Paying Beneficiaries Who Live Abroad From an Ontario Estate

When an heir lives in another country, paying them from an Ontario estate involves more than writing a cheque. The estate trustee has to be sure the right person is paid and that tax is dealt with first.

This article walks through the main steps in plain terms. Many practical details, such as the identity documents a bank will accept, vary by institution, so ask early and keep records.

Start with who is entitled and who holds the authority

A deceased person's property vests in their estate trustee, who holds it as trustee for the people entitled, subject to the deceased's debts. The estate trustee, not the beneficiary, has authority to sell estate property.

That means a beneficiary abroad cannot move the process along by dealing with estate assets directly. Payment goes through the estate trustee once debts, tax and any claims are sorted out.

Confirming identity, currency and the transfer

Before paying, the estate trustee will usually want to be satisfied that the person claiming is the person named in the will, or entitled on an intestacy. In practice this means copies of identity documents and, if needed, a lawyer in the beneficiary's country who can help certify them. What is accepted varies, so ask the estate trustee and the bank.

• Ask the beneficiary for full legal name, address and the bank details in writing, and confirm them by a second method such as a phone call to a known number.
• Decide in advance whether the beneficiary will be paid in Canadian dollars or whether currency conversion is requested, and who bears the bank charges.
• Keep a receipt or acknowledgement signed by the beneficiary for the file.
• Be alert to payment-redirection scams; a last-minute change of bank account is a reason to verify again.

Tax steps before the money leaves Canada

Before distributing property, an estate's legal representative should get a clearance certificate (Form TX19). Without one, they are personally liable for the deceased's unpaid tax, up to the value of the property distributed.

At death, the deceased is treated as having sold all their capital property just before death at fair market value, and any gain or loss is reported on the final return. A beneficiary who later sells inherited property reports the sale on their own T1 return, with the gain measured from the fair market value reported on the final return.

For the beneficiary, the CRA lists most gifts and inheritances among amounts that are not reported as income. Estate or trust income is different. Income paid or credited to a non-resident is subject to Part XIII tax at 25%, though a tax treaty can reduce the rate or give an exemption.

Withheld Part XIII tax must reach the CRA by the 15th day of the month after the month the amount was paid or credited. For an estate or trust, the NR4 return and slips are due no later than 90 days after the end of the estate's or trust's tax year.

Which treaty applies depends on the country, so an accountant should confirm the rate for each beneficiary.

If the beneficiary cannot be found

An estate trustee may apply to the Superior Court of Justice for the court's opinion, advice or direction without starting an action. This is the usual route for direction about a beneficiary who cannot be found.

Advertising for creditors does not protect a trustee who distributes without a missing beneficiary's share. When a judge passes final accounts and finds money belonging to a person whose address is unknown, that money must be paid into court. Payment into court is a sufficient discharge for the money paid.

A court may relieve a trustee of personal liability for a breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused. Do not count on that; it is better to follow a careful process.

What to do next

• Gather the will, the list of beneficiaries and their last known contact details.
• Ask each foreign beneficiary for identity documents and banking details early.
• Apply for the clearance certificate (Form TX19) before distributing.
• Ask an accountant about withholding and NR4 reporting if any income is paid to a non-resident.
• Get legal advice before distributing if a beneficiary cannot be located.

Frequently asked questions