Administering an Estate
When someone dies, the assets they leave behind are the person’s "estate". The person who distributes the estate is called a "Personal Representative" or PR. This terminology replaces the traditional wording of “Executor, Executrix, Administrator, or Administratrix”. To distribute the estate, the PR needs to obtain a "grant of probate" when there is a will and "grant of administration" when there is no will.
The PR has many duties. These include attending to funeral arrangements, paying outstanding debts, obtaining the death certificate, identifying all property, caring for the property, locating beneficiaries, notification of banks and insurance companies, obtaining a grant, filing tax returns and final distribution of the estate. In some cases the PR will also be in charge of administering any special trusts created in the Will. For example, where money is held in trust for several years on behalf of minor children or a handicapped adult child the PR will look after this money.
All expenses in administering the estate (including legal fees) are payable out of the estate. A PR is entitled to compensation for the time and effort they expend.
What Is Probate?
Probate is a court procedure which certifies the validity of a will and confirms the appointment of a Personal Representative. When you receive Probate on an estate, you receive a document from the court that is signed by a Judge that in essence says: "The attached will is the only valid will for this estate and the person named in this Court Order has the power and authority to deal with all the property of the deceased." In modern usage the definition of Probate has been expanded to include the entire process of dealing with an estate. Someone will typically say: "We will probate this estate". This means they will look after the estate from beginning to end.
What Are Letters Of Administration?
A Grant of Administration is also referred to as Letters of Administration. This is the document issued by the court when someone dies without a will or with a will where either no PR is appointed or the appointed PR is not willing or able to act. It states who has the legal authority to deal with the estate. The Letters of Administration do not determine how the estate is distributed. That is determined by the Intestate Succession Act for any death occurring before February 1, 2012, and by the Wills & Succession Act for any death occurring on February 1, 2012 or later.
What happens when someone dies without a Will?
The distribution of the Estate is governed by the Intestate Succession Act and the Wills and Succession Act. Don’t worry, the Estate does not go to the government.
Under the Intestate Succession Act, when someone is married with no children the Estate goes to the spouse. Where there is a spouse and one child the first $40,000 goes to the spouse and the rest of the Estate is divided equally between the child and the spouse. Where there is a spouse and more than one child, the spouse receives $40,000 and one-third of the rest while the children share two-thirds of the rest.
If there are no children and no spouse the Estate goes to the parents of the deceased. Where there are no parents it goes to the brothers and sisters of the deceased.
The list carries on from there to name even more distant relatives. Finally, if there are no relatives, the Estate will go to the universities in Alberta.
Should the Estate be divided between brothers and sisters and one brother or sister has predeceased and left children then those children will take the share of their deceased parent. In one recent case, this resulted in shares going to 6 children of a deceased brother and each of them received a 1/30 th share of the Estate.
The Wills & Succession Act applies to any Estate where the person died after February 1, 2012 and introduces substantial changes in many areas while leaving some rules of distribution unchanged. When someone dies with a spouse or Adult Interdependent Partner (AIP) (commonly referred to as a common-law spouse) and no children, the spouse or AIP receives the entire estate.
When there is a spouse or AIP and children, the distribution is more complex. If the children are the children of both the deceased and the spouse or AIP, then the entire estate goes to the spouse or AIP. If the children are the children of the deceased only and not the children of the surviving spouse or AIP, then the surviving spouse or AIP is entitled to the the greater of 50% or $150,000.00 and the rest of the estate goes to the descendants of the deceased.
If there is no spouse, AIP, or children, the new Act says the estate will go to various relatives starting with the parents of the deceased. Finally, if there are no relatives, the property goes to the government.
Most people find the division between a spouse and children inappropriate. The idea that their spouse may have to sell the house to pay off the children is often enough motivation to get people to prepare their Will.
How Long Does It Take
The time to fully probate an estate can be quite lengthy. Even in the simplest case, by the time property is distributed and final tax returns are filed and approved many months have passed. In complex estates, without considering any trusts, the time typically exceeds one year.
Estate administration is much quicker when the deceased has made a list of all their property. Contact people involved in the assets of the deceased and others such as the accountant and stock broker are helpful. Old outdated documents can substantially delay estate administration. An old share certificate for a defunct company obligates the PR to engage in an often lengthy search to verify the exact status of the investment.
If you know that you are appointed as a PR, make your job easier by contacting the person who has appointed you to ensure that they make your job as simple as possible.
Duties and Responsibilities
A PR must act fairly to all persons that have an interest in the estate including creditors, specific beneficiaries and residual beneficiaries. A specific beneficiary receives a specific gift in the will such as a set amount of money or a specific piece of property. A residual beneficiary receives a share of everything that is left in the Estate after creditors, claimants, and specific beneficiaries are looked after. The PR must account for every transaction they perform. The residual beneficiaries must receive a detailed accounting of the assets, liabilities, receipts and expenditures in the estate. They can then object to any item and demand a further explanation or ask the court for a review. If you are a PR, arrange to meet with the testator, (this is the name give to the person who has created the will) during their lifetime to review where they keep their books and records and to encourage them to clean up their documents and dispose of outdated documents.
The PR must maintain property until it is either sold or distributed. For example, if there is a house, the PR is responsible for looking after the house until it is sold. This can involve a substantial amount of time and effort. The PR has a duty to creditors and all beneficiaries to look after any property in the Estate.
The PR is required to exercise a certain level of care in performing their duties.
Failure to perform can result in claims against the PR. The PR does have discretion and is not required to consult with all the beneficiaries over every decision they make. However, they must exercise their discretion in a reasonable and prudent manner. For example, selling a valuable antique by simply placing a classified ad in the local newspaper rather than obtaining an appraisal and selling it through someone who can obtain the maximum value, could result in a claim against the PR. The duty of care required by a PR can be a complex area, so consulting with us regarding specific issues is welcome.
The Estate assets must be used to pay any outstanding funeral expenses, burial expenses, taxes, credit cards or other debt. Distributions to beneficiaries cannot be done until all debts are addressed.
What happens if there are not enough assets in the Estate to cover the debts? Only the Estate is responsible for the debt. If there is a shortfall, the PR cannot be forced to pay any of the debts out of their own pocket, unless their actions have created the inability to pay debt. Likewise, beneficiaries or family members are not liable for debts. The only time the beneficiaries or family members can be liable is where they have improperly removed assets from the Estate. Even then, their liability only extends to the value of the property removed from the Estate. In certain very limited circumstances where the PR has acted in a negligent, careless or fraudulent manner, they can be held personally liable. In summary, the majority of the liability rests with the Estate and assets which can be traced to other persons.
Where debts remain unpaid even after liquidation of assets, those creditors will be left high and dry. The debts will remain unpaid and the deceased person may ruin their credit rating. Of course, this is a non-issue once they are deceased. This can be a complex area and certain debts may have priority over other debts. This is where you need the assistance of a lawyer.
The PR can be personally liable where assets have been distributed to beneficiaries and all the claims or debts have not been paid. This can include debts or claims that are not even known until after distribution to beneficiaries. For this reason, we highly recommend placing an ad in the local newspaper with a notice to all creditors and claimants providing them a deadline for submitting their claim. Any claims arising after the deadline must still be paid out of Estate assets. However, if the Estate has been distributed the PR is no longer personally liable.
Claims Against the Estate
It is highly recommended that every PR place a classified ad in the local newspaper for creditors and claimants. This notice provides a deadline for filing a claim. After the deadline has passed the PR is free to distribute assets without any worries about personal liability.
Notice the ad is for creditors and claimants and not just creditors. Often times, legal language uses several words to say the same thing. This is not one of those cases. A claimant is anyone with a claim against the Estate. This goes well beyond creditors. Claims against the Estate include everything from contractual claims to civil claims. For example, someone may have a claim for injuries suffered at the hands of the deceased person through either a motor vehicle accident or a slip and fall at the deceased’s home. There may also be a claim for work done for which no contract exists. For example, in one recent case, a neighbor claimed against an Estate saying he was promised something in the Will. He said he had done a lot of work in the deceased’s home including building her a deck. She was on a fixed income and could not pay him. Instead, according to the neighbor, she promised to leave him something in her Will. Since he had lots of evidence including receipts for all building materials, his claim was accepted.
Claims can surface long after the date of death. Hence, the importance of the classified ad providing a deadline for claimants and creditors. After the deadline, the PR is no longer personally liable for any claims brought against the Estate. The claimant must pursue recovery against the beneficiaries, if possible.
A trust is created in a will when the testator specifies that certain property must be held by the estate on behalf of one or more beneficiaries. This usually occurs where there are minor beneficiaries.
The PR is usually responsible for the ongoing administration of any trust. However, a separate Trustee can be appointed in the will. The PR or Trustee must look after the assets, prepare accountings and tax returns and follow the directions for distribution in the will. Where the beneficiary is a minor, the Public Trustee often becomes involved.
Estate litigation, while rare, can arise for many different reasons. When there are competing claims against the estate or unclear directions in the will the court may have to determine the final outcome. The PR is responsible for directing any litigation to its conclusion. Estate litigation can take the form of a simple application to the court for "advice and direction" or it can involve a complex and expensive trial.
Estates – How Can We Help?
The administration of an estate can be a complex matter. Galbraith Law can help. We inform you of your duties and responsibilities and handle the paperwork. One major area where we do not handle any of the paperwork is the required income tax returns. We can work with your tax advisor or provide you with a referral to a tax advisor with experience in dealing with estates.
Taxes and Clearance Certificates
What Is A Clearance Certificate?
A Clearance Certificate is a document issued by the Canada Revenue Agency to verify that all taxes for a deceased person has either been paid or that the CRA has accepted security for payment.
Why Do I Need a Clearance Certificate?
Without a Clearance Certificate, a PR remains liable for any unpaid taxes even after the estate has been distributed. For example, should the CRA re-assess taxes for a deceased person for any of the years prior to their death, the personal representative is liable to pay those taxes even if they have already distributed the estate. With a Clearance Certificate in place, even if CRA reassesses the taxes, they cannot look to the PR for any payment of amounts owing.
How Do I Apply For A Clearance Certificate?
You complete a form called "Asking for a Clearance Certificate" TX-19. This form is completed and sent to CRA after the last tax return has been filed for the deceased and the final notice of assessment received from CRA. You will also need to enclose basic information such as a copy of the Will, a copy of the application for Probate or other document that you have filed which would include a statement showing the property distribution plan.
What Is The Maximum Liability Of The Estate Or Personal Representative For Unpaid Taxes?
The liability will not be more than the value of the property in the estate. In other words, neither a PR nor any of the beneficiaries are required to pay money out of their own resources for unpaid taxes. Of course, as stated above, a PR can be personally liable if they have distributed the estate before receiving a Clearance Certificate and thereby frustrating CRA’s attempts to have taxes paid out of the estate property. This area is subject to the general rules regarding preferential treatments of creditors or attempts to avoid creditors. For example, if a deceased person transfers all their property to someone prior to their death to avoid taxes, then the CRA has the ability to chase the persons receiving the property prior to death to recover the taxes owing. This is a complex area and consultation with a lawyer will answer specific questions.