Does an estate have to withhold tax before sending an inheritance to a beneficiary living outside Canada?

It depends on what's being distributed. Sending cash that has already been through the estate's own tax reporting, such as the deceased's terminal return and any estate income tax, generally does not trigger a separate withholding requirement just because the recipient lives abroad. But where the estate is distributing or disposing of certain Canadian property, most notably real estate, to or on behalf of a non-resident beneficiary, federal rules under the Income Tax Act can require a portion of the proceeds to be withheld and remitted to the Canada Revenue Agency pending a clearance process, often discussed under the "section 116" concept for non-residents disposing of taxable Canadian property.

The exact mechanics, including what has to be withheld and how much, are set by the CRA and can be technical, so this is not something to work out from general principles alone. An estate trustee dealing with a non-resident beneficiary and Canadian real property or other significant assets should get advice from a cross-border tax professional before distributing, since getting it wrong can create real exposure for the trustee personally.

Because the rules turn on the specific asset and the beneficiary's residency status, don't assume either that withholding is always required or that it never is.