There is a lot to consider when deciding who to name as an executor in your will, especially when you consider that this is the person who will be carrying out your final wishes. There are a multitude of factors to consider when choosing an executor, but in this article we’ll focus on how an executor’s residency can affect your estate’s tax consequences.
According to Canada Revenue Agency (CRA), an estate’s residency is determined by the location where the central management and control of the trust actually takes places – which is normally where the executor is located. This means that, although you and your assets may primarily be located in one place, it’s the location of the executor which determines residency and, therefore, which provincial Income Tax regulations will be observed.
In the case of multiple or co-executors, the trust will reside in the jurisdiction in which the more substantial central management and control actually takes place.
Keep in mind, however, that administering an estate is usually a lengthy process, so choosing an out-of-province executor because of their location may not make sense. The process can typically take anywhere between 12 to 18 months, and in some cases, complications, errors and litigation might delay the process by months or even years.
Out-of-province executors also have to post a bond unless the court can be convinced to make an exception. Bonds can be very expensive
Differing Tax Rates
As mentioned above, if your executor is based in Manitoba, the estate will pay tax based on Manitoba’s tax rates. If they are based in Alberta, the estate will pay based on Alberta’s tax rates. Therefore, choosing your executor might inadvertently cost your estate money.
For some estates, choosing an Albertan executor can result in significant tax savings because of Alberta’s low tax rates.
Put simply, appointing a person who doesn’t reside in Canada as an executor is a troublesome idea. If a non-resident is appointed as an executor, the estate may be subject to taxes in the foreign country as well as in Canada.
If a person appoints a non-resident as executor, the estate will not receive preferred tax treatment on Canadian dividends or capital gains, and it might not be able to divide the tax burden with other beneficiaries who are Canadian residents.
The biggest effect an executor’s residency can have on your estate is mostly its practicality. Your executor will have to be able to deal with all the aspects of an estate, so their proximity to your assets is important. An executor will have to gather all of the assets of your estate, which can mean trips to banks, going to various properties, collecting items and personal effects, etc. Often times, choosing an executor who is not close to where all the assets are doesn’t make a lot of sense, unless there are glaring reasons to do so.