This blog has been written by Pritika Deepak, Associate at Fasken LLP
Many Canadians dream of owning property abroad and many already do. Whether it is a winter retreat in Florida, a villa in France, or a retirement home in Costa Rica, purchasing foreign real estate can be an exciting milestone.
However, foreign property often introduces estate planning considerations that are overlooked until it is too late. Before completing the purchase, individuals should consider how the property fits within their broader estate plan and whether additional planning may be required.
- Will Your Canadian Will Work?
Many Canadians assume that their existing Will is sufficient to deal with all of their assets, regardless of where those assets are located. In practice, the answer is often more complicated.
Foreign jurisdictions have their own probate procedures and legal requirements for recognizing and administering a foreign Will. In some cases, local authorities may require additional documentation before permitting an executor to deal with property located in that jurisdiction. In others, it may be advisable, or even necessary, to have a separate local Will specifically governing the foreign property.
Even where a Canadian Will can be used, obtaining probate and dealing with administrative requirements in multiple jurisdictions can delay the administration of the estate. As a practical matter, a separate local Will is often recommended to facilitate a more efficient transfer of the foreign property and reduce delays for beneficiaries.
Tip: Don’t assume your Canadian Will(s) will seamlessly deal with foreign property. Before you buy, ask an advisor whether a separate local Will could simplify administration and avoid delays for your beneficiaries.
- Are There Local Succession Rules That Limit Testamentary Freedom?
Canadians are generally accustomed to broad testamentary freedom. Subject to certain statutory obligations, such as those under family law or dependant support in the various provinces, individuals can generally decide how their assets will be distributed on death.
That is not the case everywhere.
Some jurisdictions have succession regimes that restrict a person’s ability to dispose of property freely. A common example is the concept of forced heirship, which requires a specified portion of an estate to pass to certain family members, often children or a surviving spouse. For example, under French forced heirship rules, a portion of an individual’s estate must be reserved for their surviving children, with the amount depending on the number of children they have. Only the remaining portion may be distributed freely in accordance with the testator’s wishes.
As a result, the disposition of foreign property may differ significantly from the provisions of a Canadian Will.
The good news is that planning opportunities may be available. Depending on the jurisdiction and the individual’s circumstances, it may be possible to elect for the succession laws of another jurisdiction to apply.
Tip: Before you buy, find out whether local succession laws could override your estate plan. Understanding the rules early may reveal valuable planning opportunities.
- Have You Considered Incapacity Planning?
Estate planning is not only about what happens on death.
If a property owner becomes incapable of managing their affairs, someone may need authority to maintain, sell, or otherwise deal with the foreign property. While many Canadians have powers of attorney in place, those documents may not automatically be recognized in the jurisdiction where the property is located.
As a result, additional local incapacity planning documents may be required to ensure that a trusted individual can manage the property if needed. Without appropriate authority in place, family members may face significant delays and expense before they are able to act on the owner’s behalf.
Tip: Ask an advisor whether your Canadian power of attorney will be recognized locally. If not, additional planning may be needed locally before incapacity arises.
Final Thoughts
Buying property abroad is more than just a real estate decision, it is an estate planning decision. The success of any cross-border estate plan often depends on having the right advisors and no advisor can do it alone. Effective planning requires coordination between Canadian and local advisors to ensure your Will, incapacity plan, and succession objectives align across jurisdictions. Without that coordination, a plan that appears sound in Canada may fall short abroad.
