You’ve been named Executor or Estate Trustee - now what?

A friend or family member has passed and you've been name Executor (or Estate Trustee in Ontario) for the estate.  At a time when you are grieving because of the loss, this new responsibility can be daunting.

Many of my clients have called me after trying to navigate through the process on their own - frustrated and seemingly getting nowhere, they come to the conclusion that they need some professional help.

Because people are saving more than they used to and have registered Savings plans (like RRSPs, RIFFs and TFSAs) even the simplest estates are beyond the expertise of someone who is not a professional accountant or lawyer.

Something that new executors struggle with is how long everything takes - it can take a year or more before all of the assets ae distributed to the beneficiaries. And that's when there is a will - in cases without a will, it can take even longer.

To help new Executors and Estate Trustees understand the timelines, here is a list of steps that need to be taken from a tax perspective and how long it generally takes. 

• T1 Final Tax Return

  • Upon death, a taxpayer is required to file a Final or Terminal return - this return will include all income received from January 1st of the year of death to the date of death. There will be other income inclusions in this return as well - RIFFS and RRSP will be included as will capital gains from deemed dispositions. If they owned a home, there is the reporting requirement related to the principal residence exemption.

  • The return is due April 30th of the following year if the taxpayer died between Jan 1 and October 31st. If the taxpayer died between Nov 1 and Dec 31st, the T1 Final Return is due within 6 months after death.

  • You can try to accelerate the filing of the return if the taxpayer dies early in the year, however, it is typically easier to wait until all income slips have been received from financial institutions, employers, etc. In addition, the income tax rules may change for the year being filed if you file really early - so it's best to wait and file after the year is over.

  • Finalizing a final T1 return can take over a year from date of death until an assessment is issued by the CRA

• Are there any outstanding previous year's return? It often arises that an executor has to play catch up on previous year's tax returns. The CRA won't issue a Clearance Certificate until all previous year's returns have been filed and filed properly. These returns would be filed around the same time as the final return - so the timelines are similar.

• Once all the tax returns are completed and assessed, the Executor should apply for a Clearance Certificate. This provides the CRA one last chance to make sure everything has been properly filed and reviewed from their perspective. It also grants the Executor protection for any unpaid tax, interest and penalties owing by the deceased or the trust. A clearance certificate can be issued as quickly as a month after requesting it, but can take longer depending on the complexity of the estate and if all previous years returns had been filed.

• The executor will have to determine if there was any income earned by the estate between the date of death and the final distribution of the estate assets. If there is income, a T3 Trust return will need to be filed. It's imperative that the Executor ensures there are adequate funds available in the estate to pay any income tax that arises from income in the trust. If the executor distributes the funds without paying the final tax bill, they could be personally liable to pay the tax. 

Estates are complicated and time consuming.  Wills are typically drafted to allow for the executor to hire professional advisers at the expense of the Estate.  All executors want to do a good job and preserve as much of the estate for the beneficiaries as possible.  It's very often in the beneficiaries best interest for the executor to hire an accountant and lawyer with estate experience to help get through the process.  You may save more in taxes than you spend in fees.  It will definitely bring comfort to everyone involved to have an experienced professional to depend on.