Avoid tax & estate headaches around vacation homes

When I was a boy, we had a modest cottage a couple of hours out of the city. Just getting there was an adventure, as my parents piled six kids and a dog into a Datsun 510 with no air conditioning.

These days, it’s not uncommon to have a vacation property in another province or outside the country altogether. Whether that’s a family getaway, a snowbird retreat or a new Canadian continuing to hold property “back home,” our society lives across borders like never before.

With this modern mode of living comes complexity, particularly when it comes to estate and capacity planning.

Wills and estate transfers

Generally, a Canadian Will is an effective way to deal with real estate in your home province and personal property wherever it may be. In order to deal with real estate elsewhere, the Will has to be deemed satisfactory by the courts/law in the other jurisdiction. While this is not an impossible task, it presents some additional cost, time and potential uncertainty.

With that in mind, it may be desirable to plan ahead by executing a second Will in that other jurisdiction. In so doing, it’s crucial that the second Will doesn’t inadvertently revoke the main Will or otherwise alter distribution. To prevent this, there must be an open dialogue between the lawyers in the two jurisdictions.

Discussions with the foreign lawyer should include gaining an understanding of tax obligations (currently and for the estate) and legal responsibilities of the executor. This may necessitate adjustments in the home Will or at least some informal guidance. Alternatively, it could lead to naming a second executor, with appropriate allocation of powers and constraints between the two. This knowledge may even affect the owner’s longer-term intentions for the property.

Incapacity while owning or being abroad

Arguably, the estate transfer is the easy situation compared with having to respond to a crisis while an owner is living. While an estate transfer is a property matter, there are both property and personal issues that can come up while a person is living.

Powers of attorney (POAs) and powers of attorney for personal care (PAPCs) have been a recommended part of the estate-planning process for decades now. And while it’s usually intended that the power applies wherever the person or property may be, challenges can crop up when foreign jurisdictions are involved.

Some jurisdictions require these documents to be executed in a certain way, include specific language or otherwise be constrained in some manner that may be at odds with the home jurisdiction’s rules. Even if there are no such formal restrictions, there can be delays (and associated costs) as individuals, health-care workers and businesses confirm their obligations – perhaps even seeking their own legal advice before acting on instructions.

As with Wills, it may be a good idea to have parallel documents drawn up in the foreign jurisdiction in order to expedite action at critical times. In addition to the considerations mentioned above, some further questions should be asked in the case of POAs and PAPCs:

• Can the same person be named in both jurisdictions? Are there practical/logistical/linguistic concerns that may lean toward naming a different person in the foreign jurisdiction?
• What events may cause an appointment to be revoked (e.g., marriage, separation, bankruptcy)? If such rules differ between the jurisdictions, how will that be reconciled?
• What is the scope of the attorney’s activity for each of the jurisdictions? Where there is a gap, how will this be handled?
• If it is intended that the home-jurisdiction attorney have the final word, is this possible under the foreign jurisdiction’s rules? How can an attorney be removed?
• Is compensation allowed/required/prohibited, and do the planning documents together guard against double compensation?
• What checks are there to assure appropriate accounting and accountability for each attorney’s actions?

Cross-border developments

These concerns have been attracting greater interest in recent years, with two major developments worth noting.

In the summer of 2015, the Uniform Law Conference of Canada tentatively approved a uniform law on cross-border recognition of POAs for property and health care, health care instructions, and similar documents. The Uniform Law Commission in the United States approved its draft in 2014. Provinces and states that incorporate the recommendations into their domestic law will enable their residents’ documents to be effective in all reciprocating jurisdictions.

In the area of estates, as of August 17, 2015, a new cross-border succession regulation is in force in the European Union (except Denmark, the U.K. and Ireland). It affects European citizens and residents, and European property held by non-residents. Canadians should consult with their lawyers whether any action is required on their part.