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 - Estate Planning - A Tale of a Father's Selfless Act of Love

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 2012 blog on a father's selfless act of love. That act: getting his estate in order so he did not leave his estate in disarray for his loved ones.

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Lynne Butler, of Estate Law Canada blog fame, had a blog titled “What my father’s death taught me about estate planning." What was interesting about this blog post, is that Lynne essentially got out of the way and just said you have to read this amazing article. I wondered why Lynne had so little to say until I actually read the guest post on the Getting Rich Slowly blog. Essentially, Jody (the guest poster) relayed how her father planned while he was alive, to make her job as an executor as stress free as possible. If there was ever a selfless act of love in a financial sense, this is it.

This blog was of particular interest to me as I have written several blogs on this topic: Where are your Assets, Speak to your Executor-surprise only works for birthday parties, not death and You Have Been Named an Executor Now What. Like Lynne, I was amazed at how much thought Jody’s father put into his estate. This contrasts with the average person, who often does not even inform their executor that they have been named, let alone provide a roadmap that can be followed once they are gone.

In her guest blog, Jody discusses the steps and actions her father undertook while he was alive to minimize the fees associated with administering his estate, and just as importantly, to keep the process as stress-free for his daughter as possible. While I cannot do Jody's guest blog justice (you really should open the link above and read it), the following is a summary of some of the steps her father took to ensure he minimized Jody's stress in administering his estate.

To help assist in administering your estate, you may wish to download the BDO Estate Organizer so that you have a detailed document for your family and/or executor.  You can link to the estate organizer and download the document here.

Professional team

Jody’s dad not only built a team of advisors - a banker, accountant, insurance agent and lawyer - but he also ensured that he introduced his daughter to each of these advisors while he was alive and ensured that she had their contact information. Think about how smart that was. How much easier is it to communicate and work with someone you can put a name and face to?

Fees

Jody’s dad negotiated the estate fees with his lawyer down to 2% from the typical 4-5%. One can easily see why the lawyer accepted the lower fee. Jody’s father was so organized; the estate probably took one-quarter of the time most estates need to settle. Not only did he negotiate the fee, but he also put those fees aside in a separate account.

Joint Accounts

Jody’s father added Jody to his bank accounts, which allowed her to seamlessly pay bills. As Jody is American and there are no probate fees in the U.S., this was not done for probate purposes, but only for easing the administration of the estate for Jody. See my blog on Joint Bank Accounts Documenting your Intention, to understand some of the issues of using joint bank accounts in Canada.

 

Preparing for death

Jody’s father pre-paid his funeral expenses and even had a master binder that included funeral instructions - he told Jody to go to “F” for Funeral in his binder. Jody essentially had nothing to do but follow instructions.

In addition, her father left extra money for miscellaneous expenses that always arise on an estate. The extra money, whether left in a joint accounts or actually just given to a responsible child, is very important in Canada. The banks will typically pay for the funeral expenses and the probate fees, but access to the funds for any other expenses can be problematic until probate is authorized. Consequently setting aside funds so your executor will not need to beg the bank for access to accounts is a great idea.

Executor Fees

When Jody’s father informed her she would be named executor and he offered compensation, she, like many children, declined because she did not feel that she should charge her father.

However, after undertaking the executor’s job, Jody had this to say: “After he passed away and I realized all that it entailed, I found myself thinking that maybe I should have taken him up on that offer. Being the executor of an estate — even a very well-planned estate — took about 10 to 15 hours a week for months. It’s a big job. I found myself resenting my brothers since I was doing it all.”

The above is a very insightful and honest comment and is the reality in many estates. Jody’s father showed even more insight when he disregarded Jody’s protestation on accepting an executor fee as he had arranged to give her 1% extra when his IRA was distributed.

I cannot say it better than Jody

I conclude with one more quote from Jody. “I honestly consider my father’s financial planning to be a selfless act of love. Despite his generosity, I would trade every last cent for ten more minutes with him. When someone you love dies, it’s brutal. Emotionally, and physically. Trust me; you really are in no state to make these types of financial or legal decisions on your own.”

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.

Income Tax Resources

I know this is the best written, wittiest and most informative tax blog you could read, but I figured today I would give the other guys some notice :). Seriously now, here are some other great income tax related resources you may want to check out:

 

Blogs and Websites

Below are some excellent websites and blogs. I am sure there are many more blogs and websites with great information, however, either I am not aware of them or do not access them often; so if you are not listed below, do not send me a hate email.

Tax Tips.ca - This is probably the best tax resource in Canada. This is not a blog in the typical sense, but more of a resource centre.

Moodys Gartner Tax Law - This is one of my favourite tax blogs. Some topics may be a bit technical, but very well written and great info for any tax junkie.

Canadian Tax Resource - Written by Dean Paley, CGA, CFP, who now posts on his own site. The Canadian Tax Resource blog is really a historical resource at this point, as Dean does not blog here anymore. However, the older posts often show up when I search a tax topic.

John Loukidelis Professional Corporation – Written by tax lawyer John Loukidelis, who wrote a long-running blog at his prior law firm. His blogs tend to be a bit technical, but he has some great information for those who are willing to read technical material.

Tax Enforcement Agencies

Canada Revenue Agency - I must say, the CRA does a very good job with their site. There is lots of information and it is usually fairly easy to read. Although, keep in mind; these are the CRA views, which are not necessarily always the view of the courts.

Internal Revenue Service - This site is more technical and not as user friendly as the CRA’s site; but if you have U.S. tax issues, it is a very good resource.

Estate Planning

Estate Law Canada - The person behind this blog is Lynne Butler an estates lawyer. Very readable and informative.

Toronto Estate Law Blog - Written by the estate lawyers at Hull and Hull LLP.

E$tate Debate - Written by various experts in the estate and trust fields.

Tax Treaties

Tax treaties  - A useful site if you want to know the withholding tax rate of foreign sources of income.

Large Accounting and Law Firm Websites

 

The following are links to the tax publications by some of the "big boys' of the accounting and legal world.

BDO
PWC
Deloitte 
EY
KPMG
Dentons
Thorsteinssons LLP

Twitter

Unlike many people, I only follow a small number of people on Twitter. Here are the Twitter handles of the tax people I follow, some already noted above:

1. @moodysgartner - Moodys Gartner Canadian and US tax lawyers and Chartered Accountants discuss tax strategies and tax issues.
2. @JamieGolombek – Managing Director, Tax and Estate Planning at CIBC Private Wealth Management and well known tax columnist for the National Post writes about all things tax & estate.
3. @Xyste – Tax lawyer Greg Ducharme
4. @taxtips.ca - Canadian tax, financial and investing info, tax and other calculators, tables of tax rates/tax credits.
5. @IRSnews -IRS news and guidance for the public, the press and practitioners.
6. @CanRevAgency - Canada Revenue Agency (CRA) administers tax and benefits programs, and ensures compliance with Canada’s tax laws
7. @WayneBewick -U.S. Certified Public Accountant and Chartered Accountant specialising in U.S. and Canadian tax services.
8. @DeanPaleyCGACFP - Accountant & Financial Planner.

Newspapers

The two best known tax columnists are Jamie Golombek with the National Post and Tim Cestnik with the Globe and Mail.

Winners of the 4 CD Audio Set of Tom Deans Every Family's Business

 

The winners of the giveaway are Stephen L. and Michael G. You will be contacted to obtain your mailing information. Thanks to all who entered.

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.

When Spouses Don’t Leave All Their Assets to Each Other - The Income Tax Implications - Part 2

On Monday, I addressed deemed dispositions, automatic spousal rollovers and the reasons behind spouses deciding not to have mirror wills. Today, I look at the income tax liability and liquidation issues that arise when spouses do not leave all their assets to each other.

Tax Liability

The debts of an estate are paid from the residue the estate. This can be problematic where the intention is to leave a certain amount of money to a spouse and the rest to say the children of a first marriage. For example, an RRSP will transfer to your surviving spouse tax free, but the assets left to the estate for the benefit of the children will be subject to tax and the children will only get the net proceeds. This result is often not the intention of a parent who ignores the tax aspect of their legacy.

Often wills leave specific assets to certain beneficiaries and the residual of the estate to others. For example, if a son is the beneficiary of a specific asset, let's use a cottage, the son gets the cottage and the estate has the tax liability for the deemed disposition of the cottage. Again, that is not the intention of the deceased who assumes his son will be responsible for the tax liability on the cottage.

Lynne Butler of the blog Estate Law Canada says “It's possible to draft a will to state that the person receiving an asset should also pay the tax bill associated with the asset, but almost nobody ever does that. I think more people would do that if they were only aware that it was possible.”

In order to ensure you don’t “stick” your estate with a large tax liability, you may wish to consider Lynne’s advice when drafting any will, but especially where spouses have different wishes.

Liquid vs Illiquid Assets

As discussed on Monday, the deemed disposition rule can result in the estate being left with a large income tax liability; the ability to pay that liability is a function of the liquidity of the remaining assets. Where spouses have different wishes on death, your estate planning needs to consider if you are leaving the estate and/or your spouse with enough liquid assets to pay the deemed income tax liability.

For example, say Sue and her spouse Edward have equal ownership in a rental property. But Sue wants to leave her estate to her children from her first marriage while Edward wants to do likewise to his children from his first marriage. If Sue were to pass away first, there would be a deemed disposition of her 50% ownership in the rental property. Because much of Sue’s wealth is tied up in the rental property, it may be problematic for the estate to pay the income tax liability on her deemed disposition without liquidating the real estate to pay the income tax liability and Edward may not be amenable to doing such.

In situations such as these, where spouses have different wishes, they need to consider ways their estate can pay their final tax liability without a forced liquidation of assets. One possible solution is the use of insurance. Many people purchase insurance to cover their anticipated income tax liability on their death. Another alternative where there are significant liquid assets is to ensure the estate always maintains enough cash to cover any potential income tax liability on death.

Plan

Where spouses have different wishes upon death, the income tax consequences can get ugly. While in good health, spouses either independently or jointly, need to review these consequences with their accountant(s) or lawyer(s) to ensure they have considered the possible consequences and have a plan.

Next week, I will continue with this somewhat morbid theme and post a two-part guest blog by Katy Basi on "qualifying spousal trusts". Katy will discuss how they work and why you would consider using them. Katy is back by popular demand after guest posting on New Will Provisions for the 21st Century in respect of RESPs and Digital Assets.

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. Please note the blog post is time sensitive and subject to changes in legislation or law.

Make Things Easier for Your Family and Executor(s) – Designate Personal Effects in Your Will

In March of 2011, I wrote a blog post titled Personal Use Property – Taxable even if the Picasso Walks out the Door. The blog discussed the taxation of personal use property and noted how many parents often neglect to deal with their art, jewelry, collectibles and sentimental personal effects in their wills. These omissions may be either inadvertent, or on purpose, to avoid paying income tax and/or probate tax on the personal use property. The ramifications of this neglect are potentially twofold:

1. Parents, who take a leap of faith believing that their children will sort out the ownership of these assets in a detached and non-emotional manner, may be creating unnecessary dissension amongst their children.
2. Parents put their executor(s), who are often one or more of their children, in a precarious position, with respect to their liability for probate and income tax of the estate.

Ensuring an Orderly Distribution of Personal Property

Lynne Butler, an Estate Lawyer and Senior Will Planner for Scotia Private Client Group, and the writer behind the excellent blog Estate Law Canada, had this to say about personal effects: “My experience over the years has been that more estate fights happen over personal items of the deceased than happen over money. Sure we all like money but it's the personal items that have the sentimental value".

So how can parents mitigate the potential for a family fight? In three words: inventory and document. Parents need to undertake a detailed review of all personal items from art and antiques to jewelry to great grandma's tea set and ensure these items are reflected in their wills. Where there are significant variations in value for items such as art, antiques and jewelry, parents can choose to ignore the valuation issue and just leave those personal items to the child they wish. The other option they have is to equalize these disparities in value in their will through cash or other means. For less valuable items with sentimental value, the will should be as detailed as possible. The key is to ensure you minimize the amount of unallocated personal effects not included in your will.

Don't Leave Your Executor(s) in a Precarious Position

In November, 2011, I wrote a blog post titled “Ontario Probate – You may want to plan to Die in 2012 in which I detailed how changes to the probate rules, known in Ontario as the Estate Administration Tax (“EAT”) will now allow Ontario estate auditors four years from the date the EAT is payable to assess or reassess the tax. The consequence of this change is that executors will now have to be extremely careful in distributing estate assets.

I have been informed that where executors are diligent in their duty, they will only be responsible for any EAT assessment or reassessment in their representative capacity. However, most lawyers are still confounded as to whom Ontario will go after if the assets have already been distributed. The general consensus appears to be the beneficiaries will be held liable, but some commentators have suggested that because the issue is far from clear, executors may want to hold back the final distribution for four years, a very impractical solution.

Where assets are undervalued for EAT purposes, or where a Picasso grows legs that allow it to mysteriously walk out the door, executors will potentially have liability and penalty concerns. Parents in all provinces should understand that by not fully documenting their personal effects in their wills, they may be putting their executor or co-executors in an untenable position.

Personal Effects not Listed in the Will

So what does an executor or co-executors do when the last surviving parent passes away and they have not addressed the distribution of all their personal effects in their will? How do executors ensure siblings or relatives of the deceased don't help themselves to these personal assets as has been known to occur on more than one occasion and how do they distribute these assets without creating a family war?

Here are some suggestions:

1. As soon as possible, change the locks on the deceased’s home and ensure all assets are secured in the home. Valuable assets should be put into the deceased’s safety deposit box, if the bank allows such, or put into a new estate safety deposit box
2. Call a meeting of the beneficiaries and make it clear to them that they are not to remove any assets from the home and set out your intended plan of distribution of the personal effects.
3. Inventory and catalog all assets.
4. Get rid of the “junk”. We all accumulate old clothes, furniture etc. Weed out the crap and inform the beneficiaries they should see if there is anything they want or these effects will be donated, or removed by a Junk Removal service.
5. After you have had time to ensure everything has been accounted for and the estate is starting to move forward, distribute the assets that were noted in the will in accordance with the deceased’s instructions.
6. Lastly, comes the hardest part. How do you distribute the deceased’s personal effects that have not been itemized in their will? I have read, heard or seen the following possibilities: 
   
   a) For large valuable assets, attach values and attempt to distribute proportionately, if the assets allow for proportional distribution. First pick could be determined by draw and the person choosing last would then pick first the second time around. If the assets are disproportional, you can auction off the assets for a proposed value. If the value received by one beneficiary exceeds that of another beneficiary, the excess value received can be equalized with cash they have received from the estate or their own funds.
   
   b) For less valuable assets and sentimental assets, see if you can work something out with the family and/or beneficiaries. The beneficiaries can rank the assets one to ten and the assets are then allocated to the beneficiary with the highest ranking of each asset. Alternatively, a lottery can be used or any other method the beneficiaries can agree upon. You just want to distribute assets as fairly as possible while trying to minimize any issues between the beneficiaries.
   
   Parents need to be cognizant of the precarious position they may leave their executor(s) in where they do not itemize and allocate as many of their personal effects as possible in their will. For personal items not listed in the will, executor(s) need to secure, inventory and organize these personal effects and create a plan for distribution of such assets.

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.

Estate Planning- A Tale of a Fathers Selfless Act of Love

When I wrote my blog post for My 7 Links Project, I struggled with "the most beautiful post" link. Money and beauty are often diametrically opposed. However, thanks to Lynne Butler of the Estate Law Canada blog, I now know what a beautiful financial post would read like.

A month or so back, Lynne had a blog titled “What my father’s death taught me about estate planning”. What was interesting about this blog post, is that Lynne essentially got out of the way and just said you have to read this amazing article. I wondered why Lynne had so little to say until I actually read the guest post on the Getting Rich Slowly blog. Essentially, Jody (the guest poster) relayed how her father planned while he was alive, to make her job as an executor as stress free as possible. If there was ever a selfless act of love in a financial sense, this is it.

This blog was of particular interest to me as I have written several blogs on this topic, Where are your Assets, Speak to your Executor-surprise only works for birthday parties, not death and You Have Been Named an Executor Now What. Like Lynne, I was amazed at how much thought Jody’s father put into his estate. This contrasts with the average person who often does not even inform their executor that they have been named, let alone provide a roadmap that can be followed once they are gone.

In her guest blog, Jody relayed the following things her father did while he was alive to minimize the fees associated with administering his estate, and just as importantly, to keep the process as stress-free for his daughter as possible. While I cannot do Jody's guest blog justice (you really should open the link above and read it), the following is a summary of some of the steps her father took to ensure he minimized Jody's stress in administering his estate.

Professional team

Jody’s dad not only built a team of advisors, a banker, accountant, insurance agent and lawyer, but he ensured he introduced his daughter to each of these advisors while he was alive and ensured that she had their contact information. Think about how smart that was. How much easier is it to communicate and work with someone you can put a name and face to?

Fees

Jody’s dad negotiated the estate fees with his lawyer down to 2% from the typical 4-5%. One can easily see why the lawyer accepted the lower fee. Jody’s father was so organized; the estate probably took one-quarter of the time most estates need to settle. Not only did he negotiate the fee, but he put those fees aside in a separate account.

Joint Accounts

Jody’s father added Jody to his bank accounts which allowed her to seamlessly pay bills. As Jody is American and there are no probate fees in the U.S., this was not done for probate purposes, but only for easing the administration of the estate for Jody. See my blog on Joint Bank Accounts, Documenting your Intention to understand some of the issues of using joint bank accounts in Canada.

 

Preparing for death

Jody’s father pre-paid his funeral expenses and even had a master binder that included funeral instructions - he told Jody to go to “F” for Funeral in his binder. Jody essentially had nothing to do but follow instructions.

In addition, her father left extra money for miscellaneous expenses that always arise on an estate. The extra money, whether left in a joint accounts or actually just given to a responsible child, is very important in Canada. The banks will typically pay for the funeral expenses and the probate fees, but access to the funds for any other expenses can be problematic until probate is authorized. Consequently setting aside funds so your executor will not need to beg the bank for access to accounts is a great idea.

Executor Fees

When Jody’s father informed her she would be named executor and he offered compensation, she, like many children, declined because she did not feel that she should charge her father.

However, after undertaking the executor’s job, Jody had this to say “After he passed away and I realized all that it entailed, I found myself thinking that maybe I should have taken him up on that offer. Being the executor of an estate — even a very well-planned estate — took about 10 to 15 hours a week for months. It’s a big job. I found myself resenting my brothers since I was doing it all.”

The above is a very insightful and honest comment and is the reality in many estates. Jody’s father showed even more insight when he disregarded Jody’s protestation on accepting an executor fee as he had arranged to give her 1% extra when his IRA was distributed.

I Cannot say it better than Jody

I conclude with one more quote from Jody. “I honestly consider my father’s financial planning to be a selfless act of love. Despite his generosity, I would trade every last cent for ten more minutes with him. When someone you love dies, it’s brutal. Emotionally, and physically. Trust me; you really are in no state to make these types of financial or legal decisions on your own”

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.