Estate Law and Taxation on Death: Considerations for an Estate Trustee
Estates and Income Taxes
Disclaimer: The post below and all material on this website is intended to be general information only and is not to be relied on as legal advice. Please contact a wills & estate lawyer for information and advice about your particular situation.
In administering an estate, the estate trustee is responsible for ensuring the deceased’s tax filings are in order. This means looking into tax returns that are due prior to death, the year of death and possibly, returns for the estate that may continue after death. Missed or late filings may very well result into penalties and interest. Here are some basics of what may need to be considered. One should consult with the estate accountant to confirm their specific deadlines and ensure they are not missed.
Prior year returns:
If prior year returns were not filed on time by the deceased, the estate trustee must attend to these immediately. In the event the return is not yet due (say death took place prior to the April 30th deadline), the estate trustee must file it with six months from death of the deceased.
T1 income tax return:
For the year of death, the income tax (T1) return from January 1 to the date of death must be filed within six months from the date of death if death took place between January 1 to October 31. However, if the date of death was between November 1 to December 31, the filing deadline is six months from date of death.
The income included in this return would consist of employment income, income from investments, pension income and other. If the deceased had rental income, this would also be included along with an inclusion of capital gains if losses.
Other considerations:
There are many other items that require an accountant’s input when it comes to tax filings for the estate and the final T1 return for the deceased. Some are discussed here.
RRSPs: a deceased may have contributed to RRSPs and the value of those contributions and earnings are generally to be included as income in the return filed on death. That being said, certain provisions in the Income Tax Act allow for the plan to be subject to a rollover treatment where the beneficiary of the RRSP is a surviving spouse or a child or grandchild that is financially dependent on the deceased. Generally, a child or grandchild would be considered dependent if they suffer from a permanent disability or are under the age of majority.
A very important point to note is that if the beneficiary is not a surviving spouse or a child or grandchild as described above, the institution would pay out the amount to that beneficiary. However, the liability of the associated tax remains with the estate. This is often an unintended consequence and should be carefully planned.
CHARITABLE DONATIONS: In the event the deceased made charitable donations in the year he or she passed away, there may be tax credits that could be applied to reduce the tax payable. If the donations are substantial or if the net income of the deceased is quite low, it may be possible that after applying these credits (100 per cent of which can be applied against net income) there may not be any income remaining. Note that in such a situation, there may be loss carry back provisions in the tax legislation that can be utilized so that tax in the previous year is reduced. There are a number of rules regarding charitable donations and when they must be made which also need to be explored in order to take advantage of the tax treatment.
It is also possible that your accountant may file a return known as a rights and things return which may capture items related to income that are considered to be earned but had not yet been received at the time of death. Some items such as vacation pay and dividends may be filed herein. This return presents several options and generally has to be filed within a year of the date of death.
The above serves to simply touch on the point that up to date tax filings are a critical component of the estate administration process and should be handled carefully. We serve as estate lawyers in Kitchener, Waterloo and beyond and help estate trustees understand the process and work with other advisors such as accountants to ensure that the administration is carried out successfully.
Contact us for more information regarding your particular matter.
Read MoreSome steps in the Estate Administration Process
While it is often the case that an Estate Trustee may be very familiar with the deceased’s financial affairs, it also may be the case that the person appointed or seeking to be appointed as an Estate Trustee may be a distant relative or someone who does not possess an intimate understanding of the deceased’s assets.
This article provides a basic list of items that an Estate Trustee may look into in navigating their role as an Estate Trustee:
1. Locate Assets
A general recommendation would be to start with a search at the deceased’s place of residence. This includes accessing deceased’s personal papers, financial records and tax filings. Common sense suggests that for an individual who maintained a strong online presence, the electronic devices, websites and platforms would need to be explored and reviewed. This will provide information about various accounts and assets the deceased owned. Note that if the deceased did not maintain up to date passwords log, there can be difficulties in accessing websites and information required for the administration to continue.
Once this search is complete, it is necessary to look outside the deceased’s residence. Even when an estate trustee claims full knowledge of the deceased’s financial affairs, it is a good idea to make inquiries with banks and other institutions in the area where the deceased lived. The inquiry would relate to whether the deceased had any personal or investment accounts or any other assets with the institution including any safety deposit boxes. Local brokerage firms should be written to if the deceased had investment assets.
2. Secure Assets
Was cash found at the deceased’s premises? Did the deceased leave behind valuable items such as jewelry that needs to be secured? If so, such items should be gathered and deposited in a safe place. Is the property a rental property? If so, arrangement must be made to collect rent and take over other matters related to running the same.
The Estate Trustee should complete a thorough inventory of all the assets and include things considered to be personal items of the deceased. Items such as jewelry and other household goods may require a valuation and may require more attention and should be held for safekeeping prior to any distribution to beneficiaries. Written records, photo and video evidence of contents will help with any claims from beneficiaries.
For certain items such as cash or payments collected, the Estate Trustee should inquire whether a bank will allow an Estate Trustee to deposit into an account opened for the estate. If the deceased owned real estate, the property must be secured and insured. If the property is vacant, the insurance company should be notified and coverage should be arranged accordingly. The message is to treat the property as if it was your own and take care of the assets in your possession. If a beneficiary is occupying the property, a clear understanding should exist in terms of that individual’s repair and rent obligations, if any. Speak to a lawyer for additional input. Key is to avoid disputes and conflict if there are additional beneficiaries who may feel unfairly treated.
3. Valuation
Now that you have a complete list of assets the deceased owned and they are secured, it is important to have them valued. This will be necessary for both tax filings under the Income Tax Act along with detailed reporting requirements imposed on personal representatives in order to file an Estate Information Return. This may apply to stocks and bonds, real estate (personal) or investment use, shares in corporations along with personal items.
The list above is just a starting point for administration of an estate. It is important to protect yourself from liability and ensure that assets are being safeguarded and accounted for in the right manner. Our office provides services to executors, administrators, estate trustees and guides them through this process. Contact your Estate Administration Expert for assistance.
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Do you need to obtain the Grant of Probate on Death?
NOTE: The article shared below is for informational purposes only and is not to be considered legal advice. For the correct advice pertaining to your situation, please contact a wills and estates lawyer in your area.
After the passing of a loved one, one of the key questions facing family members is whether they have to go to court in order to obtain the grant of probate. The short answer is, it depends on what is involved in the estate. In particular, one needs to know what type of assets exist in the name of the deceased individual and whether they can be transferred through other methods that may avoid the need for obtaining probate. In this short post, we will look at just some of these situations.
Where a grant of Probate may be required:
No will?
If the individual died without a Will, a situation known as an intestacy, a probate process must follow and the individual applying will obtain something called letters of administration. It is no wonder that lawyers stress the importance of having a Will prepared.
Deceased owned real property
If the deceased held real property (house, land, mortgages etc.), then it is likely that an application must be made to court in order to obtain the grant of probate. This is what the land registrar relies on in order to allow transfer or dealing with property in Ontario. There are some increasingly rare occasions that this may not be required if the property falls within the old Registry system.
Other property held by institutions
In a scenario where a bank or other third parties hold property under the name of the deceased, they may insist on the grant of probate. Why? Mainly so they are protected. The party acting as the Estate Trustee will have to obtain this grant through the court process in order to prove they have authority to deal with such assets. Most importantly, by insisting on such, the banks or institutions limit their liability by relying on this grant.
However, in the event that accounts are relatively small, a bank may not insist on the grant of probate particularly where indemnities are signed and parties are known to the bank – such as a surviving spouse.
Protection for the Executor and proving the validity of the Will
By following the process of obtaining the grant, the Executor limits him or herself from potential liability to a certain degree. This way, if another party makes a claim that they had authority to act under another will or document, the Executor can at least claim that they are acting under confirmation of the courts. Of course, this does not by any means lower the standard by which an Executor is expected to carry out his or her duties. Certainly, the grant itself can be challenged but there is no question that obtaining the grant is a method of protection for the Executor. Further, the act of obtaining a grant on it’s own is confirmation that a valid will exists – this is especially useful in a situation where there may be question regarding capacity of the deceased Testator.
Whether a grant of Probate may not be required:
Items that can usually be transferred from deceased’s name:
There may be property that is held by way of a right of survivorship that may be allowed to be transferred without the need for probate. However, recent cases in the Supreme Court of Canada put some of these joint accounts into question and legal advice should always be sought.
Additionally, an insurance company may transfer insurance proceeds to a listed under a beneficiary designation without the need for probate. The same may apply for registered plans such as RRSPs etc.
Depending on the jurisdiction involved, personal effects, cars and vehicles, Canada Pension Plan death benefits are usually transferred without the grant of Probate. Shares that the deceased held in a private corporation may also be allowed to be transferred without the grant.
Make a list and obtain legal advice
The main message here is that there may be a number of assets that require probate and a few that do not. As obtaining the grant of probate in an estate matter takes takes at least a number of months or more and requires patience from all involved. The key is to make a detailed list and gather information if you are acting as the executor and obtain legal advice from an estate lawyer as to what steps are to be taken.
Our office serves and assists with wills, estate, probate as well as real estate matters in Kitchener, Waterloo, Cambridge and surrounding areas such as the GTA .
NOTE: The article shared below is for informational purposes only and is not to be considered legal advice. For the correct advice pertaining to your situation, please contact a wills and estates lawyer in your area.
Read More2019 – Reminder to prepare your Wills and Power of Attorney documents
With 2019 just around the corner, a lot of us may be thinking about our new year’s resolutions.
Our reminder to you is to ensure that this year you check off a critical task on your to do list: Preparation of Wills and Power of Attorneys.
A Will allows you to take care of your family members first by ensuring that you select the correct person to manage your affairs after you have passed away. Among many other things, it also allows you to decide who will be the beneficiaries of your estate. While you may (incorrectly) assume that a certain person, perhaps your spouse, will automatically inherit your estate this is often not the case. Furthermore, those with minor children should particularly be concerned with appointing the best-suited party to serve as the Guardian for your children in the unfortunate event the parents pass away.
Do not let government legislation or courts dictate who is best suited to handle your affairs, look after your children and benefit from your estate.
Power of Attorney for property and personal care allow for the most trusted persons in your life to make decisions for you. In the absence of such documents, a lengthy and often expensive court process may have to be followed in order to allow another party to make such decisions for you in the event of incapacity.
It is very important to ensure that you have these documents completed in order to provide protection for your loved ones.
Wishing you a Merry Christmas and a Happy New Year !
Read MoreProbate and Estate Administration Tax
When acting as a prospective estate trustee in Ontario, it is often necessary to apply to the court for a certificate of appointment of estate trustee. Although it is commonly referred to as “probate”, the certificate of appointment is essentially a validation of a will or, in a scenario where no will exists, an authorization for the estate trustee to manage and distribute the estate of a deceased person.
This certificate may be required in circumstances where the deceased owned real estate or held assets in accounts for which various offices and institutions require the court’s validation. In fact, most financial institutions or land registry offices want to be certain of the appointment in order to avoid being wrapped up in any litigation in the event that money or assets are transferred to the wrong parties.
The application for probate also involves the payment of estate administration tax, or as commonly known as “probate tax” under the Estate Administration Tax Act. The amount payable for this tax depends on the size of the estate and the current tax rates are as follows:
- For an estate valued less than $1,000, there will be no probate tax payable.
- For an estate valued up to $50,000, the rate is $5 for each $1000 or part thereof.
- For an estate valued at over $50,000, the rate is $250 (for the first $50,000) plus $15 for each $1000 or part thereof.
For example, an estate with a value of $240,000 will be required to pay $3,100 in estimated estate administration tax. A larger estate of $1,000,000 will attract $14,500 in estate administration tax.
For estate administration tax calculations, the total value of the deceased’s estate may include assets such as:
- Bank accounts
- Investments (bonds, trust units, stocks, etc.)
- Vehicles and vessels
- Real estate in Ontario (net of encumbrances such as mortgages)
- Insurance proceeds (where proceeds pass through the estate)
- All other property including business interests, goods, intangibles, etc.
There are some assets which flow outside the estate such as those which are held jointly or, pass by way of beneficiary designations. When considering estate planning, a number of steps may be taken to reduce probate fees payable. However, some of these options present other risks which need to be carefully assessed.
Along with the above, there are very onerous requirements placed on an estate trustee to not only manage and distribute the estate, but also to file a detailed estate information return to the Ministry of Finance within 90 days of obtaining probate. It is important to consult a professional to help you with estate planning or, administration services, to ensure you limit your exposure to potential liability. Should you require any assistance or, other estate related services, we would be glad to assist you.
Please note the above serves as general information and not legal advice and is not intended to be relied on as such.
Read MoreA Taste of the Estate Administration Process
What is the Estate?
When a person passes away, all assets that the individual leaves behind may be referred to as that person’s “estate”. Generally, this could include bank accounts, investments, cash, jewelry, cars, business interests and the like. Sometimes the deceased owns a fractional interest in the asset (such as a part of a company) in which case, the fraction would also be considered a part of their estate.
Upon passing of such individual, the main question that arises is whether there exists a Will or not. In the event that the deceased had a Last Will and Testament, the terms of the Will must be reviewed in order to determine, along with various other items, who would manage the estate and who are the intended beneficiaries.
In the event that there is no Will, Ontario law known as the Succession Law Reform Act sets out the rules and priorities in order to determine who can be a beneficiary of the estate.
During the estate administration process, the Estate Trustee often retains a Lawyer to assist with the process. It is to be noted that there exists a clear distinction between the role of the Lawyer and the Estate Trustee as it is the Estate Trustee who is responsible for decision-making related to the estate, even where a Lawyer has been retained for assistance.
Other things that need to be considered and are often discussed during the initial stages (in no particular order) of the administration are:
- Whether there are particular “wishes” in the Will related to the funeral and or organ donations?
- Are there any U.S. tax consequences as of death (where the deceased had U.S. assets and or citizenship or other connection).
- Consider if there may be any support obligations (stepchildren)?
- Are there non-resident beneficiaries?
- Do other documents (separation or shareholders agreements or orders) exist that need to be reviewed?
- Gather details of the assets including, but not limited to, RRSPs, RRIFs, GICs, Tax returns, insurance policies etc.
- Provide notice of death to family members or others who have an interest in the estate (such as those who have a business interest).
- Identify the deceased’s advisors such as lawyer, accountant, financial planner, who may possess important information.
- Consider and advise of any conflicts (beneficiary disputes; sibling rivalry) that exist with respect to the estate and the terms of the Will.
- Understand and be aware of the entitlements under the Family Law Act along with the limitation period.
- Understand what the role of the Estate Trustee involves, the commitment, the liability that exists along with a complete understanding of their duties and responsibilities prior to acting.
- Realize that prior to acting, an individual may be able to renounce his or her office prior to taking action in relation to the estate.
- Understand the level of diligence required and the need for record-keeping and accounting with respect to the estate.
- Secure and preserve assets including insuring over assets depending on the situation.
- In light of recent case law, consider whether there any joint assets that give rise to a resulting trust?
- Locate and obtain listing of safety deposit boxes.
- Understand the particulars of what constitutes a Graduated Rate Estate.
- Consider whether there are any potential dependent claims that could arise under the Succession Law Reform Act
- Consider whether there are beneficiaries that may be missing and need to be located?
- If necessary, understand the priority that arises under the Succession Law Reform Act for an intestate estate (without a Will).
- Gain access to information about the liabilities of the estate and arrange for payments.
- Close accounts, cards, and advise the appropriate parties and institutions of death.
- Consider whether certain assets need to be insured over.
- Understand that accounting, investment and tax advisors may also need to be retained.
- Know details and amount of the “probate” tax payable
- Be aware of the estate information return requirements of the estate – due within 90 days of issuance of the Certificate of Appointment of Estate Trustee
And many more…
There are various scenarios and steps that may arise as a consequence of death. The estate administration process is a complex process involving an understanding of the role of an Estate Trustee as well as the limitations and liability that are associated. Please be sure to contact an estate lawyer to gain a better understanding in relation to your particular situation.
The above serves as general information and is not intended to be thorough in nature and is not to be relied upon as legal advice.
Read MoreThe Estate Trustee’s tasks during the Administration of an Estate
Today’s post highlights some important items that an Estate Trustee must turn his or her attention to during the administration of an Estate.
In a nutshell, an Estate Trustee’s role includes tasks such as gathering and managing assets, paying debts and expenses, locating the beneficiaries an distributing the estate to those entitled. However, from start to finish, there are multiple items to be taken care of by the Estate Trustee – some simple but others which can be appear more daunting to the unfamiliar. Listed below are some of these tasks:
Certificate of Appointment: depending on the assets that form a part of the estate, an Estate Trustee may be advised that he or she is required to ‘probate’ a Will which is the process of obtaining formal authorization from the Court. This authorization is formally known as the Certificate of Appointment of Estate Trustee and essentially confirms that based on the information provided, the Will, if one was submitted, would be deemed to be the last known Will of the deceased and lists the appropriate individual(s) as the proper personal representatives of the estate. A similar authorization exists if there was no Will to begin with. In order to prepare this application, it will be important to ascertain value of the estate. There are various rules in relation to which assets form a part of the estate and those that are exempt which are important know as they impact the amount of estate administration tax that may be payable into the court. Along with all this, proper notice is required to be provided to those entitled to the estate.
Income Tax: The Income Tax Act of Canada provides that when an individual dies, there is a “deemed disposition” of assets which may give rise to capital gains (or losses) as at the date of death. To determine these figures, an inventory of assets is crucial along with filing the necessary tax returns – and the estate trustee may be required to file the following returns:
- T-1 General return – if the deceased had not filed for previous taxation year(s);
- T-1 Terminal return – covers the year of death;
- T-3 Estate return – this covers income received from any estate assets including interest earned
- Final distribution returns
- Designation of an estate as a Graduated Rate Estate, if applicable, which is entitled to marginal tax rates.
Clearance Certificates: before making final distributions to the beneficiaries, it is important to obtain a Clearance Certificate from the Canada Revenue Agency. The Estate Trustee risks personal liability in relation to the distributions made if it is found later that there are taxes owing which were to be paid. Obtaining this certificate provides assurance to the Estate Trustee that no additional tax is payable.
As one can imagine, a number of other tasks need attention, such as:
- Searches in relation to any judgments owing in the deceased’s name
- Preparation of Estate Accounts
- Preparation of Statement of Accounts as well as releases from Beneficiaries
- Preparing necessary notice to creditors
- And many more…
As an estate trustee, you are entitled to claim compensation in connection with time spent during estate administration. The calculation is based on a percentage of the estate and depends on the nature of the work involved and the amount is usually determined after the estate administration is completed.
It is highly advised that if you have been appointed as an Estate Trustee or want have such an appointment made by the courts, you speak to a professional to gain a clearer understanding of the nature of the role.
This content is only for information purposes and does not constitute legal advice and should not be relied on as such. Please speak to a lawyer for more details.
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