Download - Ian Worland - Planning for Clients with Assets in Multiple Jurisdictions

PLANNING ISSUES FOR ASSETS IN MULTIPLE JURISDICTIONS

Ian WorlandLegacy Tax + Trust Lawyers

February 15, 2005

Abbotsford Estate Planning Council

Planning Issues for Assets in Multiple Jurisdictions

2

Introduction

The principal purpose of this presentation is to identify and discuss issues that arise in estate planning or administration that involve assets in multiple jurisdictions, or a testator, deceased or beneficiary in one jurisdiction with assets in another jurisdiction.


3

Organization - Non-Tax Considerations Estate Planning Strategies Tax Considerations for Multi-Jurisdictional

Planning Foreign Tax Considerations Generally US Tax Considerations


4

Non-Tax Considerations

Administration and Succession Conflict of Laws Grants and the Personal Representative Validity of Wills Testamentary Freedom and Conflict of Laws Probate Fees


5

Conflict of Laws - Domicile

Jurisdiction where the person is physically living and intends to live indefinitely

Domicile of origin Domicile of choice Federal v. State or Provincial domicile


6

Conflict of Laws – Choice of Law and Venue Which jurisdiction’s law will apply?

Nature of Assets Domicile

Which jurisdiction will have the authority to determine the matter (venue)? Nature of Assets Residence / location of parties, witnesses Juridical advantage


7

Conflict of Laws – Nature and Situs of Assets

Land including leaseholds are immoveable and situs is location

B.C. Wills Act, ss. 39 – 43 (“interest in land”) All other assets are movables Chattels are situated where found at the time

situs is determined Rules for movables other than chattels


8

Nature and Situs of Assets ….continued… Wills Act, Interest in land

S. 39(1) “includes leasehold estate as well as a freehold estate in land, and any other estate or interest in land whether the estate or interest is real property or is personal property”

S. 43 “if the value of a thing that is movable consists mainly or entirely in its use in connection with particular parcel of land by owner or occupier of the land” succession under will or intestacy governed by law of situs


9

Non-Tax Issues – Grants and the Personal Representative

Place of Obtention Ability to use grant in multiple

jurisdictions Exceptions

Corporate Statutes US state rules


10

Non-Tax Issues – Validity of Wills

Formal Validity Material Validity


11

Validity of Wills - Formal Validity Execution Requirements At Common law, domicile of death Also, Wills Act, s. 40: For movables, domicile of

Testator at time of execution, domicile of origin, jurisdiction of execution

For immoveables, situs governs Holograph Wills (except B.C., N.S., P.E.I.) Harmless Errors


12

Validity of Wills – Material Validity For movables, law of Testator’s domicile

at death (Wills Act, s. 39(3)) For immoveables, law of situs (Wills Act,

s. 39(2)) Perpetuity and Accumulation Period for

Trusts


13

Validity of Wills – Miscellaneous Capacity Interpretation Trusts


14

Inter vivos Trusts - Moveables Formal validity and interpretation

is governed by the proper law of the trust

Example - Choice of law clauses and power to change the jurisdiction of the trust

Administration is governed by the place of administration


15

Inter vivos Trusts - Immoveables Formal validity is determined by the situs Interpretation will be governed by the

proper law of the trust or that intended by the Settlor

Administration for immoveables uncertain situs vs. place of administration

Testamentary Trusts generally governed by same conflict rules governing Wills


16

Trusts International Trusts Act, R.S.B.C. 1996,

c. 237 (Hague Convention on the Law Applicable to Trusts and their Recognition)

Conflict of Laws Rules for Trusts Act, R.S.B.C., c. 65


17

Non-Tax Issues – Testamentary Freedom andConflicts of Law

Dependant’s Relief Legislation (e.g. Wills Variation Act, R.S.B.C. 1996, c. 490)

Family Law Legislation Saunders v. Vautier


18

Testamentary Freedom andConflicts of Law – Dependant’s Relief

Dependant’s Relief Legislation Rules of the Testator’s domicile will govern

movables (Re Soroka (1975), 10 O.R. (2d) 638) Rules of situs will govern immoveables (Re Pulver

(1983), 13 E.T.R. 1)


19

Dependant’s Relief ….continued…

U.S. resident owning vacation home in B.C. In the U.S. generally can disinherit an adult

child B.C. resident owning vacation home in

California Widow and orphans have statutory rights in

some states


20

Testamentary Freedom andConflicts of Law - Family Law Legislation

Moveable vs. Immoveable generally governs

Canadian jurisdictions have deferred family property regime

In B.C., triggering event does not include death


21

Family Law Legislation…..continued…..

Many U.S. jurisdictions have separate property or community property regimes


22

Testamentary Freedom andConflicts of Law - Variation and Termination of Trusts

Rule in Saunders v. Vautier ((1894) 49 E.R. 282) typically applies in Common Law Jurisdictions

Consider Alberta, Manitoba Consider Rules in U.S.


23

Probate Fees

Probate Fee Act, S.B.C. 1999, c. 4, as amended Re Bloom, 2004 BCSC 70 (SCBC) B.C. probate fees now apply to intangible personal

property outside the Province for deceased of person ordinarily resident in B.C. at death

Query constitutionality of this rule Planning to Avoid Probate Fees


24

Considering Conflicts of Law Rules in Estate Planning Must be considered for real

estate in another jurisdiction Should be considered for

movables outside of Canada Must be considered when dealing

with foreign clients with assets in BC


25

Estate Planning Strategies Separate Situs Wills Inter Vivos Trusts Holding Corporations and other

vehicles


26

Estate Planning Strategies - Separate Situs Wills Separate Wills that apply to

assets in different jurisdictions – Example - UK Will for UK assets and BC Will for other assets

Advantages may include limited probate disclosure, reduced probate fees, efficient timing, choice of law


27

Separate Situs Wills …continued…

Disadvantage is cost e.g. Co-counsel review Considerations include:

Choice of Personal Representative Revocation clause Payment of Debts clause Choice of Law clause


28

Estate Planning Strategies - Inter vivos trusts

Potential Advantages: Avoid Probate May avoid succession or estate taxes May avoid certain creditor claims (including

under dependant’s relief, family law legislation) Consolidated instrument Choice of law


29

Inter vivos Trusts …continued…

Potential Disadvantages: Tax issues are complex, can be

punitive Cost


30

Inter vivos Trusts - Tax Considerations

Disposition on transfer 21 year rule Taxed at top rate Attribution of Income Transfer Tax Issues


31

Tax Considerations ...continued…

Must consider foreign trust rules in Income Tax Act

Must consider tax law of other jurisdiction


32

Tax Considerations …continued…

Alter Ego Trusts available to Canadian residents

Must be Canadian resident E.g. Canadian Alter Ego Trusts

and the U.S. Revocable Trust Potential mismatch of foreign tax

credits


33

Estate Planning Strategies – Holding Companies

Transfer of Entire interest Transfer of Legal Title Only Tax Issues Avoidance of Probate Additional Privacy


34

Canadian Tax Considerations in Multi- Jurisdictional Planning

Income from foreign sources Interests in non-resident trusts Canadian resident trusts and estates

with non-resident beneficiaries Non-resident clients Immigration to Canada


35

Canadian Tax Considerations ...continued... Interests in non-resident trusts

Ss. 94, 94.1 of the Income Tax Act Canadian trusts / estates with non-

resident beneficiaries Tax issues in beneficiary’s jurisdiction (e.g.

Germany, U.S.) Part XXII.2 Distributions of property to beneficiary Clearance certificate issues


36

Canadian Tax Considerations ...continued...

Non-resident clients Part I tax

Employed in Canada Carried on business in Canada Disposed of taxable Canadian property Actual and deemed dispositions /

proceeds Part XIII Tax

Withholding rate


37

Canadian Tax Considerations ...continued...

Immigration to Canada Deemed disposition and reacquisition

of most property 21 year deemed disposition rule for

trusts relates back to original creation


38

Foreign Tax Considerations Must be considered when:

Client owns property in another jurisdiction Client is resident in another jurisdiction Beneficiary is resident in another jurisdiction Client or beneficiary is US citizen

Once advice is obtained, consider potential relief under any relevant treaty


39

US Tax Considerations US Estate, Gift and Generation Skipping

Transfer Taxes Estate and gift taxes apply to all U.S.

citizens, regardless of residence, and residents

Residency is determined with reference to domicile at time of gift or death

Repeal of estate and GST taxes in 2010, subject to sunset clause


40

U.S. Tax Considerations …continued…

Property affected: Property owned at death Jointly-owned assets Life insurance proceeds Pension plans Transfers with retained enjoyment Transfers conditioned upon survival Revocable transfers


41

U.S. Tax Considerations – Exemptions and Rates

Estate Transfer ExemptAmount

Year(Applicable ExclusionAmount)

Lifetime Gift ExemptAmount

Highest Estate and Gift Tax

Rates

2005 $1.5 million $ 1 million 47%

2006 $ 2 million $ 1 million 46%



2009 $3.5 million $ 1 million 45%

2010 Tax repealed $ 1 million 35% (gift tax)

2011 $1 million $ 1 million 55%


42

U.S. Vacation Property …continued…

Planning after repeal of the “single purpose corporation”

U.S. Estate and gift tax exposure: federal & state No relief (exemptions or treaty) from gift tax Treaty credit: pro-rata amount allowed to Canadians; double credit if

property transferred to spouse Treaty allows foreign tax credit in Canada for U.S. estate tax For many wealthy Canadians the Treaty relief is not enough Shares of Canadian corporation not subject to U.S. estate tax Single purpose corporation was administrative relief allowed by CRA; no shareholder benefit Property acquired after 2004; shareholder benefit assessed


43

U.S. Vacation Property …continued…

What to do now? Calculate potential exposure Non-Recourse loan still possible Properly structured Canadian Trust for family acquires home Reverse Hybrid - Canadian partnership elects to be treated as

corporation for U.S. purposes Split assets between spouses to access full U.S. exemption Split interest purchase – life interest and remainder interest Life insurance to fund liability Qualified Domestic Trust to defer U.S. estate tax Do nothing


44

ConclusionPlanning for clients who have assets in multiple jurisdictions or where the testator and beneficiary are in different jurisdictions requires a careful consideration of the legal and practical issues that will affect the administration and succession of the assets, as well as the tax issues that will arise in relation to the transfer. Arriving at a structure that addresses all of these issues while still accomplishing the client’s objectives without unnecessary cost or complexity can be challenging, but with the right approach is usually possible.