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Residence of executor may have important tax consequences

Ontario residents may know that in appointing an executor to carry out the tasks set forth in a will, people automatically consider trustworthiness and reliability, but residency is another attribute that might also be considered important. The Canada Revenue Agency has stated in an interpretation bulletin that the residence of a trust depends on the residence of the trustee. The interpretation applies to decedents' estates as well.

If a person appoints a non-resident of Canada as his or her executor, the estate will not receive preferred tax treatment on Canadian dividends or capital gains, and it may not be able to divide the tax burden with beneficiaries who are Canadian residents. Moreover, a non-resident estate may be subject to taxation in the country of residence of the executor; in some situations, the estate may be taxed in the foreign country and in Canada.

Even if a Canadian resident is appointed executor, problems may arise if he or she later moves from Canada. In such a situation, the estate may be deemed to have disposed of all assets at fair market value as of the date of departure and then be taxed on any gains. It is generally beneficial to appoint an executor that resides in Canada during estate planning.

Because the tax treatment of an estate depends on its value and other circumstances, the residency of the executor may not make a practical difference in all cases. A wills and estates lawyer may be able to help a benefactor in a particular case to choose an appropriate executor. A lawyer may also assist with the drafting of a will as a stand-alone document or as part of a comprehensive estate plan.

Source: Castanet.net, "Can executor be a non-resident?", October 09, 2014

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