Estate Law and Taxation on Death: Considerations for an Estate Trustee

Estate Law and Taxation on Death

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 in 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 others. 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 percent 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 carryback 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 is 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  VRS Law for more information regarding your particular matter.

Do you need to obtain the Grant of Probate on Death?

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 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 the 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 the 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 its own is confirmation that a valid will exists – this is especially useful in a situation where there may be a question regarding the 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 a 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.