Settling an estate

When a person dies they may leave behind belongings, real estate and other assets which is called their estate. An estate also includes the liabilities of the deceased. Settling an estate is the responsibility of the executor, also known as the estate trustee in Ontario or the liquidator in Quebec. The term ‘succession’ is used instead of ‘estate’ in the Quebec legislation.

The details of estate settlement vary by province, and there is a lot to know. So if you are the executor, you are strongly encouraged to seek legal and tax advice from lawyers (or notaries in Quebec) and tax accountants. Also consult your provincial government website, for example start with:
 * Alberta, What to do when someone dies
 * British Columbia, After a death
 * Manitoba, Dealing with death
 * Ontario, What to do when someone dies
 * Quebec, What to do in the event of death
 * Saskatchewan, Dealing with death

What follows is a very general overview of the process of estate settlement, assuming that:
 * 1) the funeral and burial are over;
 * 2) a valid will exists;
 * 3) you are designated as the executor in the will and are willing to perform the job;
 * 4) the deceased was up to date on income taxes at the moment of death;
 * 5) assets are obviously greater than liabilities in the estate (i.e. the estate is solvent);
 * 6) no trusts or minor children are involved.

This overview is based mainly on     plus several other references found below.

Keep detailed records
Estate settlement is long process with many steps. Months later, you may not remember everything you’ve done, or every conversation. Therefore, it is a good practice to take copious notes about everything you do, for example in a dedicated notebook. Keep documents organized in folders (e.g., “Will”, “Taxes”, “Inventory”, etc.).

Report to heirs
Taking detailed notes will greatly facilitate your reporting to heirs, which must be done yearly or preferably more often, in the interest of transparency. In Quebec, yearly reporting is a legal requirement (Civil code, article 806). Don’t leave the heirs and creditors in the dark, this will make them nervous and suspicious.

Maintain a spreadsheet with your expenses as an executor, which will be reimbursed by the estate (e.g., Quebec Civil code, article 789). Keep all receipts. Inform the heirs regularly about these expenses. If you intend to charge a fee for your work, take notes on hours worked and tasks performed (more on executor remuneration below).

Death declaration
Soon after the death, you must declare/register the death to government authorities (e.g., BC Vital Statistics, Manitoba Vital Statistics or Quebec’s Directeur de l’état civil). This means filling out one or several forms, typically at the hospital and/or funeral home.

Statement of death
The funeral home will typically issue a statement of death. Get many copies (10-20). This is a useful proof of death, although some financial institutions (banks, insurance companies, brokers, ...) or government agencies may ask for an official death certificate.

Death certificate
Obtaining the official death certificate from your province may take a while, so do not delay applying for it, from the same agency (e.g., "vital statistics") to which the death was declared to.

Government death benefits
The Canada Pension Plan and the Québec Pension Plan offer death benefits. The funeral home should have the form.

Locate the will
Locate the will if you haven’t already done so. Check the deceased’s files, fire safe, or safety deposit box at the bank. You ultimately want the original signed version, or a certified copy from the layer/notary. If the will was prepared by a lawyer or notary, they will supply this upon request, probably for a fee. If can’t find the will and you don’t know which lawyer or notary the deceased may have used, depending on your province, you can perform a will search using the local courthouse, a provincial wills registry, a private wills registry, or a provincial bar association (or equivalent), for example:
 * BC wills registry
 * Find a court in Ontario
 * Registers of testamentary dispositions and mandates of the Chambre des notaires du Québec
 * Barreau du Québec, Search for a will or mandate

Talk to beneficiaries
Beneficiaries are those standing to inherit money or property from the estate. It may be helpful to meet with the beneficiaries in person to:
 * review the terms of the will and explain the next steps
 * set expectations around timelines for administering the estate and distributing the assets
 * discuss your duties and liabilities as executor
 * request approval if you want to charge a fee
 * gather personal information from the beneficiaries (for example, their full name, address, and Social Insurance Number)
 * discuss how the personal assets of the deceased (such as photo albums or household goods) will be divided

In Quebec, another reason to contact beneficiaries quickly is that by law, the beneficiaries must accept or refuse the estate within six months of the death or 60 days after the inventory (Quebec Civil Code, article 630 and following).


 * Explanation: A beneficiary would normally only renounce the estate if the liabilities outweigh the assets, as shown in the inventory (see below). A beneficiary of an insolvent estate who officially or implicitly “accepts the succession” would be personally liable for paying the debts of the deceased, but only up to the value of their inheritance, if all of the rules are followed. However, if mistakes are made, the personal liability could extend beyond that. So in cases of obviously insolvent estates, it is easier to completely avoid getting involved as a beneficiary by officially renouncing the estate through a notarial act.

Charging executor fees
The will may, or may not, call for remuneration of the executor’s work. If the will does not mention this topic, you can discuss it with heirs, and try to agree on a percentage of assets, or on an hourly rate. In the absence of agreement among the interested persons on the executor’s remuneration, the court will have to decide (e.g., Quebec Civil code, article 789). The final dollar amount of the remuneration will only be known after the work has been performed, but you should try to agree on a formula in advance ($X per hour or Y% of assets).

In Ontario, the general guideline is about 5% of assets. There is a more complex formula here, and the percentage is subject to upward or downward adjustment by a court depending of a five factors (complexity, estate size, time spent, skills and ability, results). If you hire professionals to outsource some of your normal executor work, and you charge the estate for this, it should reduce your remuneration to avoid “double-charging”.

For Alberta, there is a formula here and there, with seven factors to take into consideration.

In Quebec, court decisions mention that hourly rates between $40 and $60 may be reasonable for executors who are both family members are employed as professionals.

Have this discussion about remuneration early on, especially if you are a family member, to prevent potential confusion and later conflicts with heirs. If you intend to charge a fee for your work, take notes on hours worked and tasks performed.

Executor fees constitute taxable income for the executor. So, obviously, if you are the sole heir, don’t charge the estate any fees (you will receive the inheritance tax-free, but executor fees are taxable).

Other death notifications
The executor must also notify the landlord (if applicable), financial institutions, pension plans, insurers (home, vehicle), employers or business associates, relevant government agencies (Canada Pension Plan, Revenue Canada, Service Canada, …), service providers (e.g. cleaning service) and utility providers (phone, internet, power, etc.).

Cancel any subscriptions. Cancel the Social Insurance Number, passport, driver’s license and health card (to avoid potential identity theft). Notify credit rating agencies of the death.

Deceased’s home
Visit the deceased home. This is needed for the inventory (see below) and for securing both the home and its content. Take possession of cash, ID cards, credit cards, valuables, and relevant financial files. If the deceased lived alone, arrange for mail to be redirected to you, possibly change the locks, and contact the company providing home or tenant insurance. Maintain insurance coverage until you sell the home or it is transferred in kind to a beneficiary. Make sure the lawn will be mowed, the snow plowed, etc. Undertake urgent repairs, such as a leaky roof.

Common law provinces
The executor, and perhaps an alternate, will be designated as such in the will. However in most provinces you may need to get a court to recognize your authority as the executor. The court will also confirm that the will is the last valid one, during a process called probate. The court will issue a certificate confirming all of this, called Certificate of Appointment of Estate Trustee in Ontario for example. There might be a fee to pay, based on the value of the assets in the estate (see Inventory below), and the fees vary considerably by province. In Ontario, within a certain legal delay after the certificate is received, the executor must also file an Estate Information Return which details all of the assets of the estate.

Many executors hire a lawyer to help them with probate.

Small uncomplicated estates may not need to go through probate.

Quebec
In Quebec, wills must also be probated, except for notarial wills (i.e. wills prepared by a notary). However, even with notorial wills, you must obtain search certificates showing that you have performed will searches with both the Barreau and Chambre des Notaires, and therefore that the will you have found is the latest one. You must then register your name as the executor in the Register of personal and movable real rights (RDPRM).

Prepare an inventory
Prepare an inventory of the deceased’s assets and liabilities, valued on the day of death or as close as possible. In common law provinces, you need this for probate. In Quebec, the law requires it (Civil Code, (article 794), and you want to make sure that assets outweigh liabilities anyway. You will also need the inventory when you ask for your clearance certificate from CRA later.

Assets of the estate
On the asset side, think about bank accounts, investments (RRSPs, RRIFs, TFSAs, non-registered accounts), life insurance (including group insurance), real estate, vehicles, business interests, valuable artwork, valuable collectibles, etc. Some items may require a professional appraisal to determine their value.

Note that some assets do not belong to the estate. This includes:
 * Real property (a house, cottage or other real estate), bank accounts or automobiles, owned by the deceased and one or more living persons and which contain a right of survivorship
 * Insurance policies which name a designated beneficiary
 * Registered investments such as RRSPs, RRIFs and TFSAs which have a designated beneficiary.

Liabilities
On the liability side, think about credit cards, consumer debts, auto loans, lines of credit, mortgages, unpaid bills, etc.

Advertising for creditors and publicising the inventory
Common law provinces recommend “advertising for creditors”, to give a chance to any legitimate creditors to make themselves known. For example, in BC, this involves placing a notice in the BC Gazette. In Manitoba, this requires advertising both in the Manitoba Gazette and in a local newspaper. Remember that the executor is responsible for settling all debts before making any distributions, so be very thorough when assessing what the liabilities are.

In Quebec, a “closure of the inventory” notice must be published in the RDPRM and in a local newspaper (Civil Code, article 795). The notice does not disclose the inventory itself, but mentions where and when it can be consulted. You should also inform the heirs, the legatees by particular title and the known creditors directly, and transmit the inventory to them “if that can easily be done” (Civil Code, article 796). These people have a right to contest that inventory, agree to a revision of the inventory or request a new inventory (article 797).

Life insurance policies with beneficiaries
Life insurance policies may have designated beneficiaries. The death benefits are then payable directly to them, and will not form part of the estate. Beneficiaries have to fill and submit the claim forms to the lifeco, but they may need your help with some attached documents (death certificate, etc.).

Registered accounts with beneficiaries
In common law provinces, registered accounts such as RRSPs, RRIFs and TFSAs may have a designated beneficiary. In this case, the accounts are transferred to them and will not be part of the estate. The executor might still be involved, for example by giving instructions to financial institutions, providing documents, etc.

Note that although registered accounts with a designated beneficiary are transferred directly to them, the estate will still have to pay tax on this, as part of the deceased's final return, unless the transfer is a tax-deferred rollover. This can end up "unintentionally favouring one beneficiary at the expense of another" (if one is a direct beneficiary and the other is a heir through the estate).

Joint property
In common law provinces, spouses can own their homes as joint tenants with right of survivorship (JTWROS). If the first spouse dies, “the survivor automatically becomes the sole owner of the property”. Other assets, such as bank accounts and other investments, can also be owned jointly and will usually pass directly to the surviving joint owner, without being part of the estate. Don’t confuse JTWROS with “tenancy-in-common”, in which there is no right of survivorship.

Spousal rights
Provinces have variable rules on spousal rights. For example, a surviving spouse may be entitled to half of the family property (e.g. the family home), and this division may have to be done before the estate can be settled. Some provinces also have ‘homestead’ laws, which could allow the surviving spouse to occupy the home even if the deceased was the sole owner. Definitely seek legal advice if there is a surviving spouse. We give two examples to illustrate what is involved.

In Manitoba, spouses or common-law partners have the right to an equal share of the value of the “family property” upon separation or death of the other spouse or partner. Family property is defined in Manitoba as “any property that the couple acquired while they were married or cohabiting and living together, regardless of which member of the couple owns the property”.

In Quebec, the Civil Code (article 414 and following) calls for a partition of the family patrimony to be made if the deceased was married, or in a civil union, at the time of death. The surviving spouse may be entitled to receiving certain amounts of money, or to a transfer of property, based on this, independently of the dispositions of the will, so this step is to be taken before the estate can be settled. One way to think about this process is that death of one spouse is somewhat like a divorce; the family patrimony must be split according to certain rules between (1) the surviving spouse, and (2) the deceased, now “living on” as the estate, the net assets of which will eventually flow to the heirs (which may include the surviving spouse or not). The rules of partition are set in the Civil Code and the marriage (or civil union) contract, if applicable.

Open an estate bank account
The estate will need a chequing account to receive liquid assets, pay any debts including taxes and distribute money to heirs. In-person visits to be bank may be needed (not every transaction can be done online), so preferably use a bank that has a branch close to you.

Sell property
If the deceased owned property that is not to be transferred directly to a spouse or heirs, you will have to sell it, to turn it into cash. This can include real estate, vehicles, etc. Deposit the cash in the estate’s checking account.

Life insurance policies
Contact life insurers if the deceased had insurance, including group insurance, to claim death benefits payable to the estate.

Transfer financial assets
Contact each financial institution where the deceased had accounts. Institutions will typically require many of the documents previously obtained, such as a death certificate, will, marriage certificate (if applicable), probate confirmation, etc. before they can act on your instructions.

There may be some legacies in the will that can be efficiently handled by having the financial institution transfer money or securities directly into the beneficiaries’ accounts (e.g. spousal rollovers of RRSPs), and this may have some tax advantages, but read on, before you make any disbursement.

In other cases, upon request, financial institutions will liquidate investments and transfer cash into the estate’s checking account.

For unmatured non-redeemable GICs formerly belonging to the deceased, you may be offered the option to sell them on the secondary market. This might save a bit of time but typically involves a substantial haircut. Instead, ask the broker or financial institution to contact each GIC issuer to obtain a complete reimbursement of capital and accrued interest.

Recovering sums due and paying debts
You as the executor should recover any sums owed to the deceased. You also should pay the last bills if applicable, using the estate’s funds. Pay any debts (see inventory) using the estate’s funds.

Managing cash
If the amounts sitting in the estate’s checking account become substantial, you may transfer the money to a CDIC-insured high-interest savings account or to CDIC-insured redeemable GICs, to generate interest and maintain the purchasing power of the funds, to the extent possible and prudent, while you wait for all transfers to arrive and while the deceased’s T1 tax return is processed, for example.

Unless you are the sole beneficiary, investing in accounts or securities that are not 100% guaranteed is not recommended. Think about what the other beneficiaries will say if you lose some of their inheritance on the stock market! Remember you must act like a trustee.

When you are ready to file the last T3 tax return (see below), stop generating any income, for example by bringing back all funds into the non-interest paying chequing account.

Have your expenses reimbursed
Settling an estate means spending money: legal fees, accounting fees, banking fees, account transfer fees, photocopies, gasoline, ink, paper, stamps, etc. You will probably spend more money as an executor than you initially imagine.

Sometimes it is convenient or necessary to use your own money temporarily (e.g. own credit card or bank account), or use existing supplies. Any legitimate costs not paid for directly from the estate’s bank account can be reimbursed to you by cheque or electronic funds transfer, for example every quarter. Keep a detailed list of expenses, for example in a spreadsheet, and keep the beneficiaries up to date on those expenses so that they don’t come as a surprise later. Keep all receipts.

Taxes
Inheritances are not taxable in Canada. This means that beneficiaries will not be taxed on their inheritance, not that no taxes are involved when settling an estate. You as the executor will typically have to file at least two tax returns, consecutively: (1) the deceased’s final T1; (2) at least one T3 return for the estate. (A T3 may still be needed if no income was received after death.)

Final tax return (T1)
You must file a final income tax return (T1) on behalf of the deceased, covering the final fiscal year up to the day of death. The T1 is “due April 30 for deaths before Nov. 1; it’s due six months after death for deaths from Nov. 1 to Dec. 31”.

See CRA publication T4011 Preparing returns for deceased persons. There is a provincial equivalent in Quebec, Guide IN-117-V.

Deemed dispositions
A major consideration is that all capital assets (including investments and property) are considered to have been sold on the day of death, for tax and valuation purposes. This is known as a “deemed disposition” and can generate taxable capital gains, if the current value of the assets is more than their adjusted cost base, and there are no offsetting capital loses. Tax on these net capital gains must be paid on the final tax return of the deceased.

There are exceptions for the principal residence, and for spousal rollovers of registered accounts such as RRSPs and RRIFs. Upon death, for tax purposes, the general rule is a RRSP or RRIF is considered to have been liquidated at fair market value, and this amount will be included as income on the final tax return. However, RRSPs and RRIFs can be transferred ("rolled-over") to a surviving spouse or common-law partner. This defers taxation to a later date, when the surviving spouse makes withdrawals or dies. Note that RRSP rollovers are not always the best option.

Appreciated non-registered assets can also be transferred to a surviving spouse at cost, if this election is made. The securities have to be transferred in kind. This allows the capital gain taxes to be reported to a later date, i.e. when the last spouse dies or finally sells the assets.

After death, TFSA assets can be transferred to a spouse or the estate tax-free.

Finally, donating appreciated securities in kind to Canadian charities can have tax advantages.

Optional returns
There are three optional returns that could also be filed, depending on circumstances.

DIY?
If you are used to doing your own taxes yourself, and the estate is very simple, doing the final T1 yourself could be manageable. But depending on your knowledge, time available, and the complexity of the deceased’s affairs, the final T1 could turn into a nightmare and/or you could make costly mistakes. Therefore, don’t hesitate to ask a tax accountant for help.

Pay any taxes due using the estate’s bank account.

Estate’s tax return(s) (T3)
Every year that the estate receives income, you must file a T3 Trust Income Tax and Information Return. Refer to CRA Publication T4013 T3 Trust Guide (from CRA’s point of view, the estate is treated like a trust even if no trust was created in the will, and a trust is considered a taxpayer ). Again don’t hesitate to ask a tax accountant for help, since this could be the only T3 you will ever file, and T3s are more complex than T1s.

Income received by the deceased after death must be included on a T3, and you may want to generate interest on the estate’s assets at least while you wait for the final T1 to be processed (see above), so there will typically be at least one T3 to file. Be aware that T3s take a long time (many months) to process by CRA.

The equivalent to the T3 in Quebec, which you must also file if applicable, is a Trust Income Tax Return (Form TP-646-V and Guide TP-646.G-V). Fun, eh?

“With an estate, the tax year starts the day after the testator’s death and can continue for 12 months if the estate is a Graduated Rate Estate or until Dec. 31 for all other trusts. The T3 needs to be filed 90 days after the trust’s year-end”.

It might be possible to have income received by the estate taxed directly in the beneficiaries’ name(s). Ask your tax accountant. Doing this may reduce the ultimate tax bill (depending on the beneficiaries’ income levels), but increases income tax payable by the beneficiaries in the short term, perhaps before they have received any distributions, so discuss it with them before you decide.

If you are ready to distribute assets to beneficiaries, stop generating income, and file a last T3 (which hopefully will still be the first, if you can fit everything into one year after the death).

Clearance certificate
When the final T1 of the deceased and the T3(s) of the estate have been filed, and the notices of assessment received, you or your accountant should request a clearance certificate from CRA (Form TX19). You will need to attach a long list of documents, refer to Income Tax Information Circular IC82-6R12.

In Quebec, also send a Notice before distribution of the property of a succession (Form MR-14.A-V) to Revenu Québec.

Without a clearance certificate from the tax authorities, if the executor distributes the estate, the executor can be held personally liable for unpaid taxes. Receiving the clearance certificate(s) may take several months (e.g., “six months” ). Remember not to generate any income for the estate while you wait (since this income would be taxable, which would generate yet another T3, etc.).

Distribute the estate
Generally make sure that all debts have been paid before making distributions. Be aware that certain provinces have rules that imply that you must wait a certain number of days after the grant of probate before distributing the assets of the estate. For example, in British Columbia, you should wait at least 210 days to allow “any child or spouse of the deceased to apply to the court to vary or change the will”. However, this does not apply “if you get consents and releases from each potential claimant”.

You then typically distribute (1) specific bequests and stated legacies, and then (2) the residual.

Specific bequests and stated legacies
If the assets of the estate clearly outweigh the liabilities (including taxes) by a very wide margin, you can probably begin to make some distributions to heirs before obtaining a clearance certificate (see above). For example, you could distribute specific bequests and stated legacies, if the residual estate (see below) will be much larger than those.

Specific bequests (specific gifts) are physical items (artwork, antiques, …) going to individuals named in the will. Stated legacies are cash amounts going to named individuals or charities, again named in the will. Gifts to charities can have tax advantages, so these have to be made early on during the process to obtain the tax receipts.

In Quebec, the stated legacies are called “legacies by particular title”, the people or charities receiving them are not formally heirs (Civil code, article 739).

Residual estate
The residual estate is what is left in the estate bank account (and any other estate assets) after all debts (including taxes) are settled, expenses (and if applicable, fees) have been reimbursed to the executor, and stated legacies have been disbursed. The residual estate is to be distributed to the beneficiaries named in the residue clause of the will, in the proportions stated in the will. Again, you typically do not want to do this before you have obtained your clearance certificate from the CRA and all debts have been paid.

Interim distributions
Nevertheless, some executors choose to make an interim distribution before obtaining the clearance certificate, but you do so at your own financial risk. If you choose to give interim distributions, leave yourself a wide margin when calculating the ‘holdback’.

Final statement and releases
In common law provinces, you should send a “final statement of assets, debts, income, expenses, and distribution for the beneficiaries to approve”. Then have the beneficiaries sign a release before distributing the funds, especially the final distribution. In the release, “the beneficiary agrees, in consideration for receiving their gift from the estate, not to make any claims against you related to your work as executor.”

If beneficiaries do not consent to do this informally, the probate court may also be involved, and this is called “passing of accounts”.

In Quebec, the final statement is called the “final account” (Civil Code, article 820) and this document contains “a summary stating the amount remaining in the succession for the heirs, after payment of the debts and legacies by particular title”. There is no standardized format for the final account. The heirs have to accept this final account: “If an amicable account cannot be rendered, the account is rendered in court” (article 821). Closure of the account -- but not the final account itself -- is published on the RDPRM (“notice of closure of the final account of the succession”) (article 822).

End of the process
After the executor fees have been reimbursed, the executor remuneration has been paid (if applicable), and the residual estate has been distributed, you can close the estate’s bank account(s). Send a final report to the heirs. This terminates your responsibilities as an executor.

Congratulations, you are done!