Sorting Out Growth Shares for a Beneficiary Living Abroad

The situation

Amalia found the envelope on top of a stack of unopened mail she had been avoiding for weeks. It was from the accountant who had done her uncle's corporate filings for years, and the letter inside was short: before any more money moved out of the family holding company, someone needed to sort out what was owed to a beneficiary who did not live in Canada. She read it twice, then called her cousin Tharshini, a bookkeeper who had been helping her keep the estate's paperwork straight since their uncle died.

Amalia worked as a grocery clerk and had never expected to be named executor of anything, let alone an estate with a corporation attached to it. Her uncle had owned a small business for decades, and at some point, on the advice of an advisor long since retired, he had done something called an estate freeze: he traded his common shares for a fixed set of preferred shares worth a set amount, and had the corporation issue new growth shares to a family trust. The idea, as Tharshini explained it, was that any future increase in the value of the business would belong to the trust and, eventually, to the family members named as its beneficiaries, rather than adding to the value of the shares her uncle held directly.

One of those beneficiaries was Kajan, Tharshini's brother, who had moved abroad more than ten years earlier and had not been closely involved in the family business since. Nobody had thought much about the trust while their uncle was alive. Once he died and the estate needed to be wound up, the growth shares became a real question: how much were they worth now, how should the trust actually distribute value to a beneficiary living outside Canada, and what, if anything, needed to be withheld and sent to the tax authorities before Kajan ever saw a dollar of it.

The dispute itself was not large in dollar terms, under fifteen thousand dollars once everyone's numbers were laid out side by side. But it was tangled. Kajan believed he was entitled to a specific share of the trust's value and had done his own rough calculation from overseas. Amalia, as executor, needed the estate's affairs closed properly, and she was not willing to sign off on a distribution that skipped a step the law required, even a small one.

The legal problem

An estate freeze is a common enough planning tool, and there was nothing wrong with the one Amalia's uncle had done years earlier. Freezing his shares at a set value and letting future growth flow to a trust for the next generation was a reasonable way to plan for the business's eventual transition. The complication was not the freeze itself. It was that one of the trust's beneficiaries was not a Canadian resident, and the trust deed had never been updated to say clearly how a distribution to a non-resident beneficiary should be handled.

Under the Income Tax Act, when a Canadian trust makes certain distributions to a beneficiary who lives outside the country, the trust generally has to withhold a portion and remit it before the beneficiary receives the rest. The obligation sits with the trust, not with the beneficiary, and it does not go away just because the amount involved is modest or because everyone involved is family. If the trust distributes the full amount without withholding, the trustees can be the ones left owing the difference.

Nobody currently involved in winding up the estate had been part of setting up the freeze, and the trust deed used general language about distributions that did not spell out the withholding step. Kajan, calculating his entitlement from abroad without professional advice, had arrived at a number that assumed he would receive the growth shares' full value with nothing held back. Amalia's instinct as executor was that this could not be right, but she did not know enough about trust taxation to say why, or to propose an alternative that Kajan would find fair rather than simply confusing.

There was also a valuation question sitting underneath the withholding one. The growth shares needed to be valued as of the relevant date, and the business had changed somewhat since the freeze was put in place years earlier, so the number was not going to be as simple as looking at an old share certificate. Two honest people could reach different figures depending on what assumptions they used, and with Kajan managing the dispute himself from overseas, there was a real risk that a small disagreement over numbers could turn into a much larger and more expensive standoff if nobody explained the withholding requirement to him in plain terms early on.

There was a further wrinkle in the valuation question. The freeze had fixed the value of the uncle's own shares at the time it was done, but the growth shares held by the trust were meant to capture everything the business earned above that fixed amount from that point forward. Working out what that growth actually amounted to, years later and after some changes to how the business operated, was not something either Amalia or Kajan could reasonably do on their own, and an informal estimate risked being wrong in either direction, unfair to Kajan if too low or unfair to the rest of the estate if too high.

What we did

1. Reviewed the trust deed and the original freeze documents line by line to understand exactly what the growth shares were meant to represent, who counted as a beneficiary, and what discretion the trustees actually had over the timing and amount of any distribution. The deed's own wording, not general assumptions carried over from family conversation, was going to govern how the dispute needed to be resolved, and it took a careful read to separate what the document actually said from what everyone simply remembered.
2. Confirmed the cross-border withholding obligation by working through how the Income Tax Act treats a distribution from a Canadian trust to a beneficiary who lives outside the country, including who bears the responsibility to withhold and remit. This mattered because the obligation sits with the trust itself, not with Kajan, and Amalia needed to understand that signing off on a full, unreduced payment could have left the trustees personally exposed.
3. Obtained an independent valuation of the growth shares as of the appropriate date, rather than relying on either side's own rough estimate. The business had changed somewhat in the years since the freeze was first put in place, and a number produced by a neutral valuator gave both Amalia and Kajan a figure that neither of them had generated themselves, which mattered a great deal once trust between the two branches of the family had already frayed.
4. Prepared a plain-language explanation of the withholding requirement for Kajan, since he was self-represented and had reasonably, without legal advice of his own, assumed he was owed the full value of the growth shares with nothing subtracted. A defensive or heavily technical letter risked making him feel he was being shortchanged, so the explanation walked through the withholding rule step by step with worked examples rather than citations.
5. Set out the numbers side by side in a single summary, showing the gross value of the growth shares, the amount required to be withheld, and the net figure available for distribution, so that the remaining disagreement was about the actual arithmetic rather than about motive or fairness in the abstract. Laying the figures out this way gave both Amalia and Kajan the same starting point, which mattered once trust between the two branches of the family had already frayed.
6. Negotiated directly with Kajan over several rounds of correspondence, adjusting our approach for the fact that he had no lawyer of his own reviewing what we sent him. That meant taking more time than usual to answer his questions fully and to check that he had understood each point before moving to the next, rather than assuming a professional on his side would catch anything left unclear.
7. Confirmed the withholding remittance and finalized the trust's distribution once Kajan accepted the adjusted figure, coordinating with the accountant who had first flagged the issue to make sure the remittance and the payment to Kajan were processed together and properly documented for the estate's records. That coordination meant nothing was paid out before its matching remittance was in hand, which protected Amalia from the personal exposure a trustee can face if the two steps are ever allowed to fall out of order.
8. Closed out that portion of the estate administration with a written summary for Amalia showing how the final figures reconciled, so she had a clear record to point to if any other beneficiary or the estate's own accountant ever asked how the growth shares had been handled. That record meant the estate's file on the dispute was complete and defensible on its own, without requiring Amalia to reconstruct the reasoning from memory months or years later.

The outcome

Kajan ultimately accepted a distribution figure lower than the amount he had originally calculated for himself, once he understood that the difference was going to the tax authorities as required and was not simply being kept by the estate or the other beneficiaries. That is not a full win for anyone. He received less than he first expected, and Amalia spent more time and more of the estate's resources on a dispute worth under fifteen thousand dollars than she would have liked, for an issue that traced back to planning decisions made long before she was ever named executor.

What made it resolvable without a hearing was mostly the fact that Kajan was self-represented. That cut both ways during the process. It meant every explanation had to be more thorough than it might have needed to be with another lawyer on the file, since there was no one else translating the legal reasoning for him. But it also meant there was no adversarial posture to work around once he understood the withholding requirement was real and not a pretext. Family disputes with a lawyer only on one side can go either way; here, once the numbers were laid out plainly and repeatedly, Kajan chose to settle rather than contest a figure he could see was consistent with how the law actually treats a non-resident beneficiary.

The trust's withholding obligation was met, the distribution was completed, and the estate was able to close that chapter without a formal application to the court. Amalia was left with a lesson she had not expected to learn as executor: that decisions made in a business's planning years earlier can surface as real problems for whoever eventually has to wind the estate up, long after the person who made those decisions is no longer there to explain them.

What you can learn from this