ESTATE ADMINISTRATION INFORMATION
The following information is provided to assist you in the administration of an Estate. From past experience, we have found that a short summary of the Estate Trustee’s obligations is helpful both as a reminder and a checklist as the Estate administration proceeds. It may be that by the time you receive this summary, some or many of the early steps in the Estate administration will have been completed.
An Executor(now known as the “ Estate Trustee”) of a Will is required by several statutes including the Income Tax Act to take control of the Estate assets and not distribute same until all debts (including income taxes) are paid. Thereafter, a distribution can be made to the specific and residual beneficiaries. We will expand upon these obligations later in this letter. Initially however the Estate Trustee is obligated to advise the various pension payors and asset holders (banks/trust companies/securities brokers and insurance carriers) of the deceased’s death.
If applicable, the Government of Canada as payor of the Canada Pension Plan, Old Age Security and Superannuation pensions must be notified of the deceased’s death. This can be initiated by a telephone call with a covering letter to follow. A photocopy of the deceased’s Death Certificate from the funeral home normally accompanies the letter. Private pension administrators often have different requirements but telephone and letter contact with them will begin the process. Normally, the deceased and/or his estate is entitled to the pension payment made during the month of death (this is the case of Canada Pension Plan and Old Age Security payments) but depending on the time of the month, or delay in reporting the deceased’s death, there may be a repayment of one or more pension amounts to the issuer.
The deceased’s bank(s) should be notified of the death. Each bank will normally require a notarial copy of the deceased’s Will as well as a copy of the Funeral Director’s Death Certificate. Once notified, the deceased’s bank will not allow the Estate Trustee to withdraw monies from the deceased’s account other than for payment of the funeral/burial costs, Estate Administration Tax (“probate fees”), and other necessary expenses (e.g. mortgage payments; property taxes; utility charges). In limited circumstances, the deceased’s bank may allow the Estate Trustee to remove funds if the bank obtains the Estate Trustee’s indemnity (personal guarantee) to protect the bank if it should later be found that the Estate Trustee had no right to act on behalf of the deceased.
The Estate Trustee should open up an “Estate Account” in one of the deceased’s banks to allow deposits of the various pension/benefit’s cheques until Certificate of Appointment are obtained.
Bank accounts that are in the joint names of the deceased and a third party are not frozen and generally become the property of the surviving joint owner upon a copy of the Death Certificate being filed with the bank.
Real estate which is owned jointly by the deceased and another person can be transferred solely to the surviving joint owner upon an application made to the Land Registrar of the Land Titles Office where the property is located. Property registered solely in the name of the deceased must be transferred to the estate trustee to permit the property to be sold or disposed of according to the terms of the Will.
Other Assets - Bonds, Stocks, Mortgages, etc.
The Estate Trustee should notify the custodian/issuers of any bonds, stocks or mortgages held by the deceased. Each issuer/carrier has different document requirements before such assets can be transferred in accordance with the deceased’s Will. If such assets are owned jointly by the deceased and a third party, the document requirements are normally less. In almost every case other than joint ownership, such assets will not be transferred by the issuer/custodian until a Certificate of Appointment is obtained.
The carrier of any life insurance held by the deceased should be notified. Again, the documentation requirement is relatively extensive and very often includes a Proof of Death form to be completed by the attending physician or the doctor that signed the deceased’s Death Certificate.
Certificate of Appointment of Estate Trustee with a Will
A Certificate of Appointment (commonly known as “Probate”) is the confirmation by the Ontario Superior Court of Justice of the validity of the Last Will of the deceased and the appointment of the person(s) named in the Will as the deceased’s Estate Trustee(s). Before this appointment is made, the Court is mandated to conduct a formal search for other applications for a Certificate of Appointment. Once the appointment is made, the various financial and other institutions, issuers, custodians and insurers can be satisfied the person who is named in the Certificate of Appointment as the deceased’s Estate Trustee has the authority to deal with the deceased’s assets. As such, the institution, etc. is protected from any claims by third parties that may arise as a result of the Estate Trustee’s improper disposition, use or management of the deceased’s Estate.
Estate Administration Tax
Estate Administration Tax (“EAT”), commonly referred to as “probate fees”, is payable upon submission to the Court of an Application for a Certificate of Appointment of Estate Trustee. The tax is calculated at 0.05% on the first $50,000 of asset value and 1.5% on the value above $50,000. Jointly held assets which pass to a co-owner by survivorship and assets such as life insurance and RRSP’s/RRIF’s in which one or more persons are the designated beneficiary are not included in the calculation of EAT. Also, real estate located outside Ontario is exempt.
Consolidation of Assets
Once the Certificate of Appointment is obtained, the Estate Trustee must advise the various institutions, issuers, custodians and insurers. This is done by providing a notarial copy of the Certificate of Appointment to each such entity. Often this accompanies the various other documents that are required to transfer the assets to the name of the Estate or to specified beneficiaries according to the terms of the Will. The Estate Trustee is mandated to gather in or consolidate in the name of the Estate all of the assets that the deceased owned as his/her death with the exception of assets owned jointly with third parties or assets which pass by beneficiary designation (e.g. life insurance; RRSP’s; RRIF’s).
At this stage, the Estate Trustee must have completed a thorough search for all of the deceased’s assets so that the Estate Trustee can account to both the beneficiaries as well as the deceased’s creditors as to the original assets and the disposition of same.
Payment of Debts and Income Taxes
Once the Estate Trustee has obtained Certificate of Appointment, he/she can activate the Estate bank account that was previously established shortly after the deceased’s death. The Estate Trustee must liquidate sufficient of the deceased’s assets to pay all of the deceased’s debts (including those prior to death, arising at the deceased’s death and incurred following the deceased’s death). Any distribution of monies or other assets by the Estate Trustee either to the beneficiaries or to the Estate Trustee himself/herself without satisfaction or payment of all of the Estate debts will make the Estate Trustee personally responsible for such debts.
The Estate Trustee is responsible for filing the deceased’s “terminal return” (the income tax return for the period January 1 in the year of death through to the date of death). The terminal return must be filed with Canada Revenue Agency (“CRA”) no later than the later of April 30 in the year following the deceased’s death or six months following the deceased’s death. The Income Tax Act provides that on death, the deceased is deemed to have sold all of his/her assets at fair market value. If the Estate assets are primarily debt instruments (bonds, GICs, bank accounts, etc.) then there will be little effect upon the income normally reported by the deceased during his/her lifetime. If on the other hand the deceased owned equities (e.g. stocks; mutual funds) and/or real property (other than a principal residence) then these assets will be deemed to have been sold at the deceased’s death at fair market value and capital gains taxes will arise (unless the Will provides for transfer to the surviving spouse in which case the tax can be deferred until the surviving spouse dies). This is why it is important that there not be any distribution to beneficiaries until the deceased’s income tax liability is determined and adequate provision for payment is made.
Income will accrue from the date of death to the date of final distribution of the Estate. Depending on the length of time that it takes before the final distribution, the Estate Trustee should decide either to file a trust return for the period of time following the date of death to the date of final distribution or allocate the income for the period subsequent to the date of death among the beneficiaries entitled to receive such income for their proportionate share of the accrued income following the date of death.
We strongly recommend that the deceased’s terminal income tax return be prepared by a chartered accountant as there are various elections and possible additional income tax returns which may be outside the expertise of other tax preparers.
The only assurance the Estate Trustee can have that CRA is satisfied that all income taxes have been paid by the deceased and the deceased’s Estate is to obtain from CRA a Clearance Certificate. The Clearance Certificate can only be applied for after all Notices of Assessment have been obtained from CRA regarding the deceased’s terminal return and any subsequent T-3 Trust returns and all taxes assessed have been paid in full. If the Estate is distributed before the Clearance Certificate(s) are received and monies are later found owing by CRA, the Estate Trustee will be personally responsible for payment of the taxes.
Once the Estate Trustee is satisfied that the debts have either been paid or there are sufficient funds to pay the debts including the income taxes of the deceased, he/she may proceed to pay the specific bequests (specific dollar amounts to specific individuals). Thereafter, once the deceased’s terminal income tax return is prepared and filed and the potential liability for income taxes is determined, a partial distribution of the residue of the Estate may be disbursed in accordance with the deceased’s Will. A further portion of the Estate is then disbursed after the Notice of Assessment is received from CRA confirming the income tax assessed. The final distribution is made after the Estate Trustee has received the Clearance Certificate from CRA and all administrative costs, including executor compensation, have been paid.
Releases and Accounting
The Estate Trustee is required to provide to the residuary beneficiaries an accounting of the Estate assets including all receipts and expenditures (both capital and income) through to the final distribution. The Estate Trustee should receive from each specific and residuary beneficiary prior to or at the same time as payment is made a release of that beneficiary’s entitlement in order to ensure that the Estate Trustee does not later have a claim brought against him/her by a beneficiary after the Estate assets have been distributed.
If one or more beneficiaries are unable or unwilling to provide a release, the Estate Trustee must apply to the Ontario Superior Court of Justice for a Court Order approving the Estate Trustee’s accounting and any compensation requested.
Beneficiaries Under 18
If any of the specific or residual beneficiaries are under the age of majority (18 years), notice of the beneficiary’s interest must be given to the Children’s Lawyer, a branch of the Ontario Ministry of the Attorney General, who must approve any arrangements for payment (e.g. holding funds in trust until the beneficiary reaches 18) and provide the requisite release.
Estate Trustee Compensation
Persons acting as Estate Trustee are entitled to compensation upon completion calculated as follows:
- 2.5% of capital and income receipts
- 2.5% of capital and income disbursements
- 2/5th’s of 1% annually for care and management of assets under administration
This formula applies to Estates of average complexity and is subject to Court review and approval at the request of a beneficiary. If there is more than one (1) Estate Trustee, the compensation is shared.
The administration of the Estate involves various tasks to be completed, some of which have been assigned to the Estate Trustee(s) and others to the lawyer assisting the Estate Trustee(s). The assignment of these tasks will be specified in a letter to be provided separately to the Estate Trustee(s).
If you have any questions concerning the foregoing, please contact the undersigned.