Common Estate and Tax Planning Issues

Over the years, I have reviewed many individuals’ financial affairs. Most people have their affairs somewhat in order, but there are typically still some issues to be considered or holes to be filled. Today, I list some of the most common issues and gaps.

Estate Issues

The most common estate planning issues I have observed relate to wills, powers of attorney, estate documentation and insurance. I discuss these below.

 

Wills

Wills always seem to have multiple issues and errors of omission when I review them. These five are the most common:

1. No Secondary Will – Depending upon your province of residence, a secondary will can be used to reduce the probate taxes due upon your death. This would most typically apply to shares you own in private companies and other personal items. It is my understanding that Ontario and British Columbia are the two main provinces where secondary wills are used, so check-in with your advisor if you live in a province other than Ontario or B.C.

2. Old or Dead Executors - As many people do not update their wills on a regular basis, I have often found their executors have passed away or they are very old (if your children are not your executors). You may want to review your executor selection and ensure you have at least one “youngish” executor.

3. All the Children are Executors – Keeping with the executor theme, many people have all their children as executors. I suggest that if you can finesse this with your children, in some cases it is better to only have one or two of your financial savvy children as executors, to avoid the estate being bogged down. This is not always practical given family dynamics, but is more efficient and can often reduce sibling friction.

4. Individual Bequests are Missing – Estate lawyer Charles Ticker notes in his book “Bobby Gets Bubkes: Navigating the Sibling Estate Fight that one of the biggest issues children have post-mortem, is where a parent had promised a child a certain personal item, be it jewelry, art, purse etc. and it is not reflected in the will. Parents, make your will consistent with your promises.

5. Blended Family Issues – Blended family issues can be so complicated, there is sometimes “paralysis by analysis” and they are just ignored. In this blog post I wrote in June 2020, I note that estate planning is complicated enough in a first marriage; second or third marriages multiply the risks and complexity. You may want to read the wills and estate planning sections of this blog post on blended families.

Powers Of Attorney

The two most common issues I come across with Powers of Attorney "(POA) are:

1. They are often not done!

2. The personal healthcare POA is out of date and does not reflect the significant health care issues that should be considered from extraordinary health measures to mental capacity (see this blog post) to assisted death.

Estate not Documented

I have seen many estates with no documentation in respect to the assets that constitute the estate and where the assets are located. I wrote about this a couple weeks ago, so I will not re-iterate. Here is the link to the blog post.

Insurance

Most people dislike paying insurance. However, parents often have family legacy assets they wish to keep in the family such as cottages, rental properties, family businesses etc. I have seen several instances where these legacy assets must be sold by the estate or to keep these assets in the family, excess taxes are paid as a work around solution. Often, life insurance, typically permanent insurance, such as Universal or Whole life would have made financial and tax sense and emotional sense (where the parent wanted a legacy asset to remain in the family).

I discuss many other uses of insurance for estate planning purposes in this blog post including the most popular, being life insurance to cover an estate tax liability on death.

Income Tax Issues

Capital Dividend Account

The capital dividend account (“CDA”) is a cumulative tax account that tracks certain amounts (most commonly the non-taxable portion of capital gains) that are not taxable to a Canadian Private Corporation and may be distributed tax-free to the company’s shareholders. See this detailed blog post I wrote on the subject.

Over the years, I have often seen this account not tracked or overlooked. A brief discussion of your corporation’s CDA balance should be part of your annual discussion with your accountant to ensure that you are not leaving any tax-free money on the table.

Charitable Donation Tax Efficiency

I have written several times (the last time being this blog) that many people do not maximize the tax benefits of their donations. If you plan to make a charitable donation and you own marketable securities with unrealized capital gains, it is far more tax-efficient to donate the securities in lieu of cash. This is because the capital gain on the security is not subject to tax when donated. For example, if you own shares of Bell Canada with a cost of $1,000 and a fair market value of $5,000, you would have to pay capital gains tax on the $4,000 capital gain when sold. However, if you donate the shares, the capital gain is deemed to be nil and you still get the donation tax credit.

Where you have a corporation and own marketable securities, it is even more tax-efficient to make a corporate donation, as the capital gain is eliminated and the capital gain gets added to the CDA account discussed above.

Unfunded TFSA

I find it very surprising how many people still have unfunded or partially funded Tax-Free Savings Accounts (“TFSAs”). These accounts allow you to grow your money tax-free and provide substantial flexibility in using and replenishing the account.

In the early days of TFSAs, the contribution limits were not large and people did not want the hassle of opening the account. However, as of Jan 1, 2022, the contribution limit for a TFSA is now $81,500. So, if you have not contributed, get going. If you have contributed haphazardly, check your balance with the CRA and get caught-up.

Capital Loss Utilization

I often see people pay tax on capital gains that is unnecessary, as they could have sold securities that had unrealized losses to reduce the gain and the related tax.

As 2022 has been a tough year in the markets, you may want to undertake some tax-loss selling before the end of the year. I will have my annual tax-loss selling blog in a couple weeks which is very detailed to assist in your tax-loss selling planning.

Estate Freeze

As per my blog Estate Freeze -A Tax Solution for the Succession of a Small Business undertaking an estate freeze in the right circumstances is often a great way to defer a families tax liability to the next generation. However, not everyone agrees as per this blog Are Estate Freezes the Wrong Solution for Family Business Succession?

I am a proponent of using an estate freeze where it fits a families needs. Over the last two years I have seen three estates that caused tax havoc for families that could easily have been minimized with an estate freeze several years ago.

Hopefully you and your advisors have already considered most of the issues discussed above. If not, you may wish to “clean-up” any holes in your planning and ensure the efficiency of your estate and tax planning.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

Considerations in selecting an executor and accepting the executor appointment!

Last week, Rob Carrick the personal finance columnist for The Globe and Mail, in his Carrick on Money Newsletter (the newsletter is generally only available to Globe subscribers) asked David Edey a Certified Executor Advisor questions on his experience as an executor. These experiences and frustrations are detailed in Mr. Edey's book Executor Help: How to Settle an Estate Pick an Executor and Avoid Family Fights.

The book summary states “The grief, frustration, and stress of that experience were life-altering for David. He was determined to write this book in order to help others successfully navigate the difficult tasks of estate planning and executorship—so that their families could stay together”. 

I have not yet read the book, but as an accountant on numerous estates and a multi-time executor, I understand what drove David to author the book. Rob’s discussion of the topic in his newsletter provided me the impetus to offer a few comments of my own on the topic. So today, I discuss some considerations in selecting an executor and some of the less pleasant tasks that may be part and parcel of being appointed an executor.

Who Makes a Good Executor?

I have noted in blog posts over the years that a potential executor should have the following characteristics:

(1) Financial acumen and investing experience
(2) Be detailed oriented
(3) Handle stress well
(4) Be able to deal with people, including those acting irrationally (inheriting money does funny things to people)
(5) Be results driven

I have been involved with a couple of executors who did not have the above characteristics, especially the financial acumen and ability to handle stress. Those estates went off the rails and took years to settle. So carefully consider the above characteristics in selecting an executor.

Should you name your children as executors?

This is the $64,000 question. Assuming there are no “black sheep” in the family and all the siblings get along, you would think naming all your children would be a good idea. Sometimes the answer is yes, as they can share the burdensome and time-consuming duties as co-executors and utilize their individual strengths. Other times, being named co-executors can adversely affect your children’s relationship as the stress of settling the estate and distributing money creates discontent amongst the children.

So, should you select only one or two children who meet the above characteristics? Again, the answer can sometimes be yes, where the other children trust they are competent and even-handed. On other occasions, children may feel resentment that the parent did not name them as an executor and their siblings are favoured or given preferential treatment by their parents.

You may be saying to yourself, Mark has not answered whether I should name my children as executors, he has just given me a maybe yes and maybe no answer. But that is the reality. You need to look at your children with a cold realistic view and not your rose-colored glasses to decide if they have one of more of the characteristics to be an executor. You also need to speak to them and ask them if they feel they can work together (see discussion below). If you are not satisfied on all accounts, you may want to consider a professional corporate executor so that your children will only have to deal with an independent third party.

Do you think the executor would like to know they are being named?

Many years ago, I wrote a blog post titled "Speak to your Executor – Surprise only works for Birthday Parties, not death". You would be shocked at how many people are named an executor without prior notice. You always want to inform your executor they are being named and confirm they are comfortable with being named an executor. The last thing you want is to die and have your executor renounce their executorship. As noted above, where you have more than one executor, you want to ensure they are willing to work together, whether they are your children, friends, professional advisors, or any combination of the above.

Does an executor have to do all the work?

A well-run estate utilizes accountants for tax preparation and estate planning advice and a lawyer for estate and legal advice. You may also have to hire a specialist to prepare the passing of accounts (a summary for the court of the estate). While these costs can add up, the expression penny wise pound foolish has applied to many executors. The accountants and lawyers can also act as buffers for the family, as they act as independent advisors and can deflect some of the pressure put on the executor(s) by the beneficiaries. I have heard many an executor say, "it was the accountant's/lawyer's suggestion".

There is typically a significant amount of mundane work in settling an estate. Writing and dealing with financial institutions, games of hide and seek to find assets etc. An executor may consider asking for the assistance of their family members who are not executors to help with some of these administrative tasks; assuming they are willing and the other family members are fine with their assistance.

Sadly, I must inform you, even where you delegate and use professionals, you are likely in for a very time consuming task as an executor.

I want my Money!

In my experience, an executor will be asked to distribute money sooner than later by one or more of the beneficiaries. This is one of the most stressful aspects of being an executor, since in many cases you are unsure of what will be left of the estate following the sale of the estate's assets and the income taxes on the estate. 

It is important you do not make an interim or final distribution (see this blog post on obtaining a clearance certificate) of money until you consult with your accountants and lawyers. The last thing you ever want to have to do, is go back to the beneficiaries and tell them they were overpaid, and they must return money. This is very messy, and you could end up having personal liability for the estate. So always ensure you review any distributions with your professionals before distributing any money or assets to the beneficiaries.

An executor’s job is arduous, time consuming (it can take years to settle some estates), stressful and a messy estate can fracture family relationships. You therefore need to consider the selection of your executor(s) very carefully (especially when you will involve your children), ensure you advise them and confirm that they are willing to accept the appointment. If you are asked to become an executor, consider carefully whether you wish to accept the appointment; you may also want to consider buying David's book.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

The Best of The Blunt Bean Counter - Obtaining a Clearance Certificate for an Estate

This summer I am posting the best of The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a October 2018 blog on Obtaining a Clearance Certificate for an Estate, a question I am often asked about by clients and readers.
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Obtaining a Clearance Certificate for an Estate

I have written numerous times on this blog about estate issues. I was quite surprised when I realized I had not posted on the issue of obtaining a clearance certificate for an estate. So today, I remedy this omission and discuss when a clearance certificate is required and how you go about obtaining one. 

 

What is the Purpose of a Clearance Certificate?

A clearance certificate provides the following for an executor(s):

• Confirmation that an estate of a deceased person has paid all amounts of tax, interest and penalties it owed at the time the certificate was issued

• Confirmation the legal representative can distribute assets without the risk of being personally responsible for the tax debts of the deceased and estate

Consequently, if as an executor(s) you decide to distribute the assets of the estate without obtaining a clearance certificate, the CRA can hold you personally liable for any unpaid tax debts of the estate.

Do You Have to Obtain a Clearance Certificate?

In a complicated or contentious estate, I would suggest this is not even a consideration. Obtain a certificate. However, where an executor is the sole beneficiary of an estate or the beneficiaries are siblings that get along, the answer is not as clear-cut. I have had estate lawyers suggest a clearance certificate should be obtained, since it is always better to be safe than sorry. On the other hand, I have had estate lawyers suggest that there is no point when there is no reason to feel there are any unpaid tax debts and there is no contention in the estate.

As an executor, you need to understand the estate may have tax exposure to past transactions you may not even be aware of, even if you are sure there are no current debts. For example, the deceased may have missed filing a form such as the T1135 Foreign Verification form for several years that is subject to penalty or claimed the qualifying small business corporation capital gains exemption in the past and it is subsequently audited and denied or transferred property to family that resulted in a deemed disposition and never reported the deemed disposition. These are just a few of many potential tax issues that could result in taxes owing if uncovered or if the CRA audits prior returns.

I suggest being safer than sorry is generally the most prudent route.

When Do You Request a Clearance Certificate?

You should request a clearance certificate once you are ready to distribute the remaining funds/assets of the estate. The certificate should only be requested once you have paid all tax debts and filed all applicable personal and T3 (estate returns). The request cannot be filed until you have received notice of assessments for all returns filed, especially the last return filed.

How to Apply

This is what the CRA says is necessary to apply:

For an individual (T1) or trust (T3):

 

• a completed Form TX19
• a completed Form T1013, Authorizing or Cancelling a Representative, signed by all legal representatives, authorizing an accountant, notary or lawyer, or any other person, to act on your behalf. Also use the form if you want the CRA to send the clearance certificate to an address other than yours
• a detailed list of the assets that the deceased owned on the date he or she died, including all assets he or she held jointly, and all registered retirement savings plans and registered retirement income funds (even if he or she named or designated a beneficiary) and their adjusted cost base and fair market value.

One of the following:

• a complete and signed copy of the taxpayer’s will, including any amendments, renunciations, disclaimers and probate documents that apply. If the taxpayer died intestate (without a will), attach a copy of the document appointing an administrator (for example, the letters of administration or letters of verification issued by a provincial court)

• a copy of the trust agreement or document for a living trust

Also include the following documents if they apply to your situation:

• any other documents proving that you are the legal representative

• a copy of the Schedule 3, Capital Gains (or Losses) from the final tax return of the deceased

• a list of all assets transferred to a trust, including (for each asset): a description, the adjusted cost base, and the fair market value

• a statement of how you propose to distribute any holdback or residual amount of property

• the names address and social insurance numbers or account numbers of any beneficiaries of property other than cash

It has been my experience that the statement of how you propose to distribute can be problematic. What I have done in the past is advise the CRA who will report the income for the period from the filing of the last return and the issuance of the clearance certificate. For example, if two brothers are the beneficiaries and there is a $200,000 GIC earning 2% interest, I advise the CRA that each brother will report ½ of the interest on their personal tax returns.

Interim Distributions

If you have been an executor, you will know beneficiaries have an expectation of receiving their share of the estate promptly (a cynic would say: often before the deceased is buried). Thus, often, an executor will make an interim distribution because it appears there will be minimal tax debts or quite frankly as a way to appease the beneficiaries. If you are interested in reading more about this issue, I suggest reading this article on interim distributions by Lynne Butler, an estate lawyer and writer behind the excellent blog, Estate Law Canada.

The Finalization Process

Upon filing the clearance certificate, the CRA will send you an acknowledgement letter (they say within 30 days) of receiving your request for a clearance certificate.

The CRA says “that the assessment can take up to 120 days, assuming you provide all of the necessary documents. However, in certain situations, the CRA may need to do an audit before it issues the clearance certificate”. In my experience, the process often takes much longer, even where an audit is not undertaken. 

 

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

The Best of The Blunt Bean Counter - How to use the BDO Estate Organizer

This summer I am posting the best of The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a January 2019 blog I wrote on how to use the BDO estate organizer. I have written numerous times over the years urging you, my readers, to get your financial affairs in order, by stress-testing your finances in case you pass away suddenly. While clearly a morbid topic, the rationale for the discussion is this: if you do not get your affairs in order and you pass away suddenly, you leave your family a financial mess at a time of emotional distress, anxiety and confusion.

The organizer can assist you in writing your financial story and ensuring your financial information and wishes are documented for your family and trustees. I would suggest COVID-19 has caused many people to consider their mortality, and the pandemic may provide you some free time to undertake this task.

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How to use the BDO Estate Organizer

Not to be morbid, but since Roma Luciw of The Globe and Mail has called me “morbid Mark,” I reiterate once again: if you do not communicate and document your financial affairs for your family or executors, you at best leave your family a messy estate at a time of distress and at worst cost your estate and family thousands of dollars.

Today I will walk you through completing the Organizer and some of the important issues that arise in completing the document.

Key Tips in Using the Organizer

Family Information (p.2)

The most important item in this section is citizenship. Many Canadian don’t realize this, but parts of your estate can trigger tax consequences if you are a citizen of another country. This typically applies to U.S. citizens, since the U.S. taxes based on citizenship; while most other countries tax based on residency. Although it should be noted, Canadians who are non-residents of the U.S., can be subject to U.S. Estate tax.

Perhaps the biggest issue for U.S. citizens is home ownership. As discussed in this blog post, the U.S. has a $250,000 or $500,000 principal residence exemption, depending upon your marital and citizenship status. The fact that a tax-free home sale in Canada can result in taxes in the U.S. is often very shocking to Canadians filing U.S. tax returns.

Your U.S. citizenship can trigger many other tax consequences — such as U.S. estate tax —based on differing laws south of the border. And of course, U.S. tax compliance should begin well before estate planning makes an appearance in your life. If you are a U.S. citizen or green card holder, you should be filing U.S. tax returns. If you are not filing, you should seek U.S. tax advice.

If you are a citizen of another country, you may want to determine if citizenship in that country would have any income tax consequences upon your passing.

In addition, depending upon the politics of your home country and your children’s familiarity with that country, you may wish to sell your foreign assets as you age to simplify your estate.

Important Documents (p.5)

My Will 

If you do not have a will, it's time to have one drafted. As discussed in this blog post, 65% of Canadians do not even have a will and 12% of wills are outdated. Yes, your read that correctly: only 3 of 10 Canadians have an up-to-date will. 

If you already have a will, you should review it to determine if there have been any significant life events since you last updated it. In addition, you will want to ensure all your beneficiary designations (RRSP and TFSA, for example) agree to your will and are up to date. Many people have inadvertently left significant assets to ex-spouses by not updating their designations.

There have been substantial changes to the tax laws in the last few years, which can affect the tax treatment of trusts created by will and provisions for disabled children. If you have created trusts in your will or have a disabled child, you may want to contact your accountant or lawyer to see if these changes necessitate any change to your will.

Some provinces allow for dual wills, one for assets subject to probate and one for assets not subject to probate.

Powers of Attorney

You should have two powers of attorney (POAs), one for your financial affairs and one for your health care.

POA’s for health care have evolved over the last few years for such matters as heroic measures and even assisted-death provisions. You may want to consider updating this document depending upon your personal and religious views on these issues.

Financial Information (p.6)

As noted earlier, you will want to ensure that the beneficiary designations for pension plans and registered plans are in line with your will and your intentions. Often these designations are out of date.

After completing the Financial Information: Liabilities section of the organizer, review and ensure you have enough insurance (see discussion below) or liquid assets to pay off any of these liabilities should you pass away. You may also wish to assess whether this is a good time to have a financial or retirement plan prepared or updated.

Insurance Information (p.11)

After completing this section, sit back and consider these three things: 

1. Do you have any unnecessary insurance policies you purchased long ago and never cancelled?

2. Do you have enough insurance based on how much you spend annually, the debt you hold and significant funding expenses you still need to incur, such as tuition for your children? 

3. If you have significant funds in your corporation (especially if you will have excess funds in your corporation you will not need in retirement), have you considered purchasing a corporate-funded insurance policy?

Employment Information(p.13)

Some issues to consider is this section are:

Ensure that you detail any stock options, deferred stock units, deferred profit-sharing plans or any other of these more complex plans. Heirs often face confusion with these plans when someone passes away, so the more clarity you can provide (e.g., dates, units, tax cost basis, purchase price), the easier it will be for your family to deal with these plans.

Most employers are very good at assisting the family after the death of a loved one, but you will put your family in the best position possible by providing as many details as you can.

Income Details (p.14)

Some issues to consider in this section are: 

1. Are you taking advantage of all income splitting opportunities? You should review this with your accountant, especially given the implementation of the Tax on Split Income (TOSI) rules.

2. Consider if your investment returns are in line with your expectations and whether you even know what your returns are. See this blog post for a discussion of this topic and some useful links.

Real Estate (p.15)

Prepare a free-form schedule that should include the following at a minimum: 

1. A notation of the year you last claimed the principal residence exemption (PRE) on the sale of your home. This will allow your executor and estate to tax plan upon death or going forward in respect of future PRE claims if you have, say, a house and cottage. See this blog post for the new reporting rules on PRE claims.

2. If you elected in 1994 to crystalize $100,000 of capital gains on property you still hold, attach a copy of your 1994 form T664 to this document. The government allowed one final election to utilize your capital gains exemption before phasing out the exemption on real estate and marketable securities in 1994.

Note: Qualified small business corporations (QSBCs) continue to be eligible for the capital gains exemption — see this blog post for details.

Financial Advisors (p.16)

Ensure you have introduced your spouse or significant other to all your financial advisors. It is much easier for a surviving spouse to deal with the aftermath of a passing when they already have a level of comfort with the advisors they will have to deal with. 

Executors (p.17)

You should review your executor appointments to ensure they are the correct people for the job.

If you have not informed your executors they have been named, you should inform them. You may want to inform the executor that you have completed the organizer so that they will know it exists and where they can find it.

If you do not have someone you can name as an executor or there is possible family conflict, consider naming an institution as an executor. 

Digital Information (p.18)

If you have digital assets of value (e.g., cryptocurrency, websites), ensure you have obtained tax and legal advice and have considered them in your will. See this blog post on the topic from estate lawyer Katy Basi.

Katy also guest posted this excellent piece on a 21st century issue: how to deal with reproductive assets in your will.

Funeral Arrangements (p.19)

This is truly a morbid topic, but ensure someone is aware of any pre-paid or funeral wishes.

Final Comments

This estate organizer is one heck of a homework assignment. But it is one of the most selfless things you can do for your family, especially if you have significant assets or complex financial affairs.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

What To Do When Your Spouse Dies Before You

I have written before on what happens when someone dies: both on the administrative issues an executor needs to consider and also on the income tax issues upon death. However, I recently realized those posts are essentially directed at what happens when a single person dies, or a widower or widow passes away.

Today I’m filling in the gap with a look at what happens when the first spouse in a married or common law couple passes away. This week I address the administration issues – many of which are the same as for when the surviving spouse dies later on, but I have added several additional items. My post in two weeks will tackle the tax issues – which can be very different from when the surviving spouse dies.

How to tackle the nitty gritty of administration

Here are 25 administrative considerations for the surviving spouse (family, or executor of someone who dies):

1. Determine the deceased’s funeral wishes and if the funeral has been prepaid. If they have not made arrangements, you may unfortunately need to deal with this issue immediately while you are likely still in shock from your spouse’s or parent’s passing.

Key takeaway: Always ensure your funeral arrangements have been communicated while you are healthy.

2. Obtain several copies of the funeral director’s statement of death. Many institutions accept this document in lieu of the death certificate, which is issued by the province and is time consuming to apply for and receive.

3. Open the safety deposit box (“SDB”). You may need to open the SDB if the will is in the SDB or to prepare a list of the contents of the SDB with the representative of the bank.

Key takeaway: Please always ensure someone has a copy of the SDB key or knows where to find the key.

4. Meet with your or your spouse’s lawyer to review the will and understand any legal obligations such as advertising for creditors. In general, most spouses leave all if not the majority of their assets to their spouse. This generally makes things easy for tax, but that is not always the case. In addition, specific assets may often be left to the children or a charity, and those assets need to be dealt with in the near term.

5. Notify any beneficiaries of their entitlements under the will and request their personal information.

6. Meet with your or your spouse’s accountant, to ensure you are clear on the income tax obligations and the income filing requirements. If you or your spouse do not have an accountant, engage one. As noted above, I will address this issue in more detail in two weeks.

7. If the executor is someone other than the surviving spouse, ensure you contact them and advise them of their duties and determine whether they accept the appointment. Hopefully, they are already aware they would be appointed.

Key takeaway: always inform the people who will be your executors and provide them an estate organizer or similar document to provide them a roadmap of your assets. They will need to have a list of all your assets for probate and to ensure a full distribution is undertaken.

8. Your lawyer will advise you whether you will need to obtain a certificate of appointment of estate trustee with a will (probate), a very important step in Ontario and most other provinces.

Key takeaway: If you own shares in a private corporation, in certain provinces you can have a second will that removes these assets from probate. Ensure you discuss this with your lawyer if you do not already have a second will.

9. Collect any life insurance benefits.

10. Meet with your and your spouse’s financial planner, insurance agent or any other relevant advisor.

Key takeaway: Make sure you and your spouse meet all family advisors while both spouses are alive to create at least a basic comfort level.

11. Where the deceased was a controlling shareholder or ran a business, find out if there was a succession plan/disaster plan in place and that it is being followed. If the deceased did not create a plan, take control of the business in the short term and start looking for a manager to take over running the business. Your accountant can likely assist you in this.

Key takeaway: As I’ve written before, many business owners do not have a succession plan. This is the quickest way to lose some or a significant portion of your family’s worth when you die. Ensure you have a plan in place now or take steps to put one in place.

12. Apply for any government benefits the estate is entitled to, such as the CPP death benefit, survivor benefits and possibly child benefits.

13. Notify CPP/QPP and Old Age Security – at Service Canada – of your spouse’s death so they stop making payments.

14. Cancel the deceased’s driver’s licence, health card and other provincial documentation. (See this page for Ontario; each province will have a similar resource online.) Also make sure to cancel the deceased’s Social Insurance Number, passport and Nexus account as applicable.

15. Cancel credit cards in your spouse’s name, email and websites attached to them, and memberships in fitness clubs and organizations.

16. Change the name listed on utility, telephone and other bills.

17. Cancel personal health insurance premiums, cell phones and possible “fall alerts” if the deceased was elderly.

18. Transfer RRSPs, RRIFs and TFSAs.

19. Update your will or power of attorney (POA) if your deceased spouse was the beneficiary of all or some of your assets or your POA.

Key takeaway: It is important to update your will and especially your POA as soon as possible. I have seen many situations where the stress (broken heart) of spouse's passing often creates a medical issue for the surviving spouse, so updating your POA is very important.  

20. If you have real estate holdings in your spouse’s name or in a joint name, review the legal ownership and transfer issues with your real estate lawyer.

21. If your spouse had a vehicle, sell or transfer it and cancel or transfer the applicable auto insurance.

22. If the deceased had a domestic caregiver and the payroll account was in their name, you will need to issue final T4s, and possibly set up a new account in your name.

23. 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 according to the will or other means, and nothing can be taken.

Key takeaway: This is a very ticklish issue and needs to be handled delicately, but a family member "grabbing" a sentimental item can sometimes cause more dissension than monetary allocations.

24. For any jewellery and art not noted in the will, please note there are tax and probate consequences. See this blog I wrote on “Personal Use Property - Taxable even if the Picasso Walks Out the Door.”

25. Depending upon whether assets were left to beneficiaries other than the spouse, you may have to deal with a passing of accounts - commonly known as an official accounting of the estate’s assets – and possibly request a clearance certificate.

The administration and tax issue burdens are immense upon the death of a spouse. We have now covered the key items that the surviving spouse needs to deal with from an administrative angle. Look out for our next post, which will get you up to date on the taxation issues. For both areas, I strongly urge you to obtain professional legal and tax assistance.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.

How to Use the BDO Estate Organizer

Two weeks ago, I posted the BDO estate organizer. In that post I emphasized the importance of writing your financial story and ensuring your financial information and wishes are documented.

Not to be morbid, but since Roma Luciw of The Globe and Mail has called me “morbid Mark,” I reiterate once again: if you do not communicate and document your financial affairs for your family or executors, you at best leave your family a messy estate at a time of distress and at worst cost your estate and family thousands of dollars.

Today I will walk you through completing the Organizer and some of the important issues that arise in completing the document.

Key Tips in Using the Organizer

Family Information (p.2)

The most important item in this section is citizenship. Many Canadian don’t realize this, but parts of your estate can trigger tax consequences if you are a citizen of another country. This typically applies to U.S. citizens, since the U.S. taxes based on citizenship; while most other countries tax based on residency.

Perhaps the biggest issue for U.S. citizens is home ownership. As discussed in this blog post, the U.S. has a $250,000 or $500,000 principal residence exemption, depending upon your marital and citizenship status. The fact that a tax-free home sale in Canada can result in taxes in the U.S. is often very shocking to Canadians filing U.S. tax returns.

Your U.S. citizenship can trigger many other tax consequences — such as U.S. estate tax —based on differing laws south of the border. And of course, U.S. tax compliance should begin well before estate planning makes an appearance in your life. If you are a U.S. citizen or green card holder, you should be filing U.S. tax returns. If you are not filing, you should seek U.S. tax advice.

If you are a citizen of another country, you may want to determine if citizenship in that country would have any income tax consequences upon your passing.

In addition, depending upon the politics of your home country and your children’s familiarity with that country, you may wish to sell your foreign assets as you age to simplify your estate.

Important Documents (p.5)

My Will 

If you do not have a will, it's time to have one drafted. As discussed in this blog post, 65% of Canadians do not even have a will and 12% of wills are outdated. Yes, your read that correctly: only 3 of 10 Canadians have an up-to-date will. 

If you already have a will, you should review it to determine if there have been any significant life events since you last updated it. In addition, you will want to ensure all your beneficiary designations (RRSP and TFSA, for example) agree to your will and are up to date. Many people have inadvertently left significant assets to ex-spouses by not updating their designations.

There have been substantial changes to the tax laws in the last few years, which can affect the tax treatment of trusts created by will and provisions for disabled children. If you have created trusts in your will or have a disabled child, you may want to contact your accountant or lawyer to see if these changes necessitate any change to your will.

Some provinces allow for dual wills, one for assets subject to probate and one for assets not subject to probate. If you live in Ontario and have two wills, a recent case (Milne Estate, 2018 ONSC 4174) may have nullified the benefit of your will that is not subject to probate. If your lawyer has not contacted you to discuss the impact this case has on your wills, contact them yourself immediately.

News Flash: the Milne decision was overturned last Thursday.

Powers of Attorney

You should have two powers of attorney (POAs), one for your financial affairs and one for your health care.

POA’s for health care have evolved over the last few years for such matters as heroic measures and even assisted-death provisions. You may want to consider updating this document depending upon your personal and religious views on these issues.

Financial Information (p.6)

As noted earlier, you will want to ensure that the beneficiary designations for pension plans and registered plans are in line with your will and your intentions. Often these designations are out of date.

After completing the Financial Information: Liabilities section of the organizer, review and ensure you have enough insurance (see discussion below) or liquid assets to pay off any of these liabilities should you pass away. You may also wish to assess whether this is a good time to have a financial or retirement plan prepared or updated.

Insurance Information (p.11)

After completing this section, sit back and consider these three things: 

1. Do you have any unnecessary insurance policies you purchased long ago and never cancelled?

2. Do you have enough insurance based on how much you spend annually, the debt you hold and significant funding expenses you still need to incur, such as tuition for your children? 

3. If you have significant funds in your corporation (especially if you will have excess funds in your corporation you will not need in retirement), have you considered purchasing a corporate-funded insurance policy?

Employment Information(p.13)

Some issues to consider is this section are:

Ensure that you detail any stock options, deferred stock units, deferred profit-sharing plans or any other of these more complex plans. Heirs often face confusion with these plans when someone passes away, so the more clarity you can provide (e.g., dates, units, tax cost basis, purchase price), the easier it will be for your family to deal with these plans.

Most employers are very good at assisting the family after the death of a loved one, but you will put your family in the best position possible by providing as many details as you can.

Income Details (p.14)

Some issues to consider in this section are: 

1. Are you taking advantage of all income splitting opportunities? You should review this with your accountant, especially given the implementation of the Tax on Split Income (TOSI) rules.

2. Consider if your investment returns are in line with your expectations and whether you even know what your returns are. See this blog post for a discussion of this topic and some useful links.

Real Estate (p.15)

Prepare a free-form schedule that should include the following at a minimum: 

1. A notation of the year you last claimed the principal residence exemption (PRE) on the sale of your home. This will allow your executor and estate to tax plan upon death or going forward in respect of future PRE claims if you have, say, a house and cottage. See this blog post for the new reporting rules on PRE claims.

2. If you elected in 1994 to crystalize $100,000 of capital gains on property you still hold, attach a copy of your 1994 form T664 to this document. The government allowed one final election to utilize your capital gains exemption before phasing out the exemption on real estate and marketable securities in 1994.

Note: Qualified small business corporations (QSBCs) continue to be eligible for the capital gains exemption — see this blog post for details.

Financial Advisors (p.16)

Ensure you have introduced your spouse or significant other to all your financial advisors. It is much easier for a surviving spouse to deal with the aftermath of a passing when they already have a level of comfort with the advisors they will have to deal with. 

Executors (p.17)

You should review your executor appointments to ensure they are the correct people for the job.

If you have not informed your executors they have been named, you should inform them. You may want to inform the executor that you have completed the organizer so that they will know it exists and where they can find it.

If you do not have someone you can name as an executor or there is possible family conflict, consider naming an institution as an executor. 

Digital Information (p.18)

If you have digital assets of value (e.g., cryptocurrency, websites), ensure you have obtained tax and legal advice and have considered them in your will. See this blog post on the topic from estate lawyer Katy Basi.

Katy also guest posted this excellent piece on a 21st century issue: how to deal with reproductive assets in your will.

Funeral Arrangements (p.19)

This is truly a morbid topic, but ensure someone is aware of any pre-paid or funeral wishes.

Final Comments

This estate organizer is one heck of a homework assignment. But it is one of the most selfless things you can do for your family, especially if you have significant assets or complex financial affairs.

The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.

Please note the blog posts are time sensitive and subject to changes in legislation.

BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 

Obtaining a Clearance Certificate for an Estate

I have written numerous times on this blog about estate issues. I was quite surprised when I realized I had not posted on the issue of obtaining a clearance certificate for an estate. So today, I remedy this omission and discuss when a clearance certificate is required and how you go about obtaining one.

What is the Purpose of a Clearance Certificate?

A clearance certificate provides the following for an executor(s):

• Confirmation that an estate of a deceased person has paid all amounts of tax, interest and penalties it owed at the time the certificate was issued

• Confirmation the legal representative can distribute assets without the risk of being personally responsible for the tax debts of the deceased and estate

Consequently, if as an executor(s) you decide to distribute the assets of the estate without obtaining a clearance certificate, the CRA can hold you personally liable for any unpaid tax debts of the estate.

Do You Have to Obtain a Clearance Certificate?

In a complicated or contentious estate, I would suggest this is not even a consideration. Obtain a certificate. However, where an executor is the sole beneficiary of an estate or the beneficiaries are siblings that get along, the answer is not as clear-cut. I have had estate lawyers suggest a clearance certificate should be obtained, since it is always better to be safe than sorry. On the other hand, I have had estate lawyers suggest that there is no point when there is no reason to feel there are any unpaid tax debts and there is no contention in the estate.

As an executor, you need to understand the estate may have tax exposure to past transactions you may not even be aware of, even if you are sure there are no current debts. For example, the deceased may have missed filing a form such as the T1135 Foreign Verification form for several years that is subject to penalty or claimed the qualifying small business corporation capital gains exemption in the past and it is subsequently audited and denied or transferred property to family that resulted in a deemed disposition and never reported the deemed disposition. These are just a few of many potential tax issues that could result in taxes owing if uncovered or if the CRA audits prior returns.

I suggest being safer than sorry is generally the most prudent route. However, I have seen several estates where the executor(s) decide to not request the certificate because they are the sole beneficiary or do not feel there are any unpaid tax debts.

When Do You Request a Clearance Certificate?

You should request a clearance certificate once you are ready to distribute the remaining funds/assets of the estate. The certificate should only be requested once you have paid all tax debts and filed all applicable personal and T3 (estate returns). The request cannot be filed until you have received notice of assessments for all returns filed, especially the last return filed.

How to Apply

This is what the CRA says is necessary to apply:

For an individual (T1) or trust (T3):

• a completed Form TX19
• a completed Form T1013, Authorizing or Cancelling a Representative, signed by all legal representatives, authorizing an accountant, notary or lawyer, or any other person, to act on your behalf. Also use the form if you want the CRA to send the clearance certificate to an address other than yours
• a detailed list of the assets that the deceased owned on the date he or she died, including all assets he or she held jointly, and all registered retirement savings plans and registered retirement income funds (even if he or she named or designated a beneficiary) and their adjusted cost base and fair market value.

One of the following:

• a complete and signed copy of the taxpayer’s will, including any amendments, renunciations, disclaimers and probate documents that apply. If the taxpayer died intestate (without a will), attach a copy of the document appointing an administrator (for example, the letters of administration or letters of verification issued by a provincial court)
  

• a copy of the trust agreement or document for a living trust

Also include the following documents if they apply to your situation:

• any other documents proving that you are the legal representative

• a copy of the Schedule 3, Capital Gains (or Losses) from the final tax return of the deceased

• a list of all assets transferred to a trust, including (for each asset): a description, the adjusted cost base, and the fair market value

• a statement of how you propose to distribute any holdback or residual amount of property

• the names address and social insurance numbers or account numbers of any beneficiaries of property other than cash

It has been my experience that the statement of how you propose to distribute can be problematic. What I have done in the past is advise the CRA who will report the income for the period from the filing of the last return and the issuance of the clearance certificate. For example, if two brothers are the beneficiaries and there is a $200,000 GIC earning 2% interest, I advise the CRA that each brother will report ½ of the interest on their personal tax returns.

Interim Distributions

If you have been an executor, you will know beneficiaries have an expectation of receiving their share of the estate promptly (a cynic would say: often before the deceased is buried). Thus, often, an executor will make an interim distribution because it appears there will be minimal tax debts or quite frankly as a way to appease the beneficiaries. If you are interested in reading more about this issue, I suggest reading this article on interim distributions by Lynne Butler, an estate lawyer and writer behind the excellent blog, Estate Law Canada.

The Finalization Process

Upon filing the clearance certificate, the CRA will send you an acknowledgement letter (they say within 30 days) of receiving your request for a clearance certificate.

The CRA says “that the assessment can take up to 120 days, assuming you provide all of the necessary documents. However, in certain situations, the CRA may need to do an audit before it issues the clearance certificate”. In my experience, the process often takes much longer, even where an audit is not undertaken.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

The Best of The Blunt Bean Counter - Is a Corporate Executor the Right Choice?

This summer I am re-posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am posting an April, 2011 blog on why you may wish to use a corporate executor, where you do not have a family member or friend capable of the task or you feel conflicts could arise among your family if one or two children are selected as executors.

You Have Been Named an Executor Series

The first blog in my executor series, discussed the concerns the Globe and Mail had in respect of the estate tax system and in particular, some of the issues surrounding the Paul Penna estate. The problems associated with Mr. Penna’s estate, highlight the importance of considering a corporate executor in certain circumstances.

In my second blog, I discussed the duties and responsibilities of an executor. These responsibilities can often overwhelm the appointed executor(s); which again leads back to today’s guest blog on whether a corporate executor is the best choice for estates that will have unsophisticated executors?

Today, in my final installment of the series I have a guest blog by Heni Ashley. Heni is a lawyer with over 20 years experience in the estate and trust industry, who brings a unique perspective to this issue. I thank Heni for her contribution.

Is a Corporate Executor the Right Choice? (By Heni Ashley)

I have read Mark’s two prior blogs and the Penna estate article with great interest. The Penna estate, in my opinion, was just the type of situation where a corporate executor should have been considered.

What exactly is a corporate executor?  Corporate executor services in Canada are available through incorporated trust companies, which are typically subsidiaries of our national banks.

Had Mr. Penna appointed a corporate executor, his bequests would have been carried out and the estate’s finances would have been tracked diligently and accurately.

In my opinion, a corporate executor provides an estate with the following:

1)    Professionalism, knowledge, expertise.  Knowledge in the area of estate, trust and tax law is invaluable, as is expertise in asset gathering and valuation, property management, investing and accounting.

2)    Impartiality.  A corporate executor can manage conflicting interests (i.e. second marriages), difficult personalities and bring an objective, unemotional approach to the estate administration.

3)    Availability.  The corporate executor is always there.  There is no need to worry about an out of town executor, or an executor dying or becoming incapacitated or physically unable to carry out the task. 

4)     Ease of administration.  There is no worry about unduly burdening a family member, friend or associate as the job of an executor can be difficult (depending on the size of the estate and the personalities of the beneficiaries) and time-consuming (depending on the nature of the assets).

5)    Continuity/permanence. A corporate executor can provide the continuity needed for certain family situations such as an ill or incapacitated spouse or minor or disabled children where there is a need for long term trusts and financial care.

6)    Cost efficiency.  The personal executor can charge the same fee as a corporate executor.  Often a fee agreement can be negotiated with a corporate executor at the time that the will is drawn.  Also, a corporate executor often eliminates the need to hire additional outside experts, which results in a cost savings to the estate.

Notwithstanding the above, had the deceased in the Penna case given thought to using a corporate executor, there are a few reasons why he might have decided against it:

1)       Impartiality (which can sometimes be viewed as indifference to family):  Some people are concerned that a corporate executor will be indifferent to the needs of the beneficiaries. This objection, however, can be overcome by jointly appointing a corporate executor together with a personal executor who can shed some light on the personal circumstances of a deceased’s family.  The two executors can then act as a check and balance against each other.  Another way to deal with this is to leave a detailed memo together with the will, explaining to all executors the reasons for certain bequests and discretionary powers (i.e. to help a child get established in business, to see a particular charity get off the ground, to provide the best of care for a sick spouse, etc.)

2)      Knowledge: A testator (the person making a will) may have a knowledgeable professional relative, friend or colleague who is willing to act as an executor (although Mr. Penna thought he had such a person).

3)      Cost: While a personal executor can take the same fee as a corporate executor, in many cases he/she will not take the maximum fee because he/she feels it is excessive (the fee can be as high as 2.5% of the assets coming in and 2.5% of the assets going out as well as a fee on income earned by the estate and a care & management fee).

I would suggest it does not make sense to engage a corporate executor in the following circumstances:

1.     Where the estate is very small,

2.     Where there are only a few well defined beneficiaries,

3.     Where the gifts are all outright (i.e. no long term trusts to be administered), and

4.     Where the assets are all very straightforward (e.g. one or two bank accounts or brokerage accounts, no real estate).

In summary, each situation is as unique as the individual parties involved.  Some beneficiaries are never happy no matter what, whether it is with their bequest, with someone else’s bequest, with the choice of executor, the manner in which the estate is administered …  Often childhood jealousies surface to complicate matters – families can be difficult and the job of an executor is rarely an easy one!

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

Estate Administration - The Importance of Advertising for Creditors

After writing the last two weeks about the Tax On Split Income Rules and the Ontario Minimum Wage Increase, I thought I would try a less controversial topic this week; that being the importance of advertising for creditors.

Over the years, I have written numerous times on the various issues associated with being named an executor, including this laundry list of requirements. Included on this list is the necessity to advertise for any creditors of the estate.

My guest blogger today is Patrick Hartford, who is the founder and managing director of NoticeConnect, which is a platform for publishing and accessing legal notices online to simplify the process of advertising for creditors. Patrick will discuss the importance of advertising for creditors and the risk to an executor if they do not do so.

Please note that while I agree it is important to advertise for creditors, the policy of this blog is to not endorse any specific company, so you will need to do your own research as to whether you engage NoticeConnect or not.

With the legal disclaimer out of the way, I thank Patrick for his blog post on this important, but often neglected estate issue.

Estate Administration - The Importance of Advertising for Creditors 

By Patrick Hartford

The majority of estate trustees in Ontario - both executors and administrators - are not advertising for creditors. This is a problem because trustees who do not publish a notice to creditors risk personal liability.

When someone dies, any outstanding debts of the deceased must be paid before the assets of the estate can be distributed to the beneficiaries. Whatever is leftover after the creditors have been paid can then be inherited by the deceased’s spouse, children, pets, etc.

It is the job of the estate trustee to identify and pay these outstanding debts.

Some debts are easy to identify, particularly if they involve a secured creditor like a mortgage lender. But there are often other debts that the trustee has no way of identifying. They could be old utilities or credit card bills, municipal taxes, or any other type of debt. The likelihood that outstanding debts exist increases if the deceased lived and worked in multiple cities or did business online.

It’s unrealistic to expect a trustee to play detective and track down every possible debt the deceased may have had. Instead, the law says that a trustee should ‘advertise for creditors’. In Ontario, this is governed by section 53 of the Trustee Act. Other provinces have similar legislation.

The trustee publishes a public advertisement, called a ‘notice to creditors’, stating that a deceased’s estate is being administered and any outstanding creditors have a set amount of time (typically 30 days) to come forward with their claims. When this time period expires, the estate will be distributed with regard only to claims that have been filed.

The law says that an estate trustee who advertises for creditors will be protected from liability if a previously unknown creditor comes out of the woodwork after the assets of the estate have been distributed. Conversely, if an estate trustee does not advertise for creditors, an outstanding creditor can sue the trustee personally for the full amount of the debt. There is no statutory limit or cap to this liability.

So why aren’t trustees publishing notices to creditors?

Sometimes because they are confident that the deceased had no outstanding debts that they are unaware of. This can be risky. Estates lawyers will tell you stories about clients who didn’t advertise for creditors, only to be caught by surprise later.

Another reason is the fact that advertising for creditors used to be prohibitively expensive. Notices to creditors used to be published in print newspapers, and publishing ads in multiple cities would easily cost thousands of dollars. While the estate covers this cost, few trustees wanted to spend this much money for print ads that few people would ever read. Fortunately, with the advent of services for publishing notices to creditors online and its acceptance in Superior Court (see this page for various articles and discussions on this case), the cost of advertising for creditors has been dramatically reduced and has restored its efficacy.

If you’re an estate trustee, it’s important to protect yourself from liability. Advertising for creditors will prevent you from having to pay the deceased’s old debts out of your own pocket.

Patrick Hartford, is the founder and managing director of www.NoticeConnect.com a platform for publishing and accessing legal notices online. Over 200 law firms, banks, and legal service organizations in Ontario have trusted NoticeConnect for publishing estate notices to creditors their clients.

The above blog post is for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Readers are advised to seek specific legal advice regarding any specific legal or estate issue.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.