Where There’s a Will: Some Crucial Tips for Executors

By Andrew Keller

‘In this world, nothing can be said to be certain, except death and taxes.’

So said U.S. founding father Benjamin Franklin in 1789.

He was, of course, correct about both but he couldn’t have predicted the pile of legal and bureaucratic demands that face the executor in sorting out our financial affairs and fulfilling our final wishes, once we are gone.

We can all do our best to put our financial affairs in proper order before we die by making sure our will is up to date, reviewing the possible tax of our assets and the personal situations of our beneficiaries, but reality dictates that the executor will still have a big job.

The complexity of that work is not always relative to the value of assets involved. I’ve dealt with executors of multi-million dollar legacies who have found their task relatively simple, and with executors handling far smaller amounts who have been overwhelmed by complexities.

I have often heard these sentiments ‘I didn’t realize it would be so complicated’ ‘I have no idea what I’m doing.’

THE EXECUTOR’S JOB

If you become an executor, one of the first tasks would be to get the will probated, if necessary. This is a legal process where a court gives a will its legal legitimacy. Usually this is fairly straightforward and it makes the next steps, such as accessing the deceased’s bank accounts, far less complicated.

Once that step is out of the way, satisfying Canada Revenue Agency’s (CRA) and Service Canada’s requirements is a large part of the executor’s job.  A funeral home will often deal with some of the easier requirements such as cancelling Canada Pension Plan and Old Age Security payments but far more critical and complex is tax compliance which involves various tax returns – the T1 final tax return, the T1 special returns and the T3 estate return(s).

One of the most common mistakes an executor can make is not properly reporting total income within an estate. There are special reporting rules around this and getting it wrong can result a lot of time trying to get it right.

Probably the most financially significant mistake an executor can make occurs when a private corporation is included in an estate. If these are not managed properly, the potential tax implications can be significant and may result in double taxation.

To prevent potential double taxation there are special rules around private corporations that executors need to follow. Following to these rules, and doing so in a timely fashion, is vitally important. Not doing so could prove costly.

What if a beneficiary is disabled? How do you protect his or her right to government benefits? The answer, simply put, is to try and place the money in trust or Registered Disability Savings Plan (RDSP) but as an inexperienced executor you might be unaware of those rules.

Every circumstance is different and the to-do list for an executor is dictated by each unique circumstance.

When all the necessary executor’s requirements have been met, and the relevant paperwork submitted and approved, CRA will issue a clearance certificate effectively releasing the executor from future income tax liability. Without that certificate, the executor could be liable for the tax payable on the assets distributed to beneficiaries.

This is the bottom line:

If you are an executor with no particular expertise in the possible tax and other financial implications of the person’s estate, reach out to a professional who has that expertise.

Your questions might be quick and easy to answer but getting those answers will likely save you some sleepless nights. And if you need navigating through something more complex, it will save you time and probably save the beneficiaries money.

Andrew Keller is a tax partner with Kenway Mack Slusarchuk Stewart LLP
Chartered Professional Accountants, Calgary.