Before Travelling: Consideration of a Trust
Before Travelling - Will - Power of Attorney - Personal Directive - Trust - Estate Planning
To schedule an appointment, contact our law firm at 403-400-4092 or Chris@NeufeldLegal.com
For Canadians, the decision to establish or restructure a trust before travelling or relocating to a foreign country is a sophisticated legal maneuver that balances domestic tax compliance with international legal protections. While a trust is often viewed as a tool for local wealth preservation, its utility becomes paramount when crossing borders, where it acts as a shield against the differing tax regimes of various jurisdictions. By proactively addressing these factors, Canadians can ensure that their global mobility does not result in unintended tax liabilities or the fragmentation of their estate under foreign laws.
One of the primary strategic advantages for Canadians is the mitigation of "departure tax." When a Canadian resident ceases to be a resident for tax purposes, they are generally deemed to have disposed of all their property at fair market value, triggering immediate capital gains taxes. However, assets held within certain types of trusts can sometimes be excluded from this deemed disposition, or the trust itself can remain a factual resident of Canada to maintain tax continuity. This allows for the deferral of capital gains and provides a stable vehicle for holding Canadian assets like private company shares or real estate while the individual resides abroad.
Strategic tax planning involves utilizing Canada’s extensive network of Tax Treaties to avoid double taxation. For instance, if a Canadian owns property in a foreign country (such as a U.S. vacation home), holding that asset through a Canadian-resident discretionary trust can protect against foreign estate or inheritance taxes that do not exist in the Canadian system. Without such a structure, an estate could be taxed once in the foreign country upon death and again in Canada via the deemed disposition rules. A trust can harmonize these obligations, ensuring that foreign tax credits are applied effectively to offset Canadian liabilities.
Beyond tax, trusts offer significant legal advantages, particularly regarding the avoidance of probate. In many foreign jurisdictions, the probate process (the court-supervised validation of a will) is not only time-consuming and expensive but also a matter of public record. By transferring assets into a trust before departure, the legal title remains with the trustee, allowing for a seamless transition of wealth to beneficiaries without the need for court intervention. This ensures that a family's financial affairs remain private and that liquid assets are available to heirs immediately, rather than being frozen in a foreign court system.
Canadians travelling to civil law jurisdictions (common in Europe and South America) may encounter "forced heirship" laws, which mandate that a specific portion of an estate must go to certain relatives regardless of the deceased's wishes. A properly structured inter vivos trust, established under Canadian law before relocation, can often bypass these restrictive rules. Because the assets are no longer part of the individual’s personal estate at the time of death, they are typically governed by the terms of the trust deed rather than the local succession laws of the foreign country, preserving the settlor's original intent.
As such, when you are planning to travel out-of-country (especially where you may be considered to have relocated to another country), it is important to consider the adequacy of your estate planning arrangements and the legal documents properly protect you and your loved ones. For knowledgeable legal assistance with the development and implementation of a trust and estate planning arrangement prior to your departure from Canada, contact our law firm to schedule a confidential consultation at 403-400-4092 or via email at Chris@NeufeldLegal.com.
IMPORTANT NOTE: This website is designed for general informational purposes. The site is not designed to answer specific questions about your individual situation or entitlement. Do not rely upon the information provided on this website as legal advice in respect of your individual situation nor use it as substitute for individual legal advice. If you want specific legal advice, you need to engage a lawyer under established legal engagement procedures that have been specifically agreed to by that lawyer.
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