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Dear Money Lady,
I am in the process of writing a will but am not sure who I should pick for an executor. Should I use a family member or a friend? Any tips?
Great question, Colin.
A friend or a family member — it all depends.
This will be the person who controls and manages all the assets you leave behind and will have a legal obligation to carry out your estate plan. Your executor will secure all your assets, make investment decisions if necessary and file your final tax return.
It is important for you to choose the right person to be your executor and to consider the person’s competence and age, availability and location, trustworthiness and dependability.
Please do not choose an executor who does not reside in Canada. This could have legal and/or tax implications depending on your provincial legislation.
Under Canadian tax law, an estate is considered to be a trust and we do not want the tax residency of a trust to be questioned if the primary management and control is in the care of a non-resident. This will trigger your estate being disposed of its assets as a non-resident, subject to capital gains tax, possible withholding tax, loss of enhanced dividend tax treatments, and it may even be subject to the rules and regulations of the country in which your executor resides.
Of course, in situations where an estate is subject to tax in two or more jurisdictions, tax conventions and foreign tax credits may be available to reduce the overall tax burden. Non-resident executors may also be restricted when it comes to investment instructions over the estate’s Canadian investment accounts since this can be viewed as the executor controlling foreign assets. A non-resident executor may be required to report this on their own personal taxes. For example, a U.S. resident who is executor of a Canadian estate may be required to file various U.S. reporting forms and it is a good idea to seek professional assistance to ensure compliance.
]Let’s face it, you worked hard for your money and the last thing you want is our government (or any other government) getting its hands on your estate. No one would intentionally put their assets in jeopardy.
Speak to your adviser or estate lawyer to find out if the person you want to be executor is the right choice.
Christine Ibbotson is the author of How to Retire Debt Free and Wealthy. If you have a money question, please email her through her website at: www.askthemoneylady.ca
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