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 MoreEstate planning for Separated Couples – reasons to get your will done
In Ontario, simply being separated from your spouse and not obtaining legal divorce may put your estate plan in jeopardy. Section 17(2) of the Succession Law Reform Act (“SLRA”) provides that for parties that have obtained legal divorce, any reference to a former spouse in an individual’s will is revoked and the will is construed as if the former spouse had predeceased the testator (party preparing the will). This is helpful due to the simple fact that after divorce, there is clearly a shift in interests and priorities and the law protects you in this regard. However, unlike the provision protecting those who obtain a divorce, there is no similar provision in a situation where spouses are just separated. That being said, it is a common misconception to believe that if you are separated, your ex-spouse will not inherit anything.
In fact, where spouses are separated (assuming no update to the will) and one party passes away, the surviving spouse maintains his or her entitlement under the will. The result is not much different if there was no will to begin with – the separated spouse may still qualify under the definition of a “spouse” under the intestacy rules.
A simple example may serve to bring the point home: if you have separated from your spouse (and not obtained a divorce) and own property jointly, the property may pass to the former spouse automatically. A visit to the lawyer’s office can prevent this from happening so that your portion of the property passes on to whom you intend. This may be to provide for your children, your siblings or even your new common-law partner.
Along with preparing or revising an existing will, upon separation, one must ensure they update their insurance policies, registered plans, and any pensions. Further, unless you want your separated spouse to be able to make your property and personal care decisions, you must attend to preparation of your power of attorney documents as well.
Since separation can drag on for some time, individuals need to ensure they take a close look at their assets and related estate documents to avoid unintended consequences.
The above serves as general information only and is not to be relied on as legal advice. Please contact your lawyer for your specific circumstances.
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