Estate Administration

Many people are familiar with the concept of being named the Estate Trustee (formerly known as an Executor) of an estate, but few are aware of the various statutory and common law obligations that come along with this responsibility. The Estate Trustee is the representative designated to carry out the terms of a Last Will and Testament and is tasked with winding up the affairs of the deceased, paying taxes and bills and distributing the residue of the estate to those entitled.

One of the fundamental obligations of an Estate Trustee is to identify and protect the assets of the deceased’s estate.  Careful consideration should be given as to who is tasked with this role.

For a list of some of the duties taken on by an Estate Trustee, please click here.

In accordance with Ontario legislation, an Estate Trustee is entitled to receive compensation for his/her efforts in administering the estate of a deceased person. The legislation does not provide a fixed percentage or methodology for calculating same. For more information on estate trustee compensation, please see this blog post.

The “Probate” process, which is now called an “Application for a Certificate of Appointment of the Estate Trustee with [or without] a Will” in Ontario, is the Court procedure for the formal approval of the Will by the Court as the valid Last Will of the deceased. It is also the confirmation of appointment of the person who will act as the Estate Trustee (formerly referred to as an Executor) of the estate. This process gives the Estate Trustee the authority to act on behalf of the deceased.

Acting as the Estate Trustee of a loved one’s estate can be an onerous and thankless job. Most Estate Trustees will be quick to add that often times it’s not an honour but a burden. It comes with a great deal of responsibility, consumes much of your time and can expose you to liability. Where you are named as the Estate Trustee, it is important that you fully understand your exit strategy at the outset should you ever wish to resign from the role.

Unfortunately, resigning as the Estate Trustee isn’t as simple as one would hope. The procedure to resign depends on two factors: (1) what steps you have taken as Estate Trustee, if any, and (2) the terms of the Will.

If the Estate Trustee has not begun to act, then the Estate Trustee can simply sign a renunciation form. If, however, the Estate Trustee has begun to act, then the Will is always your starting point. The Will may set out the procedure to resign. Most Wills, however, fail to set out the method for the named Estate Trustee to resign. If that is the case, we have no choice but to examine the steps you have taken as the named estate trustee, if any, to determine whether a court application is necessary in order to resign from the role.

You can get more information on how to resign as an Estate Trustee here.

There are many horror stories told by individuals who have been unable to access money in the account of a deceased, even to pay bills which were clearly those of the deceased.

The fact is that banks will in fact freeze accounts of an account-holder upon learning of the account-holder’s death.  This can create significant problems where there are pre-authorized payments set up to pay all the deceased’s bills, and other bills needing payment begin to accumulate.  A bank will usually allow for payment of direct funeral expenses, and, in some cases, ongoing utilities, taxes, and condominium fees related to a property owned by the deceased.  A bank may also allow for the payment of probate fees from the account.  However, for all other needs the account will be frozen until the Estate Trustee named in the deceased’s Will has been officially appointed by the court (issuance of a Certificate of Appointment), which can and does take months.

For more on what someone planning their affairs can do to avoid this ‘cash flow’ problem for their estate, please see this blog.

1. Estate Administration Tax (Probate Fees)

After you die, your Estate Trustee may need proof (requested by financial institutions and government agencies) that they are the person authorized to represent your estate. An application for Certificate of Appointment of Estate Trustee with (or without) a Will (Probate) is the process that provides court certification of this fact. In Ontario, the fees (officially called an estate administration tax) equal almost 1.5% of your estate’s value at the date of your death. It should be noted that your debts (other than any mortgage registered against your real estate property) and other costs, such as funeral and related expenses, are not deducted from this value for the purposes of calculating the estate administration tax. Generally speaking, assets that have a designated beneficiary or are held jointly with right of survivorship are not part of your estate for the purposes of calculating the tax.

2. Income Tax on Capital Gains

At death, you are deemed to have sold all your capital property. Your estate must pay the income tax liability on any capital gains that occur due to this deemed disposition.

3. Income Tax on Tax-Sheltered Savings Plans

Generally speaking, the value of the RRSP or RRIF at the date of death of the annuitant is included in the income of the deceased for the tax return for the year of death.  However, income tax may be deferred if the beneficiary of the RRSP, RRIF, or estate is the spouse or common law partner, a financially dependent child/grandchild under the age of 18 or a financially dependent and mentally or physically infirm child/grandchild of any age.  There are conditions which must be satisfied to qualify for the deferral.