Delean: Do not name a non-resident as the liquidator of your estate

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The possible complications of naming an out-of-province executor and the fiscal math of an RRSP withdrawal were some of the issues raised in letters from recent readers. This is what they wanted to know.

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Q: I am a 79-year-old Canadian citizen whose inheritance will go to my wife, an American, as executor and as a Canadian friend. You are based in Florida and you are not a permanent resident of Canada, which means that the time you can spend here in one year is limited to six months. I want her to be a co-executor, but I understand that there may be complications, since she is not from here and the inheritance, quite large, could take at least a year to settle. I don’t know if there will also be tax implications for her if she’s here that long. Do you have any suggestions to keep this as simple as possible?

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TO: François Bernier, director of tax and estate planning at Sun Life Global Investments in Montreal, says that it is generally not recommended to appoint as executor (called liquidator in Quebec) a person who does not live in the same province, much less in the same country .

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“Fixing a property is time consuming and doing it from a distance is not easy,” he said. “That person will need to be present throughout the succession agreement to complete certain tasks, which will result in additional cost and time delay. In addition, a liquidator who does not live in the province may not be familiar with the applicable provincial legislation and may have problems giving investment instructions to professional investment advisers located in another province ”.

Appointing a non-resident of Canada as sole liquidator would be even more problematic. “When you appoint a non-resident as liquidator, Canadian tax authorities may consider your estate to be a non-resident of Canada. This could potentially trigger some negative tax consequences. “

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Appointing an additional person as the liquidator could reduce that risk, but the Canada Revenue Agency could still consider other factors, such as the location of assets, in determining the estate’s residency status.

“In short,” Bernier said, “it is generally best to avoid appointing a nonresident as liquidator.”

Q: In the event of bankruptcy (business or personal), or in any other circumstance, can the cash surrender value of a universal life insurance policy be subject to any garnishment or garnishment?

TO: The Quebec Civil Code says that property in an insurance contract is generally protected against seizure by creditors if the contract names certain people, including a spouse, child, grandchild, and parents, as beneficiaries, or anyone else. as an irrevocable beneficiary.

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“It should be noted that this protection is not guaranteed if it is done when the contract holder is insolvent,” said Bernier. “In such a situation, creditors could object to the designation, potentially nullifying the protection offered. The rules relating to the protection of creditors are complex and full of exceptions, so it is recommended to consult with a notary or lawyer ”.

Q: I am short of cash and will probably need to use my RRSP. How is that going to work?

TO: It’s not that uncommon, but unless you’re using the funds to go back to school or to buy property under the Home Buyer’s Plan, it can be expensive, depending on your tax bracket. The financial institution that has your RRSP will likely charge a one-time withdrawal fee, and both the federal and provincial governments will take a part before you get the funds (and maybe apply later, when you fill out your tax returns) .

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For Quebec withdrawals, the federal government will charge five percent for amounts up to $ 5,000, 10% for $ 5,001 to $ 15,000, and 15% for greater amounts. Quebec takes 15 percent of all parentheses. So a withdrawal of, say, $ 16,000 starts with a deduction of about $ 57.50 for the fee ($ 50 plus GST and provincial sales tax), which leaves $ 15,942.50, minus $ 2,391.37 for federal tax collectors and provincials (who take their 15 percent), for a net payment of $ 11,159.76.

And it doesn’t end there. The RRSP withdrawal is taxable income that must be reported at the time of tax filing, although taxes paid will be credited to you. Whether you get some of that money back or pay more will depend on your other taxable income and deductions for the year.

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Q: I have RRSP. If I die, will these automatically pass to my domestic partner? What will be the tax implications, if any? What if I don’t have a will that specifies my RRSP intentions? Will the government (s) keep half?

TO: The sums in an RRSP can be transferred tax-free to the plans of a surviving spouse or domestic partner if the plan holder dies, but it is more complicated (and not necessarily guaranteed) if it is not specified in the will or in the person it is not designated as the sole beneficiary in the RRSP contract. Otherwise, the contents of the RRSP become taxable upon death and added to the estate for final distribution, after governments have taken their share. Hence the value, again, of having a notarized will.

The Montreal Gazette invites readers to ask questions about taxes, investments, and personal finance matters. If you have a query that you would like to address, please email it to Paul Delean at [email protected].