Why to avoid non-resident PoAs

If your family members live and work abroad, and they’re named in PoAs, you should review your estate plan.

Why? Non-resident PoA holders face hurdles. For instance, some investment firms may be unable to take instructions from non-resident attorneys. And, the tax filing requirements for non-resident attorneys for property can be onerous, depending on the property’s value. So, you need to discuss these implications with any attorneys who live outside of Canada.

We spoke to two estate planning experts to detail these issues. They are:

• Beaty Beaubier, a tax and estate lawyer at Stevenson Hood Thornton Beaubier LLP in Saskatoon, Sask.; and
• John Johnson, a wills and estate-planning lawyer at Nelligan O’Brien Payne LLP in Ottawa, Ont.

Property concerns

Q: If someone has appointed an attorney for property, and that person moves out of the country, what are the issues?

BB: Many investment dealers aren’t registered in the U.S. So, if a U.S.-resident attorney were to provide securities trade instructions to a Canadian investment dealer, a problem could arise. If the Canadian dealer is not registered in the state where the attorney is resident, then that dealer is unlikely to be permitted by law to accept trading instructions on behalf of the Canadian-resident donor of the PoA.

Let’s say an attorney is acting on behalf of an incapacitated family member. If the attorney resides in Florida and their investment dealer isn’t registered in that state, then the dealer can’t accept the trading instructions.

Another issue arises if a U.S. resident has signature authority over a Canadian donor’s Canadian bank and investment accounts. When the aggregate value of those accounts exceeds $10,000, attorneys must file the FinCEN Report 114 with the IRS annually.

The FinCEN Report provides financial details of the Canadian accounts. It can be quite tedious to fill out, and penalties can arise from mistakes.

This filing risk ends up being a deterrent in many cases for prospective cross-border attorneys. Another problem is that the IRS will find out about your bank accounts, RRSPs and TFSAs (and information about any corporate accounts that are handed over) if U.S.-resident attorneys have signature authority.

So you’ll lose privacy of information to another country. When I explain that to Canadians, they say, “You mean I’m going to be giving that kind of information to the U.S. government?”

Q: If someone has no family or friends in Canada to appoint, what are his options?

BB: A trust company, which helps avoid some cross-border tax problems (but not others — see “Tax concerns for CCPCs,” this page).

Alternatively, people can ask professionals, such as lawyers or advisors, to be their attorneys. But an advisory firm may deem it a conflict of interest. Many firms and regulators don’t want advisors to take on attorney or executor appointments.

Health concerns

Q: Say someone has a non-resident named in his PoA for personal care. What are some of his main concerns?

JJ: A personal care attorney is only exercised when you can’t give medical instructions.

If you remain competent, the only concern is there may be a medical event in the future that requires the immediate attention of your attorney. If that appointed person is hard to reach, there may be delays in care decisions.

To avoid this, you can appoint several personal care attorneys, or even a healthcare committee, of which non-resident family members could be a part. But I don’t always recommend this because you’ve got more people to talk to when making a decision.

Instead, you could ask a friend or neighbour, provided you explain the responsibilities of attorneys for personal care. You should also produce a memorandum outlining your healthcare wishes, such as do-not-resuscitate orders. You can write this memorandum with the help of a lawyer before drafting a PoA.

BB: But, even where a business associate or friend is prepared to look after your property, that person may not want to make personal life decisions. Many people see that as a family-based matter, so it can hard to find substitutes.

JJ: However, it could be in your PoA documents that your Canadian-resident attorney would be directed to consult with members of your family. The attorney would make the decisions, but would have family members’ phone numbers and emails.

If you have nobody else to turn to, including friends or family, your healthcare decisions will be made by the Office of the Public Guardian and Trustee in your region. The only problem is the OPGT just makes overall care decisions; it doesn’t provide the kind of help people often get from family members and friends.

Tax concerns for CCPCs

If you own a Canadian-controlled private corporation (CCPC) and you pick a trust company as attorney for your controlling interest in the corporation (i.e., your shares), you could face challenges, says Beaty Beaubier, a tax and estate lawyer at Stevenson Hood Thornton Beaubier LLP.

Why? Many trust companies are either a subsidiary of Canadian banks, which are public corporations, or of foreign corporations, he says. But to meet the definition of a CCPC, your corporation “cannot be controlled by non-residents or by public companies, either directly or indirectly,” explains Beaubier.

If your company is no longer considered a CCPC, the company will not be able to reap the benefits of that tax status.

Those tax benefits include:

• the small business deduction, which allows the corporation to get a lower tax rate on the first $500,000 of active business income each year; and
• if a CCPC earns investment (passive) income but pays that income out as taxable dividends to shareholders, the company may get a partial income tax refund.

Wherever possible, you, the business owner, should use a Canadian resident family member, friend or business partner to act as attorney.