All About Estate Administration
After you pass away, there are certain procedures that follow, regardless of whether you have a will or not. It can be confusing to know what your family or executor would actually do after you pass away, so this article covers everything there is to know about the administration (closing up) of your estate.
You can share this article with your executor or family if they have questions about what this process involves, or it’s a good reference point if you’ve been named as an executor in someone’s will.
What are the steps after I pass away?
Even if one has a simple situation, it can take 12-18 months to wrap up their estate. It’s a lengthy process that includes the following steps:
- Funeral planning and burial arrangements
- Locating the will - this could be by searching the home, or by performing a search on CanadaWillRegistry.org (or via a provincial registry if you’re in Quebec or BC)
- Appointment of executor (if the person doesn’t have a will, an “administrator” will be appointed by the court - it’s essentially the same role)
- Application for grant of probate if necessary (more on this later)
- Creation of an inventory of assets/liabilities so the executor knows all outstanding debts, knows the value of assets, and therefore can finalize the value of the estate - this will involve checking credit card statements, waiting for mail to come in, and contacting family to create an accurate list
- Preparation of a list of beneficiaries, both so the executor can communicate with them throughout the process, and so they can receive the gifts they’re entitled to
- Selling of assets - this could include a house, jewelry, investments, or other assets
- Payment of outstanding liabilities - this includes paying debts, paying probate fees (if applicable), and paying the final tax return with the CRA
- Payment of fees associated with the administration of the estate - these could include funeral costs, professional fees, or other eligible fees incurred by your executor
- Distribution of any specific gifts and bequests - distributing gifts left to specific people or organizations - for example a cash gift to a charity
- Distribution of residue - once all taxes/debts/fees have been paid and specific gifts have been distributed, the last step is to distribute the residue - the remaining assets - to beneficiaries, either according to their will, or according to provincial intestacy laws (the laws that govern how assets are distributed in the event that someone dies without a will)
The role of executor is time-consuming and can involve complex financial requirements, not to mention it requires communicating with debtors, beneficiaries, and many others. Read our guide to executors for more about what to consider when appointing this role.
Do I have to pay taxes after I pass away?
Death and taxes are the two inevitabilities in life, so it’s no surprise you have to deal with taxes even after you pass away. The good news is there is no inheritance tax in Canada, which means that any taxes should have been paid by the time the money or assets get to your beneficiaries, and your beneficiaries don’t need to add your inheritance to income tax returns. There are two main types of tax that your estate will incur after you pass away: your final income tax return with the CRA, and probate fees, which are otherwise known as estate administration taxes (if your estate requires probate, there is tax on the estate assets as part of this process - for more about probate and when it’s required, read our guide to probate). Your executor will be in charge of paying your final tax bill, and paying any probate fees associated with the estate.
What is probate?
Probate is the process of accepting a will in the courts and appointing an executor, and is required for most wills. It is initiated by the will’s named executor/trustee, or their legal representative, “applying for a grant of probate” to the applicable provincial or territorial court system. Probate fees vary widely by province, and we’ve outlined the fees in each province in the article linked above.
Read more about probate in our article “All About Probate”.
What if I have debts on my estate?
Before the estate can be distributed, it is the executor’s responsibility to identify all debts you might owe and arrange for their proper credit. The executor is required to post a public notice (called a “notice to creditors”) during probate to notify creditors of your death so that creditors may claim outstanding debts - they can do that online via NoticeConnect. If a notice to creditors is not posted, a creditor can make a claim against the estate and the executor may be required to personally pay any amounts owing. With NoticeConnect - one of our partners and the company behind CanadaWillRegistry.org - executors can publish a notice to creditors in less than 5 minutes to protect themselves from this liability.
What happens if my debts exceed my assets?
Debts must be paid before beneficiaries have entitlement to gifts. If there are insufficient funds to pay creditors, creditors are paid in order of priority.
If there are sufficient funds to pay creditors but not to satisfy the gifts in full, then some of the gifts will have to be paid out proportionally. The primary fund to pay any debts is the residue of the estate (what’s remaining after debts/taxes/specific gifts), then you will look to the general gifts, and then finally to specific gifts.
It is important to note that the current laws in Canada state that you cannot pass on personal debt and therefore if your estate cannot fully pay off outstanding debts after you pass, the fiduciary responsibility does not fall on a spouse or other family members. In the event that debts exceed assets, the estate is said to be insolvent, and steps will be taken to work with creditors, or potentially claim bankruptcy.
It’s important to be mindful of debt or money owed through joint or co-signed accounts, since those liabilities do still belong to the surviving owner. For greater clarity on this subject, you may wish to speak to a financial advisor and review the terms of your debts and jointly-held assets and accounts.
After debts are paid, in what order will beneficiaries receive their gifts?
Once debts are paid, specific gifts are distributed to named beneficiaries. A specific gift is a particular item or amount of money that you leave to a beneficiary in your will. Examples include:
- Moveable possessions like a car, jewelry, furniture, electronics, clothing
- A business
- Money held in a specific bank account
- A home or real estate property
It may take longer for some specific gifts to be distributed than others. For example, an executor would need to change the title on a piece of property or a vehicle before handing it over to the beneficiary. This may take more time than distributing a gift like a painting or piece of jewelry. General gifts are distributed following specific gifts.
Read more in our article about specific gifts.
Is there anything else my executor needs to file?
For Ontario residents, anyone who receives a certificate of appointment of estate trustee – whether you were named the executor in the will or appointed as an administrator for someone who passed away without a will – now has the additional obligation of completing and filing an Estate Information Return with the Ontario Ministry of Finance. The initial information must be filed within 90 days of receipt of a certificate of appointment of estate trustee. This additional requirement of having to complete and file the Return has increased the burden on the estate trustee, which is already a very time-consuming position, as well as the costs associated with the administration of an estate. The motivation behind the new requirement is likely to ensure that all necessary estate administration taxes have been paid.
What if my executor needs help with this process?
Many people who are appointed executor of an estate are performing this role for the first time, and it can be difficult to navigate. There are several options that can assist with the process:
- Appoint a corporate executor or co-executor in your will - for example a trust company. They can either handle the entire estate administration, or work with a family member you appoint as co-executor. Willful does not currently support the addition of corporate executors
- Hire a professional to assist with estate administration - if you appoint a first-time executor, or someone who just wants/needs help throughout the process, they can hire a lawyer, consultant, or trust company to assist with the process, and this would be an expense of the estate
If you have questions about the role of an executor, or you are the executor of an estate and you need assistance, visit our partners at ExecutorDepot.com.