The information below is presented from an accounting perspective and does not constitute legal advice. Estate matters can be complicated, and we recommend that an individual acting in the capacity of an estate executor use this outline in conjunction with obtaining legal advice.
Canadian Estate Executor Responsibilities
• Settle the estate according to the wishes of the deceased
• Manage the settlement to provide maximum benefits to the beneficiaries
• BUT most importantly – Avoid the personal liabilities for underpayment of taxes owed and the sigificant penalties that can be assigned due to late or incomplete filings. It is imperative to contact your Tax Accountants to ensure you understand what needs to be filed and the filing deadlines
Administrative duties of an estate executor
The executor is the person specifically appointed to administer the Will and to ensure the deceased’s final wishes are respected. Following is a list of the various duties of an estate executor. Not all estates need each of these steps in their administration, however this list gives a good indication of the nature of an executor’s responsibilities and the time, efforts and personal attributes required of an estate executor.
Upon the death of the testator, the executor will:
• Locate the last Will and testament of the deceased.
• Consult with a lawyer. This may be the lawyer who drew up the Will; otherwise it may be necessary for the executor to retain a lawyer.
• Make a list of beneficiaries and their addresses.
• Communicate with all persons (including charities and institutions) that are entitled to share in the proceeds of the estate.
Discovery of estate assets and liabilities
• Take steps to ensure continuance of operations of any ongoing business affairs of the deceased, arranging for interim management if necessary.
• Prepare a detailed inventory of the deceased’s assets and liabilities, including cash, securities, jewelry, real estate and other valuables such as contents of safety deposit boxes.
• Have the estate lawyer search the title to all real estate in which the deceased had an interest.
• Determine the value of any additional real estate, such as cottage property, farm, commercial, or investment property. Check leases, mortgages and taxes. Provide for continuing management and insurance of investment properties.
• Locate bank and investment statements and prior year tax returns in order to determine any chequing, savings, securities and retirement accounts held by the deceased. Notify all relevant financial institutions about the death and obtain statements indicating cash balances on deposit and loan balances outstanding at the time of death.
• Locate all insurance policies and notify insurers about the death.
• Notify payers of pensions about the death.
• Apply for Canada Pension Plan death benefits.
• Review insurance coverage on real estate, automobiles and other estate assets. Increase insurance where necessary.
• Determine whether to make a contribution to the deceased’s RRSP within 60 days after the year of death. This matter may require advice from a tax Accountant.
After probate is issued, any assets which have not been bequeathed to a specified beneficiary should be sold and the proceeds should be deposited in a bank account for the Estate.
Cash and Securities:
• Transfer cash balances from bank and investment accounts to the Estate bank account and close the accounts.
• Take possession of securities and register any in the estate trustee’s name, review securities to determine which should be held for distribution to the beneficiaries and which should be sold.
• Sell securities as determined, to pay tax and other liabilities, as well as to provide cash for any bequests.
• Review investments regularly for appropriateness while the estate continues.
• Convert to cash, convey or sell residence(s) and any other real estate property, i.e. the summer cottage, farm and commercial or apartment building(s). If bequeathed as a gift, transfer the property into the beneficiary’s name or as directed.
• Arrange to collect mortgage payments. Arrange for continuing management of assets or sale.
Insurance and Annuities:
• Submit necessary claim forms and supporting documents to life insurance companies and collect proceeds of life insurance and annuity policies.
• Arrange for cancellation of insurance on assets as they are conveyed or sold.
• Submit necessary claim forms and supporting documents to payers of pensions and collect any death benefits receivable.
• Deliver to the heirs all goods and estate assets that have been bequeathed.
• Arrange for the sale of the balance of the personal possessions of the deceased.
• Advertise for creditors in newspapers. Check all claims and pay legitimate debts.
• Cancel all credit and charge cards. Some credit cards have a death benefit feature (the estate trustee should investigate this possibility). As funds become available, discharge any bank or private loans, mortgage payable, or business liabilities and pay any other debts of the estate.
Administration of the estate
• Upon advice of the lawyer, apply to the court for Letters of Probate.
• Pay the necessary probate fee from the estate assets.
• Prepare an income tax return for the portion of the year to the date of death, and for any prior years that have not been filed.
• Prepare a Rights and Things return if it is appropriate.
• Prepare a T3 Estate Trust return if necessary.
• When the CRA has assessed the returns, apply for a Clearance Certificate from the CRA, which will ensure that the executor will not be personally liable for any income taxes of the estate that may be discovered later.
• All returns are date sensitive and you must allow sufficient time for fact finding and preparation time. Failure to file on time will result in penalties and interest.
Tax at death can be a complicated matter in many estates. The executor should seek professional tax advice when proceeding with the preparation and filing of estate income tax in order to take advantage of any available tax savings and minimize tax liability.
Other Duties or Taxes:
If the deceased is a citizen of another country or has property in another country, seek advice from a legal or tax professional in order to determine if there is any foreign tax filing requirement.
In British Columbia, executors of an estate are entitled to a maximum compensation of 5% of the gross aggregate value of the estate for their care, pains, trouble and time spent in their administration.
Please note that the Trustee of the estate is required to withhold and remit Canada Pension Plan contribution and Employment Insurance premiums and issue a T4 “Statement of Remuneration Paid” to report the earnings and taxes withheld by February 28th of the following year. The Canada Revenue Agency (CRA) will assess penalties to a maximum of $2,500 for failure to issue the T4 slip.
Distribution to beneficiaries
• Make distributions to beneficiaries, in keeping with the instructions of the Will. A holdback is prudent if the executor is still waiting for the CRA to issue a clearance certificate.
• Wait for six months for any possible challenges under the Wills and Variations Act.
• Prepare and submit a full accounting of estate administration to beneficiaries where required.
The above information is not intended to be comprehensive. Every estate is different and as such, we recommend that you consult with a lawyer and our office in order to ensure that you receive advice that is specific.
AG Tax LLP Can Help
As implied earlier, for Canadians, there are withholding tax, capital gains and estate tax ramifications related to owning, renting and selling US properties. Handling any of the critical issues incorrectly may result in significant tax problems. The remedy is effective planning and we can help you with that!
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with US and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to US, Canadian, and other international tax laws. We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.