STEP – Finding true north – Part 1

Enjoy Part 1 of this article courtesy of STEP:

“With an increasingly large number of people moving back and forth between Canada and the US for family, business and leisure purposes, it is not surprising that issues of property ownership, healthcare and financial planning also cross borders. As a result, Canada-US cross-border estate planning is becoming more prevalent, important and complex.

Cross-border estate planning

Canadians and US persons with Canadian assets must consider the Canadian tax regime in their estate planning. While there is no estate or gift tax in Canada, several other taxes are applicable upon a person’s death and upon the transfer of property. It is important to understand how these different taxes apply across the provinces. For example, while income tax and sales tax are imposed federally, most provinces and territories also levy their own unique income and sales taxes. Probate fees and land transfer taxes are provincially governed, and the rates vary widely. These variances drive different approaches to estate planning across Canada, adding a layer of complexity to cross-border planning.

To complicate matters further, each Canadian province and territory has legislation that overrides a will where the deceased did not make adequate provision for the maintenance and support of dependants. The legislation varies across jurisdictions in many respects, including the prerequisites for an application for relief, who may apply and what assets are available to satisfy claims. Consequently, the strategies for avoiding claims also vary between provinces.

As a result of the unique tax, dependant’s relief and probate regime in each jurisdiction, individuals seeking to make an effective and workable estate plan in Canada or for Canadian assets should seek advice from a qualified advisor in the appropriate province or territory.

Minimising probate fees

Inter vivos trusts are among the most commonly used tools to reduce probate fees, as the assets in an inter vivos trust do not form part of the deceased’s estate. Such a trust can also provide continuity in the management of assets both before and after death. However, transferring capital property to an inter vivos trust will generally result in taxation of accrued capital gains. Other common strategies to avoid probate fees include transferring assets into joint tenancy, designating beneficiaries on registered plans and insurance, and the creation of dual or multiple wills.

Planning for incapacity

All Canadian provinces and territories have their own legislation governing the appointment of substitute decision makers for the management of assets; the form and content varies greatly across Canada. Despite legislative provisions stating that a foreign power of attorney (PoA) is to be recognised so long as certain basic conditions are met, a valid PoA from a US jurisdiction (or another Canadian province) is unlikely to afford the attorney unhindered access to the grantor’s Canadian property. The same issues apply to the appointment of substitute decision makers for personal and healthcare decisions. Consideration should, therefore, be given to the preparation of separate and concurrent directives and the PoA in the local form for each jurisdiction in which an individual holds property or spends significant time. Particular wording may be required to ensure that one appointment will not revoke previous or concurrent appointments.

Licensing issues

While it is possible to appoint a US resident as an attorney for a Canadian person, or to deal with property located in Canada, many practical difficulties will arise. Beyond issues of convenience and effective day-to-day management, matters become complicated when a grantor owns securities within a Canadian investment portfolio. With some exceptions, a Canadian investment advisor must be licensed with the US Securities and Exchange Commission in order to take instructions from a US-resident attorney.

The Canadian investment advisor must also be licensed in the state in which the attorney lives. Each state has its own specific rules and exceptions; finding a qualified advisor can be difficult. Further, where a US-resident attorney has signing authority over Canadian bank or investment accounts, that attorney may be subject to onerous US reporting requirements. It may be prudent to appoint a Canadian-resident attorney to act together with the US-resident attorney, or to draft the PoA in such a way that the US-resident attorney has the power to appoint a Canadian-resident attorney to assist with, or perform, certain financial functions. Alternatively, separate powers (and attorneys) for each jurisdiction may be warranted.”