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Tangerine Bank keeping deceased clients money
May 5, 2016
11:31 am
AltaRed
BC Interior
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My apologies that my post didn't qualify what I really meant. What I meant is what Norman1 is referring too. The Executor is personally responsible to creditors to the extent the executor disbursed funds to beneficiaries and left creditors hanging. Hence the reason why not to disburse funds in whole or in part until the Executor knows that all creditors will be satisfied. The last creditor usually to be known the final result on is CRA through the Clearance Certificate which can take a year or so to obtain (so I hear).

Insolvent estates (to begin with) are another matter (and process) entirely, and is province specific per Family Law. Some (most?) provinces have a heirarchy about which creditors get paid preferentially. Clearly probate costs, CRA income taxes, and the like take top priority. Creditors like bills due to nursing homes and credit card debt are typiically down the list.

May 5, 2016
11:40 am
AltaRed
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Estates obviously vary in the extreme as to degree of complexity. Those with businesses, or business interests, really need accountants and lawyers to help handle the work and can take years to wind up. Even more so obviously if there are legal battles.

The more simple ones involve a personal estate of perhaps a home, a car, some financial investments, and the executor(s) and beneficiary(ies) are one and the same. Those could be wrapped up in a year or less pending a home sale and pending final T1 and perhaps T3 Trust tax returns, and whether the executor(s) feel a CRA clearance certificate is needed before final disbursement.

My bro and I are into our 13th month of settling our mother's estate. We are both co-executors and co-beneficiaries and had been handling our mother's financial affairs via Enduring POA for many years. Thus we knew her financial affairs, what her debts were, what her CRA tax file was, etc, etc. It was easy to provide direction to Financial Institutions to disburse most of the funds to the beneficiaries quickly, holding back just enough to comfortably cover CRA tax obligations. Hopefully, CRA will process her Final T1 and T3 Trust returns by the end of the summer and we can wrap up the estate. We likely will not ask for a Clearance Certificate given the number of years we did her tax returns already in POA capacity. This is an example of a 'simple' estate.

May 5, 2016
2:27 pm
Schrodinger's Ape
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I always wondered how shortfalls worked. Thank you for the clarification.

Sorry for being pedantic. My husband and I did our wills the other week, we're each other's executors, and I'm also my mom's executrix, so I wanted to make sure there was no personal risk involved. Not that either of them have any debts, but you never know what the future will hold.....

May 5, 2016
6:57 pm
Loonie
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Don't hold your breath waiting for CRA.
The will I was a beneficiary of took well over 2 years to get the clearance from them, and that person died in 2010. I would not consider it was a complex estate, and there were no back taxes or anything like that. There was nothing whatsoever that was irregular or that should have taken a lot of time. And the executors were lawyers who were used to dealing with estates.

May 5, 2016
8:02 pm
Norman1
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A clearance certificate has more consequences for CRA than waiving their right to back taxes. The certificate also seems to limit their ability to collect later should they reassess the returns. Consequently, I think they would have a close look at the returns for the years in question to make sure there isn't anything that they may later wish to reassess.

I didn't think CRA could reassess after the clearance certificate! According to this, CRA can. This is, from the guide Estates and Income Taxes in Ontario by the Ottawa accounting firm Andrews & Company:

…. The Income Tax Act imposes a personal liability up to the value of the property distributed for unpaid taxes on the person who distributed property without first obtaining a clearance certificate. You do not need a clearance certificate before each distribution, as long as you keep sufficient properties to pay any liability to the Canada Revenue Agency (CRA).

Even though CRA issues a clearance certificate the agency can reassess for the taxation years covered by the certificate (unless the years are statute-barred from reassessment). However, the clearance certificate will protect the executor from any liability for taxes that cannot be recovered from the beneficiaries.

May 5, 2016
8:10 pm
AltaRed
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As Norman1 suggested, the issue is for the Executor, absolving him/her from future back taxes, etc. And as I suggested, my bro and I don't really need the Clearance Certificate either for our mother's estate. If there is something owing in the future, it will because we screwed up her returns in the past to begin with.

BUTif I was an executor of a friend's or relative's estate, and I was simply the 'Executor', I wouldn't cut the estate much slack. I would not disburse until I was sure the liabilities were covered.

May 5, 2016
8:37 pm
Norman1
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AltaRed said

As Norman1 suggested, the issue is for the Executor, absolving him/her from future back taxes, etc. And as I suggested, my bro and I don't really need the Clearance Certificate either for our mother's estate. If there is something owing in the future, it will because we screwed up her returns in the past to begin with.

BUTif I was an executor of a friend's or relative's estate, and I was simply the 'Executor', I wouldn't cut the estate much slack. I would not disburse until I was sure the liabilities were covered.

I agree. I would want protection after disbursing everything against CRA reassessing because they uncovered the friend's or relative's undisclosed offshore trust in Panama or Isle of Man.

May 5, 2016
8:50 pm
Norman1
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That guide Estates and Income Taxes in Ontario from Andrews & Company has some very useful information.

When an RSP or RIF is turned over to its beneficiaries, it is not like an ordinary withdrawal:

The rules for the tax treatment of registered retirement income funds on the death of a taxpayer parallel the rules respecting RRSPs.

…. Remember, this when you are asked if you want to name a beneficiary on your RRSP contract. The beneficiary will receive the full proceeds of the RRSP without any withholdings. The taxes owed on this amount are paid by the executor through the estate. This may cause problems if there is not enough money in the estate to pay the income taxes.

That's likely another reason a financial institution won't disburse an RSP or RIF without the executor's direction.

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