Bringing Assets Into Canada

“Practical Tips & Traps for Practitioners”

Presented by:Annie H. ChenDate: November 6, 2014Direct Tel: 604.631.3288E-mail: anchen@fasken.com

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Overview

• Common Characteristics• Bringing Assets Into Canada• Assets In Canada• Concerns• Issues to Watch For

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Overview

• Estate Planning• Incapacity Planning• Will Planning• Beneficiary Designations• Legal vs. Beneficial Ownership• Family Law• Trusts• Corporations

• Final Tips

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Common Characteristics

• High net worth

• Assets/businesses in foreign jurisdictions

• Bringing assets into Canada

• Parking/buying/investing assets in Canada

• Families live in Canada

• 2nd generation

• Principal(s) may commute between other country/countries and Canada.

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Bringing Assets Into Canada

• Canada does not have many restrictions on influx of assets/currency or on foreign investments.

• Canadian reporting requirements are mainly to deal with money laundering and terrorist activities.

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Bringing Assets Into Canada

• Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).• Large cash transaction reports. Reporting entities must

report:• Cash transactions of more than $10,000, or

• Multiple cash transactions totalling more than $10,000 within 24 hours.

• Cross border currency reporting. • No restrictions on the amount of money that can be brought

into or taken out of Canada but must report to customs amounts greater than $10,000.

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Bringing Assets Into Canada

• There may be foreign restrictions.

• Will be dependent on the laws, regulations and practices of the foreign country where the assets are coming from.

• Mainly dealt with by bankers – they may be concerned with the source of funds.

• Be wary of potential fraudulent activity.

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Assets In Canada

• Insurance• Life insurance• Critical illness• Disability• Residency issue(s)• Owner(s)

• Who has control over designation of beneficiaries?

• Corporately owned insurance.

• Beneficiaries• Minors

• Insurance Declarations – creation of testamentary trusts

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Assets In Canada

• Real Estate• Purchase price• Future potential/value• What are client’s plans for the property and are they

realistic?• Properly structure ownership

• Legal vs. beneficial ownership

• Creditor protection• Family law

• Putting assets in names of family members/friends or adding others on as joint owners.

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Assets In Canada

• Real Estate (continued)• Liability issues• Tax considerations

• Income flow

• Capital gains

• Residential• Principal residence exemption

• Commercial

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Assets In Canada

• Businesses• Related and unrelated businesses• Review financials/cash flow• Properly structure ownership

• Opco, Holdco

• Liability

• Creditor protection

• Tax considerations• Capital gains

• Cash flow

• Share vs. asset purchase• Shareholders’ agreement

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Assets In Canada

• Bank/investment accounts• Registered accounts• If client is a US person, be wary of registered accounts and

compliance/reporting requirements in US (Foreign Bank and Financial Accounts – FBAR reporting).

• If client has US situs assets (i.e. US stocks, real property), be wary of triggering US estate taxes [current exemption $5.34M].

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Concerns

• Privacy

• Confidentiality

• Control

• Protection of Assets/Wealth• Family law• Other creditor protection• Succession planning• Preservation of wealth for future generations

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Issues to Watch For

• Residency• Is it more beneficial to have Canadian resident status or to

maintain non-resident status?• Will they meet the residency requirements?• What are the clients’ plans?• Deemed residency rules• Is there a treaty that applies? Tie breaker rules in treaty?

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Issues to Watch For

• May be unfamiliar with Canadian laws, tax system and processes.

• May be unfamiliar with working with Canadian professionals.

• Multiple families

• Fraud

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Issues to Watch For

• Retainer• Retainer amount in trust for fees• Be clear on fee quote• Fixed fees• Manage expectations• Engagement by law firm (privilege)• Conflicts of interest

• Make sure clients obtain proper advice and have proper advisors.

• Team approach• Work with client’s other advisors

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Estate Planning

• Identify estate planning needs• Educate client on Canadian laws and processes

• What happens without proper planning?• What are the benefits of estate planning?

• Incapacity planning• Post-mortem planning

• Will planning• Beneficiary designations

• Legal vs. beneficial ownership• Family law• Trusts• Corporate structures

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Incapacity Planning

• Enduring Powers of Attorney (“POA”)• For “financial affairs”• No default decision makers• If no POA:

• Committeeship• Public Guardian & Trustee (PGT)

• Can have different POAs to deal with different assets (personal vs. business).

• Should have POA if have assets in Canada.• Representation Agreements• Advanced Directives• Issues with multiple families

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Will Planning

• Not always recommend Wills.• Client does not have to be a resident of Canada to have a

Canadian Will.• Will planning considerations

• Testamentary trusts• Creditor protection (including family law)

• Income splitting

• Funds managed for beneficiaries and minors

• New Wills, Estates & Succession Act (WESA)• New intestacy rules

• Wills Variation (i.e. blended/multiple families)

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Will Planning

• Multiple Wills• Consider having 2 Wills (WESA).• First Will covers assets requiring probate.• Second Will covers remainder of assets (i.e. private

company shares).• Idea is that assets under 2nd Will will not require probate.

Avoids some of the costs (including probate fees), time delays and publicity of probate.

• Will need different executors for each Will and proper wording.

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Will Planning

• Multi-jurisdictional Wills• Consider having Wills & POAs prepared in each jurisdiction

client holds assets.• Easier administration in each jurisdiction.• For BC, no need to disclose details of foreign assets.• Can appoint local executor/trustee.• Ensure that Wills:

• Do not revoke/cancel each other,

• Work together and will both be valid, and

• State that each Will only covers assets in the relevant jurisdiction.

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Beneficiary Designations

• Beneficiary Designations• Examples (Life Insurance, RRSPs, Segregated Funds,

RRIFs, TFSAs, Annuities, Pensions).• Beneficiary Designations

• Possible separate documents which acts like a “Will” (may use testamentary trusts in some situations)

• Assets will go to the intended beneficiaries

• Asset protection

• Avoids “Wills Variation” claims

• Possible income splitting

• Avoids costs, fees, time delays and publicity of probate

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Legal vs. Beneficial Ownership

• Adding a Child as a Joint Owner or Sole Owner of Assets• Potential Issues

• Types of Joint Tenancies (i.e. true, fake):• Disputes about whether asset is intended to go to child

after death of parents.

• Uncooperative Child (may sell asset, charge/lien asset, unwilling to sign papers)

• Creditor issues (creditor claims, family law claims)• WESA new survivorship rules• May lose tax benefits (PR exemption, first time

homebuyers credits, home owners grant)• May trigger adverse tax consequences (capital gains,

property transfer taxes)

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Family Law

• New Family Law Act (“FLA”) - March 18, 2013• Common law spouses entitled to automatic 50/50 division of

property (cohabiting for at least 2 years in a marriage-like relationship).

• “Excluded Assets”• What bring into relationship• Inheritances (must keep separate)• Gifts from third parties (proposed change)• Beneficial Interest in a (discretionary) trust in which spouse is

a beneficiary

• But current wording does not exclude growth of excluded assets during relationship – growth is subject to “fixed” 50/50 division.

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Family Law

• Cohabitation/Marriage Agreements• Cohabitation/Marriage Agreements will be more effective

and have “more teeth” under the new FLA. Courts will only be able to vary the terms of an agreement if “significantly unfair”.

• Our agreements:• Full comprehensive cohabitation/marriage agreement

that contemplates new FLA provisions (specifically excludes growth in “excluded assets” and prevents interference with Trusts and businesses).

• For next generation: “Keep Your Mitts Off My Inheritance” Agreements.

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Trusts

• Educate clients on use of Trusts and the types of Trusts available.

• Choice of Trustee(s) and successor Trustee(s). • Choice of Beneficiaries.• Residency of Trustees and Beneficiaries (changes).• Use of Protectors.• Restricting certain powers to only be exercised during

lifetime of principal(s) and when they have capacity.• Issues with defaults to estates/intestacy laws.• Educate clients on purpose and maintenance of Trusts.

• Required maintenance• Distributions• Potential claims by beneficiaries or creditors• Addition of assets to Trust

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Corporations

• Educate clients on advantages and disadvantages relating to the use of companies or other structures.

• Control of company?• CCPC

• Other investors?• Possible silent investors?• Bare trusts?

• Shareholder Agreements• Consider options and creative structures. Design

structure that is appropriate for client.• Consider practical issues

• Maintenance and administration of companies• Signing authorities

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Final Tips

• Ask questions, don’t assume and don’t just take instructions.

• Educate clients.• Ensure clients have proper advisors and obtain proper

advice.• Know your client

• What are their family circumstances?• What are their wishes/objectives?• What are their future plans?

• Caveat general advice• Review advice and planning if circumstances change• Try to build flexible structures

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If you have any questions,

please do not hesitate to contact:

Annie H. Chen

Direct Tel: 604.631.3288

E-mail: anchen@fasken.com

Fasken Martineau DuMoulin LLP

2900 – 550 Burrard Street

Vancouver, BC V6C 0A3

www.fasken.com

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Disclaimer

This is only general information and guidance on estate planning and other issues in British Columbia and should not be viewed as legal advice or services. Each individual’s situation should be carefully examined to determine the most appropriate planning for his or her objectives and needs. This presentation may be copied for free distribution with notice of the intended recipient given to Fasken Martineau DuMoulin LLP by email to anchen@fasken.com provided that no changes are made.

© 2014 Fasken Martineau DuMoulin LLP

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