since they don’t have assets in Ontario.
Income Tax Issues (Canada):
Let’s state a few facts, Canada imposes an income tax, for a non-resident, on any income that is made inside the country. It also imposes capital income tax on Taxable Canadian Property that has been sold or is about to be sold by the holder, which has been discussed in this blog. Basically, for Canadian tax purposes, when a person dies it is stated that the person has disposed of their property.
After the death of the person with the estate, the estate holder afterward is responsible for filling all the required tax documents for the income tax year up to the deceased’s date of death. He/she will probably be also obligated to report any additional tax return if the estate made an income or capital income after the date of the person’s death. Of course, failure to make these tax payments or, not filling the required documents, will lead to serious penalties.
Other Issues:
According to everything and all the difficulties that may face a non-resident estate holder that has his assets in Canada, it’s quite difficult for the person to open up a bank account and liquidate or provide investments for the assets when the increased financial institution compliance is making it complex for a non-resident. The financial institution has implemented extensive requirements and procedures that are almost impossible to meet, seeing the circumstances of a non-resident estate holder. Note that these procedures and requirements are also applied when the person has obtained an Ontario probate certificate.
All in All:
It’s recognized that a lot of Canadians are leaving the country and acquiring assets overseas. The same goes for foreigners coming to Canada and acquiring property and assets in the country as well. These types of circumstances make it difficult for the estate holders, after the death of the real estate owner, to act on these assets after receiving them. As seen in this blog, there are a lot of rules that apply to these people and are somewhat difficult to meet and time-consuming to complete. It’s not an easy task to handle but we hope you can learn from this piece and start handling your assets wisely.