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Settling Your Estate – Understand the Process

The death of a loved one is a very stressful and emotionally difficult time.  Many Islanders have never dealt with an estate before, so the process can be confusing and overwhelming.  I hope to give you a brief idea of what to expect and to encourage you to plan now.  The www.CorkumFinancial.ca web site, under the Articles section of the Tax and Financial Planning tab has a number of articles to assist you.

After you die, your family and your executor will work with several professionals.  First, they will meet with a funeral director and your religious leader, if you have one, to arrange for the funeral.  You can do a lot of this preparation yourself in advance.  You can make all the funeral arrangements and even pay for the funeral.  This money will be placed in a funeral home trust account until it is needed.  Your family will have less to worry about and you may even save money because of your advance planning.

After the funeral, your family will need to deal with your estate, which includes all of your assets and debts.  The best way to prepare now is to write a Will, and it should be up to date (especially if you have been married or separated/divorced since you prepared it).  You should have a Will to ensure your assets go to the right people, to reduce the income taxes and legal fees owing to settle your estate, and to reduce the stress on your family.  You can find more information about Wills from your provincial public legal information association (in PEI, it is the Community Legal Information Association (CLIA) (www.legalinfopei.ca),) including booklets on Wills, Executors and Administrators.  If you do not have a Will, see a lawyer immediately.  You may wish to refer to my Wills Checklist first.  If you do have a Will, the executor will retrieve it and begin the work of settling your estate.

Your executor will need to see if your estate needs to be probated.  Probate is the court process that approves your Will before the executor can act.  The nature of your assets, and whether or not they are jointly owned, will usually determine if probate is required.  Your executor will need to prepare a list of all of your assets at the date of death and determine the values of those assets.  See my Estate Inventory Listing article to help you prepare this list – which will save you a lot in professional fees if you can do it on your own and take it with you to your first meeting with the lawyer and tax preparer.  This is necessary to calculate the probate fees and to prepare your final tax return.

During this time, your family will have had to notify many parties about your death.  For example, payors of pensions and government benefits must be advised to stop or change payments and you must apply for the Canada Pension Plan death benefit.  See my web site for an article titled “Address Change and Contact List” to help guide your executor with this as well as articles on other estate matters.

After probate, your executor can arrange for preparation of your final tax returns, settle your debts, and distribute your assets.  Before your assets are completely distributed, all your debts must be paid, your final tax returns must be processed and a clearance certificate must be obtained from the Canada Revenue Agency (CRA) to ensure no additional taxes are owed.

Your executor may (usually “should”) hire a tax professional to help complete your final tax returns.  One or more tax returns will be done, depending on your income and assets.  One tax return needs to be completed up to your date of death and can usually be completed very soon after your death.  However, the deadline is the later of April 30th of the following calendar year or six months after the date of death.  To assist you in preparing for your first meeting with your tax preparer, review my article on “Deceased Taxpayers – Checklist of Requirements for Tax Return Preparation. ” Once the final tax return is complete, the tax preparer can assist the executor in applying for a clearance certificate.  However, obtaining the clearance certificate can take anywhere from a couple of months to a year or more, depending on the nature of your assets and the workload at the CRA.  If the executor distributes property to the beneficiaries before this clearance certificate is received, the executor is responsible to pay any additional taxes that may be assessed if there is insufficient money in the estate.  Therefore, your beneficiaries must have patience in receiving their bequests – explain this time lag to them in advance to avoid their frustration.  If your executor is comfortable in doing so, after receiving professional guidance, a partial distribution could be made.

Unfortunately, no one can escape this process, so please plan for it and help your family.

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum