Canada: Multijurisdictional And Separate Situs Estate Planning: The Details

Last Updated: February 27 2019
Article by Susannah B. Roth and Margaret R. O'Sullivan

Owning property in another jurisdiction often means more complexity, and those who do should have a co-ordinated and comprehensive estate plan to deal with their multijurisdictional lives in order to avoid often hidden pitfalls.

Our first article in this series explained the benefits of multijurisdictional and separate situs wills. Our second discussed proper preparation of these wills as well as what property passes on death and which law governs each will. This third and final article in our series will discuss considerations when preparing such wills.

Problems can arise where local law under a separate situs will governs interpretation and provides a different interpretation or definition for critical terms than those under the law in the client's home jurisdiction. For example, does the use of the term "issue" or "children" under local law include or exclude adopted children or children born outside of marriage? Does the term "spouse" refer to only legally married spouses or also common law or same sex spouses under local law?

Advisers will need to consider key terms and include specific definitions in the separate situs will to avoid unintended results if local law would otherwise provide a meaning that is not the client's wish.

In developing a co-ordinated estate plan using a multijurisdictional will or separate situs wills during the planning stage, advisers should consider how the wills will work together to create a unified whole and address the issue of tax liabilities. The client will need to consider which executors under which will have the obligation to pay tax liabilities on death and to file tax returns. It may be necessary to apportion primary and secondary liability among the executors of multiple wills.

The client should also consider the implications if one estate is insolvent or lacks sufficient assets to discharge tax and other liabilities.

A debts and taxes clause can be drafted in order to avoid problems which might otherwise arise. Where there are different beneficiaries under each estate, the impact of the allocation of tax liabilities and which estate bears the burden will be a key issue and can be the basis for a future dispute.

The interpretation of the will and express provisions relating to payment of debts and tax will be important if there is a dispute. As an example in Smith v. Barna Estate [2012] O.J. No. 510, where the testator had left valid Canadian and French wills, a Canadian court considered whether the applicant, a beneficiary of the deceased's estate, may be liable for French taxes on property passing under the French will.

The court concluded the beneficiary was not liable to personally pay the French taxes based on the wording of the Canadian will, and consequently the general estate was required to pay these taxes.

Careful consideration and appropriate wording is necessary to ensure the client's wishes in regards to matters like this are recognized and incorporated into their plan.

One question many clients have is what right does a taxing authority have to enforce tax liabilities in a foreign jurisdiction against the executors of the estate in the foreign jurisdiction? A general rule of private international law states that the courts of one country will not enforce, directly or indirectly, claims made for taxes of a foreign government.

For example, in United States of America v. Harden [1963] S.C.R. 366, the Supreme Court of Canada held that it would not enforce a judgment obtained in California for United States taxes in an action brought in British Columbia. The traditional basis for the rule is protecting the sovereignty of nations. Enforcing the tax claims of a foreign country may be viewed as an invasion of such sovereignty. In Dubois v. Stringam [1992] A.J. No. 1075, the Alberta court held that an Alberta administrator of an estate was not authorized to liquidate a farm in Alberta to pay funds to the U.S. executor of the estate to satisfy United States estate taxes, where the U.S. estate had a deficiency and could not otherwise pay all the tax.

However, more recent protocols and conventions entered into between jurisdictions may modify this general rule. For example, under the Canada-United States Convention with Respect to Taxes on Income and on Capital, as amended, for the stated reasons of avoiding double taxation and combating tax evasion, each of the U.S. and Canada will effectively collect taxes owing by their respective residents to the other in certain circumstances. When foreign tax claims arise involving multiple wills, it will be necessary for executors to seek expert legal advice with respect to their obligations.

With the guidance of advisers, a client should consider which estate will be primarily responsible for the payment of debts, and whether foreign creditors of one estate can have recourse against the assets of the other estate in another jurisdiction. Consideration should also be given to whether the foreign debts are enforceable against the other estate.

Prudent drafting techniques can be used to potentially avoid future problems. For example, each of the wills might provide a set of priorities regarding payment of creditors for that will. A co-ordinated approach might entail appointing a principal executor under a principal will who is ultimately responsible for all the debts. There is a need for careful consideration and drafting of the appropriate provisions in these circumstances.

Thought should also be given as to what recourse one estate may have against the other to pay legacies and bequests if one of them is deficient. Similarly, it is also important to consider how advances to beneficiaries during the client's lifetime may affect the distribution in one or more wills.

"Forced heirship" arises in civil law jurisdictions where some or all succession rights are codified rather than subject to testamentary freedom. Typically, forced heirship provisions state that a certain portion of a person's estate must pass to each forced heir, for example a spouse or a child. Consideration will need to be given to how the forced heirship rules of a foreign jurisdiction apply to a client's estate administered in another jurisdiction, where the principal will or a separate situs will is located in that other jurisdiction.

Multijurisdictional and separate situs wills are necessary and powerful planning tools for those who have assets located in multiple jurisdictions. Their use will only continue to grow with increasing mobility and globalization of clients and their property. Careful planning and drafting by experienced professional advisers with broad cross-border expertise and the frequent and co-ordinated review of succession plans that have already been put in place are critical to ensure the client's intentions are ultimately carried out.

This is the third of a three-part series. Read part one here and part two here.

Originally published by The Lawyer's Daily.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Susannah B. Roth
Margaret R. O'Sullivan
Events from this Firm
9 May 2019, Speaking Engagement, Toronto, Canada

Speaking at STEP International Tax and Estate Planning Forum: Around the Globe in Laguna Beach on May 9 and 10, 2019

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