When someone passes away, the estate trustee holds the responsibility of carrying out the terms of their will or codicil. In circumstances where the deceased did not make a will, then the estate trustee is responsible for administering the estate in line with relevant governing legislation (the Succession Law Reform Act (the “SLRA”)).
Estate trustees are legally responsible for the proper payment, management and distribution of debts, taxes and assets left behind by the deceased. This article focuses on areas where estate trustees commonly find themselves liable during this process.
What is an estate trustee (executor)?
Usually, when someone writes a will, they will choose someone to be named as their estate trustee, sometimes also called an executor. If the deceased did not leave a valid will—or in cases where the appointed person is not willing or able to fulfil the role—then a Court application must be made to appoint an estate trustee.
The responsibilities of an estate trustee include collecting and managing the assets, paying debts and taxes, and distributing the remaining assets to the person/s set to receive an inheritance within the will (beneficiaries). With regards to deciding how the estate is managed, the estate trustee is ultimately accountable to the beneficiaries.
It’s important to think about whether you’re ready to be an estate trustee, as the associated responsibilities can be complex. There is also the potential for liability, meaning you are responsible by law for proper management of the estate. Some key areas of liability include:
- gathering and managing the estate’s assets in a thorough and timely manner
- actively identifying and paying off any debts before distributing the remaining assets to the beneficiaries
- paying final taxes on behalf of the deceased before distributing the remaining assets to the beneficiaries
- consideration of The Income Tax Act
- determining, and distributing to, the beneficiaries
- ensuring authorization by the will or the courts before purchasing any of the estate’s assets
- consideration of The Family Law Act
- consideration of dependent support claims
Where there is more than one estate trustee, each individual is equally responsible for the administration of the estate—and any issues that arise from this— which is also known as joint or several liability.
Gathering and managing the assets
Estate trustees are responsible for gathering and managing the deceased’s assets, usually with the help of a lawyer. An important part of this process is the ascertainment of assets, meaning that the estate trustee must take all reasonable steps to make sure that no assets are missed. This is particularly important if there is any reason to think there may be unknown or unidentified assets.
Steps to ascertaining assets include:
- contacting relevant financial bodies to determine whether the deceased had assets there at the time of death
- carrying out a search in the place that the deceased lived or carried out their business, to identify whether themselves or their corporations owned any real estate there
- investigating the home/s of the deceased for any valuable property, which may include keys to safe-deposits
- promptly collecting outstanding debts owed to the deceased
- finding out whether the deceased had any genetic materials stored, and making provisions for the intended use of these materials as set out by the deceased, including any heirs that may result from these materials
- cancelling any outgoing expenses—such as memberships, or similar affiliations—that would incur unnecessary expenses to the estate
The deceased’s assets should be identified and protected in a thorough and timely manner. Failure to do so could have consequences; such as reduced compensation for the estate trustee (in the event of assets that remain undiscovered) or liability (in the event of diminished value of assets). For example, if an asset is later discovered, and is found to have reduced in value because the estate trustee failed to act promptly, then the estate trustee may be liable. Examples include an investment failing, collapsed business operations, or uncollected rent that is later unrecoverable.
Identifying and paying debts
Before paying beneficiaries, any creditors (to which the deceased is legitimately indebted) are first entitled to payment. If the estate trustee distributes assets before advertising for creditors, they are personally liable to any creditors that are identified at a later date (to the extent of the lesser of the debts owed to such creditors and the value of the estate that was distributed).
To avoid this, estate trustees often place advertisements in newspapers or online. Print advertising can be costly—exceeding totals of $1,500, dependent on size and circulation—whereas online costs are usually much lower.
If the estate trustee is certain that the deceased had no debts, or at least, very minimal debts, then they should avoid the cost of advertising for creditors. In this case, they can opt to request indemnity (security against legal liability) from the beneficiaries, should any claims arise from unknown legitimate creditors.
Paying final taxes
The “terminal” tax return (covering the period from January 1 prior to the deceased’s death until and including the date of death) must be filed with the Canada Revenue Agency (the “CRA”) within a specific timeframe.
To report all income attributable to the estate, T3 trust income tax and information returns must be documented from the date of death until completion of the administration of the estate.
If the estate trustee distributes the funds before they have gained a final clearance certificate from the CRA, then they are personally liable for any unpaid taxes, interest and penalties (to the extent of the lesser of such tax liability, and the value of the distributed assets). Again, the estate trustee can instead request indemnification (protection) from the beneficiaries against any income tax liability. However, this process can often be extremely lengthy, and the indemnity is to the extent of the beneficiaries proportionate share of the estate.
The Income Tax Act
The elections and allocations allowed under the Income Tax Act can lead to substantial tax savings. Estate trustees should consider retaining an accountant to provide tax advice, as failure to secure available savings could lead to the estate trustee being financially responsible for those losses.
Determining, and distributing to, beneficiaries
If the will was made after March 31st, 1978, then the terms “child”, “children” and “issue” all include children born outside of marriage (unless the will specifies otherwise). Unless specified otherwise, the estate trustee should make all reasonable inquiries to identify any such children before any funds are distributed. As of 2017, this includes any children conceived posthumously as a result of stored genetic materials.
Funds should not be delivered or paid to beneficiaries under the age of 18 unless expressly authorized by the will. This is because minors are unable to give a valid receipt. Funds should not be delivered to the minor’s parents or relatives either, unless given permission within the will, or by a court.
The final distribution of the estate’s assets should only be carried out after the estate trustee has provided an accounting of the administration of the estate to all beneficiaries, and has received their approval of the accounting. If a beneficiary cannot, or will not, provide approval, then the estate trustee has to give a detailed accounting to the courts in order to be discharged of their responsibilities.
Purchasing estate assets
Unless expressly authorized by the will or a court, then the estate trustee must not purchase any estate assets. Without this permission, any purchases may be discounted. Alternatively, the estate trustee may need to account to the beneficiaries for their profits in purchasing the estate.
Family Law Act
According to The Family Law Act (the “Act”), in the event of the death of a spouse, the surviving spouse is entitled to at least half of the aggregate net value of the wealth acquired by both spouses during the marriage.
In some cases, the surviving spouse may need to choose whether they receive the benefits as set out within the will, or whether they will take their entitlement under the Act. They must decide within six months after the death of the deceased, and until that time frame expires, no distributions should be made without the consent of the spouse or Court order.
This issue is particularly important to consider any time a surviving spouse is left less in the will than they would be entitled to under the Act. Usually, the spouse will choose to collect the full amount of their entitlement by defaulting to the Act.
Dependant support claims
Under the SLRA, certain relatives of the deceased—including a spouse, a common-law spouse, a former spouse, children, grandchildren, parents and siblings—can bring a claim against the estate asserting that they have not been “adequately provided for” by the deceased. As of 2017, this also includes children conceived posthumously as a result of stored genetic material, if certain conditions are met.
These claims usually need to be brought forward within six months of a Certificate of Appointment of Estate Trustee. If there is any possibility that a support claim will be brought forward, then it is extremely important that the estate’s assets are not distributed.
Taking on the position of estate trustee is a decision that should not be taken lightly. The responsibilities are complex, time-consuming, and fraught with potential liabilities. However, with exemplary record-keeping and sound legal advice, a willing participant can successfully complete the administration of the estate. Proper guidance and advice are invaluable to this process, and estate trustees should strongly consider seeking assistance from administration lawyers, investment advisors and accountants. Contact us to find out how we can help you to smoothly execute your responsibilities as an estate trustee.