CANADA Law and Practice Contributed by: Ian M Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
1. Contemporary Cultural Considerations in Succession Planning 1.1 Social and Cultural Attitudes Testamentary freedom is a deeply entrenched princi- ple in Canada, but it is not absolute. Individuals who use wills and other instruments to distribute their assets remain legally obligated to make adequate provision for their dependants. When an individual fails to satisfy this obligation, the distribution of their estate can be modified by the courts to provide for their dependants or family. Otherwise, no one is enti- tled to inherit from a will. Alternative means of distributing wealth that avoid probate and the payment of probate fees continue to grow in popularity in Canada, although wills remain a key estate-planning tool for distributing property upon death. Viable alternatives to wills include: • the use of beneficiary designations to transfer assets; • trusts; and • inter vivos transfers, including transfers that place assets in joint ownership and provide the donee with a right of survivorship. 1.2 Wealth Profiles and Industry Influences While there is old wealth in Canada, often tied to early industrialisation and banking, new cohorts of wealth have developed in recent decades in association with natural resource development, real estate investing, entrepreneurship, the advent of financial services, and generational wealth tied to agriculture, particu- larly farmland. Because Canadian wealth tends to be asset-based, estate planning strategies often focus on how to limit the number of assets that proceed through probate and are subject to estate administration tax, particu- larly for inter-generational wealth transfers. Minimis- ing capital gains tax that an estate must pay is also a pressing consideration.
2. Residency and Domicile for Purposes of Wealth and Estate Planning 2.1 Determining Domicile For an individual to be domiciled in Canada, the com- mon law requires that they either: • were born to parents domiciled in Canada (in which case, their domicile of origin is Canada) and did not acquire, or later abandoned, a domicile of choice; or • acquired a provincial domicile of choice by une- quivocally intending to reside there permanently, rather than for a specific or temporary purpose. Courts may consider various factors in determining where one is domiciled, including where family is located and where real property is owned or rented. For estate and succession purposes, domicile in Can- ada is provincial or territorial, rather than national. Domicile is most relevant to the right to make a will in relation to immovables. For example, domicile gov- erns whether the testator has capacity to make a will regarding movables, whereas the capacity to make a will governing immovables is governed by the lexus situs of the immovables. Accordingly, a worldwide estate cannot be governed uniformly by the law of a single domicile. If an individual is domiciled in Canada at the time of death, their estate will be administered under the law of the province in which they were domiciled. The province is also the appropriate place to apply for probate of that person’s estate, unless the deceased held real property in another jurisdiction. Canada does not impose an estate or inheritance tax; however, an administrative tax on probate is typically charged in the province, or provinces, where probate is obtained. This tax may only be charged on immovables located in the jurisdiction if the estate is not domiciled there. In comparison, if the estate is domiciled in the juris- diction where probate is obtained, probate tax may be charged on immovables located in the jurisdiction and movables located both inside and outside of the jurisdiction.
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