As more Canadians are choosing to spend greater time abroad, it has become increasingly common for estates to include foreign-based assets upon death. This shift may be, in part, the result of the rising popularity of maintaining secondary residences in warmer climates for a welcome alternative to our harsh Canadian winters. Other changing dynamics, such as the increased frequency with which we see Canadians taking on jobs overseas or marrying abroad, may also play a role. From an estate law perspective, foreign-based assets can give rise to estate administration issues that are best addressed as part of an estate plan created in consultation with professional advisors.
One type of foreign asset that is particularly common is Florida (or other U.S.) based property. For those who are considering entering the realm of international real estate, there are several important considerations that should be kept in mind. For instance, although factors such as strong or weak currency, relatively low property prices, and government incentives, may influence the decision to purchase property abroad, it is wise not to allow oneself to become overwhelmed by these variables and inadvertently acquire property that will result in significant complications in implementing an estate plan.
At the end of the day, while long-term strategy is crucial, you also need to carefully consider what your intentions are with respect to property, whether situated in Canada or abroad. For example, the type of property you select and the way the purchase is structured can vary significantly, depending on whether you are acquiring a recreational property to be enjoyed seasonally or an investment property designed to provide long-term revenue. As no two cases will be the same, obtaining advice that is specific to your unique circumstances, in order to ensure that purchasing decisions are made in a manner that is applicable, is recommended.
Ownership structure remains one of the biggest concerns in holding U.S. real estate today. This is because of the tax implications to which various arrangements can give rise. Some of the most common options include ownership through a Canadian trust, corporation, partnership, or joint ownership. Each of these options has various advantages and disadvantages, which will vary depending on each specific situation.
It is also important to remember that international property may not be subject to a Canadian will. Generally, real property is governed by the laws of the jurisdiction in which the property is situated. Accordingly, the use of a foreign “situs” will that meets the requirements of the applicable jurisdiction, may need to be considered. However, there are potential consequences in using a “situs” will, such as the inadvertent revocation of other wills, which should be dealt with carefully.
Sometimes, despite best efforts to structure foreign assets in an advantageous manner, circumstances change and frustrate the efficacy of these arrangements. For example, legislation is by no means static and, therefore, can change to create new concerns or potential consequences over time. Tax legislation, in particular, can be extremely complex. Even minor amendments can wreak havoc on the most diligently made plans. The best way to minimize tax consequences in the context of tax rules that are subject to change is to ensure that professional advice is obtained with respect to foreign assets on an ongoing basis. Periodically re-visiting your estate plan is always an opportune moment to consider any recent changes and their possible ramifications regarding foreign assets.
The Canada Revenue Agency (“CRA”) has updated its practices in recognition of the increase in foreign-based assets being held by Canadians. The CRA has become much tougher on estates in recent years, especially those including assets located in other jurisdictions.
Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.
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