My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a tax partner and the managing partner of Cunningham LLP in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog do not reflect the position of Cunningham LLP. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, April 11, 2011

You Have Been Named An Executor- Part 2- Now What?

As I noted in the first installment of this series, I have been an executor for three estates. I have also advised numerous executors in my capacity as the tax advisor/accountant for the estates of deceased taxpayers. The responsibility of being named an executor is overwhelming for many; notwithstanding the fact many individuals appointed as executors had no idea they were going to be named an executor of an estate. In my opinion, not discussing this appointment beforehand is a huge mistake. I would suggest at a minimum, you should always ask a potential executor if they are willing to assume the job (before your will is drafted), but that is a topic for another day.

So, John Stiff dies and you are named as an executor. What duties and responsibilities will you have? Immediately you may be charged with organizing the funeral, but in many cases, the immediate family will handle those arrangements, assuming there is an immediate family in town. What’s next? Well, a lot of work and frustration dealing with financial institutions, the family members and the beneficiaries.

Below is a laundry list of many of the duties and responsibilities you will have as an executor:

  • Your first duty is to participate in a game of hide and seek to find the will and safety deposit box key(s).  If you are lucky, someone can tell you who Mr. Stiff's lawyer was and, if you can find him or her, you can get a copy of the will. Many people leave their will in their safety deposit box; so you may need to find the safety deposit key first, so you can open the safety deposit box to access the will.
  • You will then need to meet with the lawyer to co-coordinate responsibilities and understand your fiduciary duties from a legal perspective. The lawyer will also provide guidance in respect of obtaining a certificate of appointment of estate trustee with a will ("Letters Probate"), a very important step in Ontario and most other provinces. 
  • You will then want to arrange a meeting with Mr. Stiff's accountant (if he had one) to determine whether you will need his/her help in the administration of the estate or, at a minimum, for filing the required income tax returns. If the deceased does not have an accountant, you will probably want to engage one. 
  • Next up may be attending the lawyer’s office for the reading of the will; however, this is not always necessary and is probably more a "Hollywood creation" than a reality. 
  • You will then want to notify all beneficiaries of the will of their entitlement and collect their personal information (address, social insurance number etc).
  • You will then start the laborious process of trying to piece together the deceased’s assets and liabilities (see my blog Where are the Assets for a suggestion on how to make this task easy for your executor). 
  • The next task can sometimes prove to be extremely interesting. It is time to open the safety deposit box at the bank. I say extremely interesting because what if you find significant cash? If you do, you then have your first dilemma; is this cash unreported, and what is your duty in that case? 
  • It is strongly suggested that you attend the review of the contents of the safety deposit box with another executor. A bank representative will open the box for you and you need to make a list on the spot of the boxes contents, which must then be signed by all present.
  • While you are at the bank opening the safety deposit box, you will want to meet with a bank representative to open an estate bank account and find out what expenses the bank will let you pay from that account (assuming there are sufficient funds) until you obtain probate. Most banks will allow funds to be withdrawn from the deceased’s bank account to pay for the funeral expenses and the actual probate fees. However, they can be very restrictive initially and each bank has its own set of rules. 
  • As soon as possible you will want to change Mr. Stiff's mailing address to your address and cancel credit cards, utilities, newspapers, fitness clubs, etc. 
  • As soon as you have a handle on the assets and liabilities of the estate, you will want to file for letters of probate, as moving forward without probate is next to impossible in most cases. 
  • You will need to advise the various institutions of the passing of Mr. Stiff and find out what documents will be required to access the funds they have on hand. In one estate I had about 10 different institutions to deal with and I swear not one seemed to have the exact same informational requirement. 
  • If there is insurance, you will need to file claims and make claims for things such as the CPP benefit. 
  • You will need to advertise in certain legal publications or newspapers to ensure there are no unknown creditors; your lawyer will advise what is necessary.
  • It is important that you either have the accountant track all monies flowing in and out of the estate or you do it yourself in an accounting program or excel. You may need to engage someone to summarize this information in a format acceptable to the courts if a “passing of accounts” is required in your province to finalize the estate. 
  • You will also need to arrange for the re-investment of funds with the various investment advisor(s) until the funds can be paid out. For real estate you will need to ensure supervision and/or management of any properties and ensure insurance is renewed until the properties are sold. 
  • A sometimes troublesome issue is family members taking items, whether for sentimental value or for other reasons. They must be made to understand that all items must be allocated and nothing can be taken.  
  • You will need to arrange with the accountant to file the terminal return covering the period from January 1st to the date of death. Consider whether a special return for “rights and things” should be filed. You may also be required to file an “executor’s year” tax return for the period from the date of death to the one year anniversary of Mr. Stiff's death. Once all the assets have been collected and the tax returns filed, you will need to obtain a clearance certificate to absolve yourself of any responsibility for the estate and create a plan of distribution for the remaining assets (you may have paid out interim distributions during the year).
The above is just a brief list of some of the more important duties of an executor. For the sake of brevity I have ignored many others (see Jim Yih's blog for an executor's checklist).

The job of an executor is demanding and draining. Should you wish to take executor fees for your efforts, there is a standard schedule for fees in most provinces. For example in Ontario, the fee is 2.5% of the receipts of estate and 2.5% of the disbursements of the estate.

Finally, it is important to note that executor fees are taxable as the taxman gets you coming, going and even administering the going.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

53 comments:

  1. Do you know how the executor is supposed to handle estate assets such as GICs that are locked in? Will the beneficiaries have to wait until the term is up, which may take years?

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    1. While the financial institution has the right to insist that a GIC is held to maturity most will terminate the contract as a gesture of good will.

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  2. Good question. An estate can carry on for years until all the assets are realized.

    If you have not already, you should ask the financial institution if they will either agree to break the GIC into "pieces" you can distribute to each beneficiary or redeem the GIC and what would be the penalty. The answer may be no to both the above.

    If the answer is yes to either question, you should then consult with the estate lawyer to get a legal release from the beneficiaries that they agree to either of these actions (if not and you incur a penalty for example, you could be liable for the forgone interest).

    Also, you must ensure that you hold assets until you can get a clearance certificate for the estate, so be careful distributing. In a perfect world, maybe you can get the institution to break the GIC into pieces and that is what is distributed to the beneficiaries once you get the clearance certificate.

    In any event, first find out if you have any options, then speak to the estate lawyer to ensure you protect yourself, first and foremost from any action by the beneficiaries.

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  3. When my father died i inherited some money from where i come from in Canada. My sister send it to me. There was no documentation of how much i inherited. Is it illegal to distribute money to beneficiaries without showing them any numbers?

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  4. N1-This is more of a legal issue, but you should consider the following. In my article I talk about the passing of accounts. There is a strict legal obligation for an Estate Trustee to keep a complete and accurate set of accounts.

    However, in Ontario for example, passing the accounts is required in only certain circumstances and often in "friendly family estates" it is not done. In Ontario at least, a beneficiary can force the passing of accounts by obtaining a court order or an Estate Trustee can voluntarily apply to court for a passing of accounts.

    All that being said, in the estates I handled, I did not do a passing of accounts. However, I provided a summary of all the receipts and disbursements for review by the beneficiaries and as I recall, the lawyer provided some kind of release form. Thus, I would ask your sister to please provide a summary of the estate nicely. If she does not and you think you not received what you should, you then have to determine whether a family feud is worth the dollars in this case and if the answer is yes, you should see a lawyer to discuss your options.

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  5. Thanks for the mention Mark!
    Great information as always!
    Jim

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  6. Non mutual fund type RRSP of which named beneficiary is not the spouse.
    Does the financial Institution which holds RRSP issue payment to beneficiary and issue T5 to beneficiary ?

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    1. Anon:

      I don't understand your question. Are you talking about someone who died? If so, the financial institution will issue a T4RRSP or T4RRIF to the deceased based on the RRSP/RRIF value at death and their representatives must report the income on the deceased final tax return. However, the funds from the RRSP/RRIF are paid to the beneficiary. This can be problematic as the estate has to pay the tax and the beneficiary gets the funds from the RRSP/RRIF.

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    2. " Are you talking about someone who died?"= yes;deceased= estate
      Thank you very much for your response.
      Greatly appreciate your ongoing generosity by providing answers to the questions the readers have submitted.
      Your response gives rise to the following: Does the financial institution withhold and remit to CRA a specific amount of income tax (under the name of the deceased) prior to issuing RRSP fund(s)payment to the beneficiary ?

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    3. Thx Anon

      I try to provide direction without providing specific tax planning advice.

      Anyways, when someone has a RRIF, there should be a T4RIF for payments prior to death that will include income tax withheld and this slip is taxable on the deceased’s return. Assuming the RRIF did not transfer to a spouse, there should then be another T4RIF slip for the value of the RRIF on the date of death which is again taxable in the deceased’s return.

      In a perfect world, the day after someone died, the institution would be informed and the RRIF would then be transferred to an estate or beneficiaries account. However, often the bank is not informed for a while and they keep paying out the RRIF and deducting income tax for a month or two. Since this is post-death, we typically just put this on the T3 estate return and the CRA does not seem to be bothered.

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    4. Again,thank you very much for your response
      Thank you for your time and expertise; greatly appreciate the detailed information

      Delete
  7. Does the executor have to claim executor fees as income ? My wife is an executor and the lawyer adviced her not to issue T4. So, does that mean it doesn't have to be claimed on her income tax return as income ?

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    1. Anon, not exactly accurate advice.

      Firstly executor fees are taxable as either income from employment or as business income. In your wifes case as I assume she is not a professional executor, she has to report income and should issue a T4 and related withholdings as per the CRA http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/rtrns/t4/slps/cmpltng/bx14-eng.html

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  8. My father passed away May 21, 2011 and his final OAS and CPP payments went into his bank account - held jointly with my mother - on May 27th.
    The CRA told me that the OAS can go on a Rights or Things Return, but the CPP does not - it goes on a Trust return (or the Final return I suppose). Is this correct?
    They also told me that when doing my Mom's Schedule 2, for spouse's income I enter Dad's income 'only from the period covered by the Rights and Things Return', not the income from the Final return. Are they right? Because it seems illogical and makes me question all of their advice.
    Thanks for your time and any guidance you can provide.

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    1. Hi Anon

      If you open this link (http://www.ey.com/CA/en/Services/Tax/TaxMatters-Oct-2010)to the death and taxes article by Ernst & Young, you will see they say

      Common rights and things include the following:

      • The final month’s Old Age Security (OAS) and Canada Pension Plan (CPP) payment, if these were received after the date of death (such payments are made late in the month)

      In addition, if the estate received the $2,500 CPP death benefit, it may be reported on either the T3 Estate Return or on the beneficiary(ies) return. This is not a “rights or things”.

      Finally, I think what they are getting at with the schd 2 comment is that the CRA wants you to use the income for the entire year for a spousal claim:

      The CRA says If the net income of the spouse or common-law partner is less than the base amount for the year (see line 303 in the guide that came with the deceased’s return), you may be able to claim all or part of this amount. Use the net income of the spouse or common-law partner for the whole year, not just up to the deceased's date of death.

      You should read the deceasd taxpayer guide
      http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html#P254_29528

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  9. what is required when 2 executors are out of the province?

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    1. sorry, I am not a lawyer, that is more of a legal question

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  10. Can I withdrawal from the estate account if I am exutor.

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    1. Matt, Withdraw what? Your executor fee? If that is the question, speak to the estates lawyer as at some point you will be entitled to withdraw those funds. Otherwise, unless paying bills for the estate, u have no right to withdraw any funds, they do not belong to you.

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  11. I have been named executor for a relatively simple estate. I hired a lawyer and an accountant who have completed much of the work, although I did run some errands, close out the bank account, follow up with mutual funds and dividends that need to be transferred to the beneficiary, as well as complete a few other sundry tasks to wrap up the estate.

    I am now wondering what my fee should be. The lawyer has suggested an hourly rate of about $100, having documented all my time spent on the estate.

    Other people, who have experience being executor, suggest I request the 2.5 % that is typical and would be significantly more than the hourly rate fee.

    What is are my rights when it comes to setting the fee?

    I am not sure what is fair, what is expected or what I should request.

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    Replies
    1. See this article that discusses the issue in Ontario. Typically the fees are based on the percentages noted in the article.

      http://www.heydary.com/publications/executor_duties.html

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  12. how long to keep the records of an estate once completed?

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  13. See my blog below on keeping income tax records. I am pretty sure it applies to estates also but have not looked at the issue in some time.

    http://www.thebluntbeancounter.com/2011/02/how-long-do-i-have-to-keep-my-income.html

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  14. I was told if you are both the executor and a beneficiary (any beneficiary) of an estate, you can take the executor's fee as an increase in inheritance. Is this correct?

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  15. can you tell me if there is any recourse when a co-executor sells estate assets without authorization of the other executor?

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    Replies
    1. Sorry, don't know. You need to speak to an estate lawyer.

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  16. My father passed away in March - There was 47,866.00 in a RIFF that got split between 4 children. We each received approx 11900.00. I just received a T4RIF from Canaccord (they were holding the account) with an amount of $180.76 in Box 22 (Other Income). I am not the executor - Doesn't this go to the executor to report on final tax return.?

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    1. Hey Miss Muffin:

      Got to love your handle. Sorry to hear about your dad

      My guess is the $180 was income that was earned in the RRIF after your father's death and before Canacord got around to paying it to you. So if you checked your dad's RRIF at his date of death, was his RRIF $47,866 or a lessor amount? If it was a $47,866 then I would ask Canacord why you have not been paid another $180 or in the alternative, what the heck the $180 is

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    2. Miss Muffin is our dog :) -
      Thank you very much for your answer - I will check into this . I will let you know the outcome if you like.

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  17. can one beneficiary do all the legal paper work without the other.. and can she keep rest of the money that belong to 4 people,,

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  18. Hi Anon

    No, not if the will states the estate is to be split 4 ways. I am not an estate lawyer, but if that is the case, speak to the lawyer handling the estate as to what you need to do or engage a lawyer to deal with the situation

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  19. my mother passed in 2010. her bank did not issue a T4RRIF slip for her RIF until Oct 2013 but dated the slip 2010. the slip was issued when the bank finally released her accounts (everything had previously been frozen) to an estate account. we now have to claim the RIF and pay the taxes which I fully understand and have no problems with this. what I am concerned about now is penalties and interest. Will this apply as the T4RRIF was not issued until this year and backdated. If there are penalties is there anything that can be done as it will add up to a significant amount (RIF is roughly 50K). There was also a slip issued for 2013 for interest earned between 2010 and 2013 which would need to be claimed. I really am not sure where I go from here. Thanks.

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    1. Hi Anon

      If you filed your moms return for her year of death, there should be no penalties only interest. If the return was not filed on time you will have penalties and interest.

      In either case, I would make a fairness claim to request that the interest and/or penalties be waived, because the late filing was solely the result of the bank.

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  20. If there 2 executors of my parents's will, me and my sister. And I have paid income tax of my share and my sister doesnt paid, is it going to be affected me or responsible?

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    1. Hi Anon:

      The estate is responsible for the taxes payable, for which you as executor are ultimately responsible. Were there not sufficient funds in the estate to pay the taxes or were the funds left directly to you and your sister and thus you did not have enough funds?

      Unfortunately I cannot provide an answer as I am not a lawyer and you should discuss with your estate lawyer.

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  21. My father just passed and I am the daughter executor. My mother is still alive and just informed me of this. I am calling his lawyer Monday for details. Will I still be responsible for all this even with her alive? They were still happily married at the time of his death. I know he invested heavily. What role will I play in all of this? Thank you, Tracey

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    1. Hi Tracey:

      I am sorry to hear about your dad. If you accept the executorship, you are responsible. The good news is, if your dad essentially left everything to your mom, then for tax purposes, things should be fairly simple. The lawyers can guide you on any probate issues, which may require a little more work. If u don't have an accountant, I would engage one to guide you through this and again, if your dad left everything to mom, should be fairly simple for tax.

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  22. My wife's brother (federal employee) passed in 2012 without a will. His mother and my wife were the sole surviving relatives. My wife acted as executor as mother is elderly. Because of issues surrounding not having a will, there were many delays. We filed a 2012 FINAL tax return and got a clearance certificate. Because he died one month after retirement the estate received a lump sum payment (less taxes) in-lieu of pension. Some time after that (in the 2013 tax year) we received a T4A for that payment. We are not sure if we should:
    a) re-open 2012 tax file and add T4A amount
    b) file a 2013 tax return for her brother using the T4A and tax paid as his sole income (even though he died in 2012)
    c) file a T3 Trust Return for the amount as it may be deemed that it was paid in trust to his estate
    It seems that all 3 have tax implications of varying degrees and the assets of the estate have already been distributed.

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    1. Hi Anon:

      I cannot provide a definitive answer without all the facts, you need to ask your accountant or engage one. Subject to the facts, it appears the payment most likely will fall into (c), but again, I cannot provide a definitive answer, so peak to an accountant and provide all the details of the RPP. Just as importantly, you also need to understand the issues surrounding any tax owing since the assets have already been distributed, u may need to speak to your estate lawyer once you sort out how to file the return.

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  23. My mother called me today. She asked me to go to her to city hall next week to sign a paper "relieving my duties of being a co-executor". My father died Jan 2009. I did not know he had a will nor that he made me a co-executor. What should I do?

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    1. Hi Anon

      This is a legal question and I am an accountant, so I cant help you. All I can say is why does she want you to renounce and have you seen the will? You may want an answer to the first and a look at the second before you decide and in addition you may want a short consultation with an estate lawyer to understand whether you want to renounce your executorship.

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  24. Hi Mark,
    I have 2 questions for you. My brother passed a few months ago and apparently I need to file income tax return. There were no assets, pensions, RRSP's, etc. In fact, I paid for the funeral and filed for CPP. Death Benefit. Can I claim funeral expenses? My assumption is no, but it never hurts to ask.
    I have his T4 and ROE from his last employer but I'm not certain if he had other employers in the same year. Is there some way I can confirm this?
    Thanks for your assistance.

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    1. Hi anon

      U cannot claim funeral expenses. the only way to confirm his t4 info is to get authorization from the CRA as the executor of the estate u must file form 1013 I think

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  25. If I am executor and 1/2 beneficiary can I purchase the main asset (the house) at market value if the other beneficiary agrees.

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    1. Hi Anon

      Sorry, you would have to ask the estate lawyer that question.

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  26. Hi Mark.
    My brother and I are executors for my father's estate. In February the request was submitted to Revenue Canada for the Clearance Certificate. Do you have any idea of how long this typically takes to go thru? When we took over the state there were 7 years of tax returns that needed to be filed. Also, once we receive the certificate, can I distribute the funds or do I need to go through a lawyer/accountant?

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    1. Hi Anon

      They have a large backlog for clearance certificates from what I understand. It can take several months as you are experiencing. I would call and see if you can get a status report and more importantly, to ensure it is in the system.

      You don't need to go through your accountant or lawyer, however, I would suggest that you just pass by you plan of distribution with your lawyer to ensure you have properly distributed and wound up the estate.

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    2. Thanks Mark ... great advice on both parts.

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  27. Hello can you please tell me ,my brother about 2 years ago sold my mother s house took all the money for himself there is a will making him the only beneficiary ......my mon is resinding in a nursing home all her pension is going there ......my question is ...who will be responsible to pay for her funeral expanses when the time comes .......thank you

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    Replies
    1. Hi Anon

      I am not an estate lawyer, but it is my understanding it is the estate's responsibility. The bank of the deceased will typically issue a cheque to cover the funeral expenses if there is enough money in the account.

      If there is not enough money in your moms account at her death, I am not sure what the answer is.

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  28. Hello, my step-mother passed away Sept.12, her will states that any inheritance is to be distributed equally among the 4 daughters (2 biological & 2 step-daughters). After my biological father died 6 years ago, we kept in touch rarely with my step-mother & 2 step-sisters. Because of this, my step-sister has requested that myself and my biological sister voluntarily forfeit our inheritance to her and her biological sister. Is this even allowed/legal?

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    Replies
    1. Hi Pn1230

      I am not an estate lawyer, you would have to contact one to determine what can and what cannot be done. Here is a link to your question answered by an estate lawyer in her blog. http://estatelawcanada.blogspot.ca/2010/04/can-beneficiary-turn-down-inheritance.html

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