When a close friend or family member passes away, you may be responsible for dealing with their affairs, which includes administering their estate. There is usually no need to rush to administer the estate. Usually, the first duty required of the estate trustee is to deal with the funeral arrangements. The estate trustee has an obligation to deal with the remains in a dignified manner.
There are a few matters which usually require immediate action from the estate trustee:
- Determine any immediate needs of the deceased’s dependents who may have relied on the deceased for financial or other support.
- Notify insurance companies which provide automobile and house insurance so that coverage is continued.
- Secure any vehicles and ensure that they are not used in the interim period of estate administration.
- Seek preliminary legal advice. This is not necessary, but useful since the estate trustee will be able to obtain answers to preliminary questions and peace of mind that nothing of immediate importance is being over looked. Legal and tax advice may likely be necessary where the deceased’s estate consists of complex corporate structures.
The Estate Trustee’s Duties
Estate trustees are fiduciaries and, as a result, fiduciary duties attach to their role. These duties include: exercising ordinary care and prudence, follow directions contained in the Will, treat the beneficiaries impartially (unless directed otherwise in the Will), keep and maintain records and produce accounts upon reasonable notice, etc.
One of the estate trustee’s most important duties is to maintain accurate and complete records showing his/her dealings with the estate. The beneficiaries of an estate have a legal right to request a detailed account of the estate trustee’s dealings through the administration of the estate.
Administering the Estate
- Determine Assets and Liabilities. Determining the estate’s assets and liabilities is one of the most important tasks required of the estate trustee. It is necessary to allow the estate trustee to distribute the estate, complete tax returns, complete the probate application, etc.
- Probate Application. Estate trustees will usually have to obtain a “Certificate of Appointment of Estate Trustee” in order to prove to third parties their authority to deal with the deceased’s assets. Even if the certificate is not necessary to deal with the estate (in the event that there is no real property or assets held by financial institutions), it still may be prudent to apply for the certificate, which confirms the validity of the Will and offers protection for the estate trustee when administering the estate and distributing assets. Applying for the certificate requires that estate administration tax is paid.
- Government Identification Cards. Health cards, driver’s licenses, passports, etc. should be returned to the relevant government agency/ministry. Other government agencies should be notified of the deceased’s death (eg, CRA, Service Canada, Service Ontario, etc.).
- Preparing and Filing Income Tax Returns and Post-Mortem Tax Planning. Estate trustees are required to file income tax returns for any year prior to death for which the deceased did not file a return, a terminal return (for the year of death covering the period from January 1 to the date of death), and, if necessary, T3 trust returns with respect to income earned on estate assets. It is also important for the estate trustee to seek legal advice regarding any post-mortem tax planning which may be necessary and/or beneficial.
- The Will. Prior to liquidating assets, the estate trustee must consider the terms of the Will so that any specific bequests are carried out and any assets which are to pass in their current form are not sold. Similarly, personal and household effects may be dealt with differently than other assets. Many individuals provide a “letter of wishes” to their estate trustee(s) dictating how to deal with these assets. Estate trustees are under no legal obligation to follow the deceased’s wishes but ignoring them can cause family discord.
- Other Assets. Other assets are usually liquidated and the proceeds deposited into the estate’s bank account.
- Pay Debts and Claims. The estate trustee ought to ensure that all debts are paid. Similarly, the deceased may have been involved in litigation which may continue or there may be claims against or for the estate which the trustee may need to pursue.
- Cash Legacies and Specific Bequests. Once debts and liabilities have been paid and there are sufficient assets, specific bequests and cash legacies ought to be paid and distributed. Releases and receipts for these payments/transfers ought to be obtained.
After the above steps are completed, the estate trustee will be in a position to provide an accounting to the beneficiaries of the remainder of the estate (after the cash legacies and specific bequests are paid). This is called the residue of the estate. The estate trustee will obtain releases from the beneficiaries of the residue to confirm their approval of the administration of the estate and the estate trustee’s compensation (if any) and then distribute the residue of the estate.
The estate trustee should obtain a tax clearance certificate (which protects the estate trustee from future tax liabilities) prior to the final distribution of the residue of the estate or holdback some portion of the residue to pay any reassessed taxes.