A few decades have passed since landing in Canada. After all the hard work and sacrifice, you are finally ready to talk about the inevitable, for when you are no longer here. This is where most people get it wrong! You might be thinking, well, what are the odds, or I’ll do it tomorrow, but then life beats you to it, and your loved ones are left emotionally and potentially financially distressed. Today, we’ll explore why having these discussions with yourself and your family sooner rather than later is more beneficial, especially if you are in a common-law or marital relationship. It is even more critical if you have little ones. Yes, no one likes to talk about death, young or old, including me.
Why Canadian Immigrants Need a Will
A will is a legally binding document that contains instructions on how and when your assets should be distributed after your death. Not having a will in place means that the provincial government (depending on where you live) will step in to allocate your assets according to their established rules under the laws of intestacy (dying without a will). Often, these instructions do not align with your wishes. As we addressed in the earlier blog, Financial Starter Kit, wealth planning entails many facets, and estate planning, or in this case, having a properly written will, is essential for a solid wealth plan. Although it's more enjoyable to plan for your life, preparing for the care of your surviving loved ones is even more critical.
Furthermore, as an immigrant, you need to consider cross-border estate planning if you have assets and beneficiaries spanning multiple countries, which makes the planning process even more complex. The differences in tax regimes and estate laws create unique challenges and unexpected outcomes that require experienced professionals well-versed in the nuances of various legal systems to devise a relevant and customized solution for you and your family.
Another consideration for immigrants is the challenge of culture and customs regarding how their estates will be managed and settled. For instance, you may be familiar with estate settlement processes that do not follow a specific structure, as it is customary for family members to automatically share the responsibility of caring for surviving relatives and selling any possessions. In these situations, it is typical for the eldest surviving relatives to assume responsibility without needing to draft a will. However, if this is how you intend to settle your estate, you can quickly see how such customs would conflict with estate law here in Canada. It doesn’t mean that you cannot follow customs; it just means that you must write down the customs and traditions into a legally binding document called a will to avoid delays and rifts within the family.
The "No Will" Nightmare: How Intestacy Rules Derail Your Family's Future
As I mentioned, not having a will when you pass away means your next-of-kin will receive your assets according to the intestacy rules of your province. One challenge is if you have a strained or estranged relationship with a family member. This means that without a will, you may be giving assets to a next-of-kin who should never have received anything.
You’ll also need to pay specific attention to the varying rules between jurisdictions. For instance, if you live in Manitoba or British Columbia and have a common-law spouse, they will be entitled to a portion of your estate depending on the length of the relationship and other factors. Meanwhile, common-law spouses do not share the same inheritance rights as married spouses for the remaining provinces and territories, including Ontario and Quebec. They will have to file a dependent’s claim to seek compensation.
So, how are assets distributed to your spouse if you don’t have a will? Well, they will receive what's called a “preferential share” with the remainder being divided among your spouse and children. If you do not have a spouse, children or grandchildren, the flow of assets is as follows: first to your parents, then siblings, followed by nieces and nephews, then more distant relatives. However, here is the kicker: if you die without a next-of-kin, your estate will go to the government. Not sure that’s something you’d want to happen, especially when you could have gifted to charity or other local organizations.
One of the significant challenges with the “preferential share” treatment in intestate scenarios is the lack of control your surviving spouse will have over who gets your inheritance and how much. For example, the preferential share provision may not be enough for your surviving spouse to maintain their existing lifestyle, let alone have enough money to support and raise your surviving minor children. Remember, with intestate laws, minor children will automatically inherit a portion of your estate, but since they are minors, the government will hold the assets until they are of the age of majority (18 years old). Not necessarily mature enough to handle all that money, though.
The lack of sufficient readily available assets to be divided according to the “preferential share” provision is even more detrimental to the estate. If this occurs, your family may be forced to sell the home to generate the assets needed to fund your survivor's inheritance. Clearly, this is not an ideal scenario. Additionally, this does not account for the fact that the rollover of assets to children does not benefit from the tax-deferral advantages spouses receive. Thus, not only are you compromising the lifestyle of your survivors, but you are also potentially disinheriting them through the misallocation of funds resulting from improper tax planning and the absence of clear instructions for asset division in your will.
The Executor Challenge: Why Your Relative Overseas Shouldn't Manage Your Estate
What is an executor/personal representative? You must appoint this person in your will to settle and distribute or sell your estate assets according to your instructions and pay all your debts and final taxes. By the way, being an executor is not for the faint of heart. Remember that you’ll be responsible for performing specific tasks that can be cognitively demanding on top of mourning the loss of your loved ones. And, “God forbid” if the death happens when you still have little ones, well, you can see where this is going. This scenario becomes even more stressful when your family unit is the only support you have here in Canada. One tip as you prepare your wills is to learn about all the tasks an executor does to mentally prepare instead of being surprised.
Non-Resident Executor
In most cases, married couples assign each other as the executor. Additionally, you should assign a backup person. However, if you do not have any extended family in Canada, some people may assign a family member abroad (a non-resident executor). Technically, you can do this, and the intention is right, but it comes with significant challenges beyond the obvious geographical one. Having a non-resident executor means that this person must first apply for a probate bond—an insurance policy with a value at least equal to that of your estate. The courts will require this to ensure that the non-resident executor fulfills their responsibilities according to your instructions while ensuring that any taxes or liabilities owing are settled. Then there is the challenge of getting documents signed, selling your assets, and dealing with financial institutions when your executor has no experience in the Canadian landscape.
The other equally impactful challenge of naming a non-resident executor is the tax implications that arise. The Canadian Income Tax Act (ITA) views your estate as a trust for tax purposes. This classification means the trust's residence is determined by who controls and manages it. Therefore, by naming a non-resident executor, your estate automatically loses its residency status and becomes a non-resident entity. It’s akin to voluntarily deporting yourself. As a result, your estate will no longer benefit from the preferred tax treatment of capital gains and Canadian-sourced income. For instance, your estate becomes subject to higher withholding taxes (25%) that financial institutions must apply to any income distributed to it. Another significant penalty is the application of deemed disposition rules on assets with capital gains, such as real estate and stocks. Deemed disposition means that these assets are considered to be sold automatically at death at fair market value, even if they aren’t sold. Inadvertently, this forces your non-resident executor to sell such assets to cover the tax bill. The kicker is that the timing for the sale may not be ideal to maximize the actual value of your assets. Consequently, in some cases, you may end up with less in proceeds if the market environment is unfavourable.
Corporate Executors: Your Estate's Professional Manager
Great! Now you know not to appoint a non-resident executor, but you’re thinking, I don’t have anyone I can trust outside of my spouse to settle my estate. This is where Corporate/Professional Representative Executors exist to solve this dilemma. A corporate executor is a local (Canadian) entity rather than a person appointed in your will to carry out the instructions for your estate. These entities are licensed and have experience in estate settlement, and most importantly, they must act fiduciarily on behalf of your estate. You can designate such executors as the primary representative or a backup in your will. Some will even offer assisted services to your primary executor. In addition to addressing the issue of non-resident estate status, these executors also bring expertise and impartiality to the estate administration and settlement process. Even more critical, corporate executors provide continuity and reliability, as they are not affected by illness, death, family breakdown, or conflict issues.
You’re probably wondering, "This is all amazing, but what will it cost me?" Well, I view these services (if it makes sense) as more of an investment in the peace of mind and emotional bandwidth for your surviving loved ones to celebrate your life and reminisce about all the great moments you had together. Nonetheless, prices and structures vary from company to company, but a typical structure is that these entities charge a fee on a portion of your estate based on a value range. Generally, most fees range from 2.5% to 5%, with larger estates benefiting from discounted rates. However, some innovative corporate executors offer more favourable terms with caps on the maximum fee they’ll charge you. If this applies to your situation, it’s worth reviewing some options with your Financial Planner and Lawyer.
The Ultimate Question
As you reflect on the journey that brought you to Canada—the sacrifices, the perseverance, the building of a new life—ask yourself: Have you put the same dedication into planning how your life's work will support those you love after you're gone? Consider this: While you've mastered navigating between cultures in life, your estate will face these same cross-cultural challenges without your guidance. The financial customs you grew up with likely don't align with Canadian law. Is your family prepared to bridge this gap?
So I challenge you: schedule that uncomfortable conversation this week. Contact an estate planning professional who understands the unique needs of immigrant families. Make your will more than just a document—make it an extension of the thoughtful planning that brought you success in the first place.
Perhaps the greatest act of love lies not only in what you leave behind, but also in the clarity and care with which you leave it.
