Cross-Border Estate Settlement: Canada and the US

If a US citizen who dies in Canada owned Canadian real estate or significant Canadian assets — a vacation cottage, a bank account, or a brokerage portfolio — the executor faces a legal reality that catches most families off guard: US probate grants have no force in Canada. A Florida or Michigan court order cannot transfer, sell, or access Canadian property. The executor must open a second, separate probate proceeding in the specific Canadian province where the assets sit.

This is not optional. It is Canadian law.

Ancillary Probate: The Second Court Filing

To transfer or sell Canadian real estate or significant Canadian-situs assets, the US executor must apply for an Ancillary Grant of Probate in the relevant Canadian province.

In Ontario, this means filing under Rule 74.29 for a Certificate of Ancillary Appointment of Estate Trustee with a Will (Foreign Grant). The filing requires:

• Court-certified copies of the US probate file and letters testamentary
• The original Canadian death certificate with a Hague Apostille
• Payment of Ontario's Estate Administration Tax (EAT) — calculated as 1.5% on all asset value exceeding $50,000 CAD. This tax is paid upfront by the executor at the time of filing.

A complication unique to US executors: the Canadian court may require a foreign executor surety bond set at double the gross value of the Canadian assets. An estate with $200,000 CAD in Ontario property could trigger a $400,000 bond requirement. The executor's Canadian lawyer can petition to have this requirement waived or reduced, but waiver requires demonstrating no Canadian debts, full beneficiary consent, and financial stability of the estate.

Note that "resealing" — the faster process where a Canadian court simply recognizes a foreign probate grant — is not available for US court orders. Resealing is reserved for grants from other Canadian provinces, the UK, and Commonwealth jurisdictions. US grants must go through the full ancillary application process.

The Deemed Disposition Tax Trap

Canada does not have an estate tax in the US sense. Instead, it has something functionally similar and often more expensive: deemed disposition at death.

At the moment of death, Canada's Income Tax Act treats the deceased as having sold all Canadian-situs assets at fair market value. Any capital gain — the difference between the purchase price and the fair market value on the date of death — triggers immediate capital gains tax.

A cottage purchased for $150,000 CAD that is now worth $500,000 CAD generates a deemed capital gain of $350,000 CAD. The estate owes Canadian income tax on that gain in the deceased's final tax return.

Form T2062: The Trap Before the Sale

If the executor sells Canadian real property, they must file Form T2062 with the Canada Revenue Agency (CRA) and obtain a Section 116 Certificate of Compliance before the sale closes.

If this certificate is not obtained, the buyer is legally required to withhold 25% of the gross sale proceeds and remit it to the CRA. That is 25% of the full sale price, not the gain — on a $500,000 property, that is $125,000 held back regardless of what the estate actually owes in tax.

The executor who distributes Canadian assets to non-resident beneficiaries without a compliance certificate takes on personal liability for any unpaid Canadian taxes. This is not a theoretical risk — the CRA enforces it.

The Final Tax Return and Clearance Certificate

The executor must file a final Canadian tax return (T1) for the deceased, reporting all Canadian-source income and deemed capital gains through the date of death. The executor then applies for a CRA Clearance Certificate (Form TX19), which confirms all estate tax debts are settled.

Do not distribute remaining Canadian assets to beneficiaries until the clearance certificate is received. Distributing early exposes the executor to personal liability for any taxes the CRA later assesses.

The US Side: Coordinating with the Canada-US Tax Treaty

The Canada-US tax treaty prevents double taxation on the same assets, but it requires active coordination. Capital gains tax paid to Canada generates a foreign tax credit on the US estate tax return. Without proper documentation of the Canadian taxes paid, the estate could be taxed twice on the same property appreciation.

This coordination is not automatic. It requires a cross-border accountant who files in both jurisdictions and applies the treaty credits correctly. The cost of this specialized accounting — typically $3,000–$8,000 — is a fraction of the double-tax exposure it prevents.

The Practical Sequence

1. File US probate in the deceased's home state
2. Retain a Canadian estate lawyer in the province where assets are located
3. Apply for ancillary probate (allow for Ontario court processing that can take months)
4. File the deceased's final Canadian tax return and obtain a T2062 certificate before any property sale
5. Close the Canadian estate and apply for a CRA Clearance Certificate
6. Coordinate foreign tax credits on the US estate return

The American Dies in Canada — Family Emergency Guide walks through the cross-border estate timeline with the specific forms, CRA contacts, and common executor mistakes to avoid.