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Estate Administration

Estate Administration

We are will and estate lawyers. We assist clients in drafting their wills and we assist families and friends when someone dies. These are two sides of the same coin. One aspect of our practice focuses on the planning, while another aspect focuses on dealing with the deceased’s assets and distribution to the beneficiaries.

On this page, we will focus on estate administration and principles of Canadian estate law (click here if you want further information about wills or estate planning)

Estate administration is a general term. It encompasses all the legal work required to deal with a deceased’s assets. Many factors affect how we do this. First, we must determine whether the deceased actually drafted a will. If not, then it becomes an intestate estate. Once we determine if a will exists, we must determine if probate is required. If it is, can the probate of will occur? or if you prefer, can we “go to probate court” with the document? Does it meet legal requirements or will a court reject the application?

If the deceased died without a will (an intestate estate) then we must determine who can apply to court. In an intestate estate, the person applying to court does not apply for probate, but rather applies for administration. If accepted, the court issues letters of administration rather than letters of probate. While letters of administration are legally different from letters of probate, practically speaking, the person in charge of an estate (either the executor or administrator) performs essentially the same tasks.

What is probate and why is it necessary?

When someone dies and that person had a valid will at his/her death, the person or persons appointed as executor(s) automatically receive the legal power to manage the deceased’s assets. This is done by virtue of the Will’s Act of Manitoba. It occurs automatically. The executor(s) has no obligation to obtain permission from the courts. Simple enough?

Not quite….

Organizations such as banks, credit unions, and investment companies are reluctant to provide someone, whom they likely don’t know, with the life savings of a deceased on their word that they are, in fact, the executor(s). Imagine if you were a teller at a bank, and someone whom you never met provides you with a will (essentially a printed Word document) purporting to appoint this complete stranger the executor. Now imagine that this stranger asks you to provide him/her with a bank draft for the amounts in the deceased’s accounts, totaling $248,576,00. Would you hesitate?

Purpose of Probate

While an executor automatically receives her/his power to act from the will by virtue of the Will’s Act, organizations such as banks and credit unions will rarely simply hand over control of the deceased’s assets to an executor without letters of probate. The purpose of probate is to protect these institutions from liability to others who may question the validity of the will or the right of the executor to act. Letters of probate protect the institutions. Once these institutions receive a copy of the letters of probate, their liability ceases. Essentially, it’s no longer their problem. If the executor acted either inappropriately or even illegally, aggrieved parties cannot sue the bank or credit union.

When is probate required?

Probate is required when an institution, such as a bank, credit union or investment company advises the executor that, prior to releasing the funds, he/she must provide letters of probate. Sometimes, however, probate can be avoided if the deceased did not have much money. In this case, and it’s up to the institutions to decide, the bank or credit may simply ask the executor to sign an indemnity instead. How much is “not a lot of money”? It depends on the institution. I’ve seen a bank once release $90,000.00 to an executrix without letters of probate. However, this is rare. Usually banks or credit unions are more comfortable releasing funds under $30,000.00. However, even in these circumstances, banks or credit unions may refuse. It’s entirely up to them.

Can an executor apply for probate from abroad?

If the executor applies for probate for assets in Manitoba from abroad, then the answer is yes, but… A foreign executor must provide the court with an insurance bond. If the executor is a non-resident, then the estate would also likely be deemed a non-resident by the Canadian Revenue Agency leading to tax complications. In this case, you should seek immediate legal and accounting advice as different strategies can provide a more practical solution.

Intestate estate

As discussed above, when someone dies without a will (or the will was lost) a probate of will is not possible, as the term probate only applies when a will is submitted to court. If a person dies intestate (without having prepared a will), someone must apply to court for letters of administration. From a practical point of view, the person named as administrator under letters of administration fulfills the same role as an executor does under a will. The biggest difference is that an executor may have more powers than an administrator. For example, an administrator cannot mortgage the property of a deceased without a court order, while an executor likely can (although the need to do this would be rare). For the most part, an administrator can claim the funds held by the deceased and distribute them as required.

Distribution

An administrator’s responsibilities are the same as executor responsibilities to beneficiaries. The difference is that an executor must follow the instructions in the will. If the testator indicated in his will that he wanted his estate to go to the Humane Society, the executor must write a cheque to the Humane Society. On the other hand, an administrator must follow the law. The Intestate Successions Act of Manitoba outlines how to distribute the funds. I would recommend that you discuss this with a lawyer as some of the rules can be difficult to follow.

Executor / Administrator / Executrix / Administratrix

trustee vs executor

We often hear that a person is an executor and trustee. What does that actually mean? Is there a difference? The answer is that yes, there is a difference between trustee and executor. However, when we draft wills, we almost always appoint the same person as executor and trustee. The difference is that an executor is the person who assumes the assets of the deceased on death. The executor’s first responsibility is to deal with the deceased’s liabilities. Most of the time this means paying all of the deceased’s debts including their terminal tax return. However, it can also mean dealing with unresolved legal matters, such as lawsuits. Once the debts are paid or legal matters settled, the balance of the estate goes to the beneficiaries. Until the liabilities are settled however, the actual amount owed to the beneficiaries remains unknown. A trust cannot exist without the three certainties ((i) The Certainty of Intention; (ii) The Certainty of Subject Matter; and (iii) The Certainty of Objects). In this case, until liabilities are settled, we don’t have the Certainty of Subject Matter. Therefore a trust cannot technically exist. Once the debts are paid and liabilities are settled, however, the certainty of subject matter crystallizes and a trust forms. The executor then becomes the trustee who holds the assets, in trust, for the beneficiaries. The difference is somewhat academic, so people shouldn’t concern themselves too much about this distinction.

What if at the executor is also a beneficiary?

No problem. The same goes for an administrator/trix. Not only can an executor of a will be a beneficiary, it happens frequently. In most wills, a spouse will name the other spouse as executor and beneficiary. While a conflict can technically occur when one child / relative / friend is named as executor and beneficiary, courts are not usually concerned unless the executor fails to comply with his/her obligations.

Executor / Administrator Duties

Debts and expenses

As discussed above, an executor must first pay a deceased’s debts or deal with any outstanding legal issue. An executor should also consider posting a legal notice to all potential debtors. You’ve likely seen these in local newspapers. The notice provides all potential debtors notice that the deceased died and gives them a specific amount of time (usually 90 days) to make a claim. If the executor fails to publish a notice, then the executor may become personally liable for any debts – provided the debt is not barred by the limitations Act of Manitoba.

An executor can be reimbursed for expenses, including travel expenses. An expense paid by the executor becomes a debt of the estate. For example, if an executor pays for a funeral out of pocket, the executor can reimburse himself for those expenses. The same applies to administrators.

Funeral

The executor is NOT responsible for the funeral. Although, the executor will be responsible to pay the funeral expenses. The law recognizes that on death, funeral arrangements must be made quickly. So, even if a will specifies certain funeral instructions, the executor will not be held accountable if those are not respected.

Process of application

In order to apply for probate, the executor must complete an application. While it is possible to complete the application without the assistance of a lawyer, we don’t recommend it. The process for application is riddled with internal rules that are not published anywhere. You discover them through the process of application. The court routinely rejects applications. When it does, it provides the reason for rejection. This is how one learns. I’ve had the same application rejected numerous times. I discovered, that sometimes, once the “examiner” discovers a problem, that persons stops the review immediately without checking the balance of the application. After addressing the problem cited, the same application was rejected again for something further down in the application. Why couldn’t someone review the entire application the first time? (this question is rhetorical….)

Assets included in probate

When completing the application for probate an executor must list all of the deceased’s assets in the application. However not all assets are included. While this seems contradictory, let me explain…. Technically and legally speaking all of the deceased’s assets are included. However, the law deems that certain assets are distributed as inter-vivos gifts. What does this mean? inter-vivos is a Latin term that means “while alive”. In the case of life insurance policies, RRSP/RRIF’s, and TFSA’s, named beneficiaries receive the payout an in inter-vivos gift, in which case those assets do not fall into the deceased’s estate. They are therefore not included in the inventory.

Real property

In the case of real property, if a deceased is registered as joint tenant on title, then that person’s interest ceases to exist and the joint tenant, usually the spouse, automatically becomes the sole title holder. So, again, joint properties are not included in the inventory.

Balance of assets

The balance of the assets, including personal property, money, real property (not owned jointly), stocks fall into the estate. These must be valued and included in the inventory.

Valuation

In the application, the executor must provide a value of the property in the estate. This includes the value in the bank accounts, real property, stocks, mutual funds, funds in RRSP’s and TFSA’s (unless a beneficiary is named – see above), and the deceased’s personal property. The executor must use the estate’s fair market value on the date of death. For bank accounts and investments, this is fairly straightforward. The executor can use the value stated in the statements.

Real estate valuation

For real property, the executor may be able to rely on the municipal assessment as long as he is confident enough that the assessed value represents fair market value. This is not usually a problem anymore, as assessed values now generally reflect fair market value. However, in markets where the price of real estate increased rapidly earlier this decade, assessed values regularly lagged behind fair market value. If in doubt, an executor should hire an appraiser. The reason we recommend this is because an executor must sign an affidavit swearing that, to the best of his/her knowledge, the valuation correctly reflects fair market value. Swearing false information in an affidavit amounts to a criminal offence under the Criminal Code of Canada. So if an executor knows that the assessed value does not represent fair market value, he/she commits a criminal office when swearing the document.

Personal property valuation

For personal property, the executor must provide a reasonable valuation. If the deceased lived in a care home and simply owned some clothes, a chair and a television, the valuation could reasonably be $200.00. The valuation must be included even if the cash value is not realized. Many people simply donate these items to charities or simply throw them out. Courts do not concern themselves with how personal items are dealt with. The question you must ask is, how much could I sell these items for on kijiji or in a garage sale. In the court’s eyes everything has monetary value, even if it does not amount to much. Conversely, if the deceased lived in a 1200 square foot home at the time of death, an executor must assess the fair market value of the items. This doesn’t mean that one must find similar used sofas for sale online and proceed with each item in the same way. But it does mean that the valuation must be reasonable and defensible.

Vehicles

Vehicles are fairly easy to value. One can find information on line and through certain tools such as blue book values. Even if the car is a collector car, valuations are relatively easy to find.

Jewelry and art valuation

These items are a little trickier to value. In order to determine the value of estate jewelry and/or art, an executor may have to hire an appraiser. It really depends. If the deceased picked up a stock wall hanging at a garage sale, then you may be able to simply include the value in the overall personal property valuation. However, if the artist is a relatively renowned artist, then one should have the piece appraised. The same principle applies to jewelry. The jewelry may only be worth the weight of the precious metal, or it may be more valuable depending on the designer or age. When in doubt, obtain an appraisal.

Debts to the estate

An executor must also include the value of any debts owed to the estate. The executor should make reasonable efforts to recover money owed to an estate. Once recovered, the funds will be added to the estate.

Letters of probate or administration

Once an executor or administrator receives the letters of probate or administration from the court, he can approach all of the institutions who demanded or requested the letters from the executor or administrator. The funds be centralized and deposited into one account, usually designated as the Estate of so-and-so. From these funds, the executor/administrator can pay all of the debts, including reimbursing him or herself for out of pocket expenses.

Income tax

Depending on the date of death, the executor may not be able to complete a terminal income tax return until the following year. In any case, the executor must wait until he or she receives all of the information needed, such as T4, T4A, T4A(OAS), and T4A(P). Once received, he should proceed. If, after the date of death, the estate created income such as interest or capital gains, then the executor must also complete an Estate tax return. You should consult with an accountant on whether a return must be completed.

Once the tax return or returns are completed, an executor or administrator should apply to CRA for a clearance certificate. The clearance certificate will protect the executor from liability should CRA later determine that the deceased owed anything. This can take time.

Distribution

Once all the debts are paid and provided no other legal liabilities exist, the leftover assets form the residue of the estate. The executor must follow the instructions in the will and the administrator must follow the legislation. We recommend that executors proceed with an initial distribution at this time. You should keep a “safe” amount in reserve until the tax returns are completed and CRA issues a clearance certificate. What is a “safe” amount? This is judgement call. If the deceased was on a fixed income, and he/she normally received a refund from his/her tax return, then $5000.00 or $10,000.00 would be sufficient. On the other hand, if the deceased owned many businesses and usually owed taxes at the end of the year, more would be necessary.

While no hard schedule exists, executors and administrators should execute their duties within a reasonable time. This includes the application, settling of liabilities, and distribution to beneficiaries.

Executor fees

Executors can charge a reasonable fee for performing required duties. There is, however, no typical executor fee. How much do estate executors get paid? It depends… Courts have stated that executor fees, if not specified in the will, should be reasonable under the circumstances. For example, a deceased leaves a million dollars in cash, in the bank, to an adult child, who is the only beneficiary, and the deceased had no lability. In this case, a court would likely find that, while the estate assets were significant, the work required to administer the estate would have been minimal. A executor would have difficulty charging 5% of the estate or $50,000.00. On the other hand, if a deceased leaves a complicated estate with dozens of beneficiaries, debts to be collected, and liabilities, an executor may be justified in charging a fee amounting to a much larger percentage of the estate.

Probate fees

When an executor or administrator applies for the appropriate letters in court, the estate must pay probate fees. These fees are based on the value of the estate inventory, which we discussed above. While not the lowest, Manitobans enjoy “reasonable” probate fees. In Manitoba, probate fees are based on $7 for every $1,000.00 of value or 0.07% (with fees starting at $70.00).

Lawyer fees

Lawyers charge for legal services. Assisting an executor or administrator with an application to probate court forms part of the services provided. We also advise Executors on duties and responsibilities. In Manitoba, the court established the following schedule for estates of average complexity:

  •  % on the first $100,000, or the portion of that amount, of the total value of the estate, subject to a minimum fee of $1,500;
  •  1.25% on the next $400,000, or the portion of that amount, of the total value of the estate;
  •  1% on the next $500,000, or the portion of that amount, of the total value of the estate;
  •  0.5% on the total value of the estate over $1,000,000.
  • This tariff is established as a guideline. If the estate is more complicated, lawyers may charge more. Conversely, it is simple, they may charge less.

How long should an executor or administrator hold on to the letters of probate or administration?

Arguably, an executor or administrator discharges his or her duties when he/she has performed all duties (receives letters of probate/administration, pays debts, distributes funds, and receives a clearance certificate from CRA to confirm that the deceased’s taxes are paid). At that point, what should be done with the letters of probate/administration? No hard and fast rule exists. If the letters are destroyed, an executor could apply to receive a copy of the letters from court. Why would someone keep them? Every now and then, we receive calls from other lawyers or organizations requesting information about an estate that has long been settled. I received a request in 2015 from a lawyer for an estate settled in 1988.

Discovering assets after probate

A deceased may receive a benefit years later or discover assets not included in the original request for probate. In the former case, the organization holding the benefit will try and locate the executor. The executor must then determine whether the benefit should fall into the estate (see above), and if so file a new application to court to account for the value of the new benefit. In the case of an asset discovered after probate, a new court application must occur and the value of the discovered asset must be included.

Minors/children

In some unfortunate cases, the deceased leaves minor children. In some cases, testators appoint guardians in their wills. However, this appointment is not necessarily binding. Courts will rely on the legal principle of “the children’s best interests”. Courts consider a number of factors in determining the children’s best interests. The persons appointed as guardian, or in the case where a testator did not name a guardian, a relative or close friends may apply to court to become guardians. Presumably, a judge would order that the estate should cover the costs associated with such an application. Either way, an executor should ensure the children’s guardianship is settled prior to distribution.

Canada Revenue Agency

Finally, executors should be aware that the Income Tax Act of Canada treats different classes of assets differently. Not only must the executor complete the terminal tax return and estate tax return if the estate generates income, he/she must also be aware of these differences and how they impact the estate. In the case of real property (such as a cottage) transferring to the next generation, capital gains may apply. In the case of RRSP/RRIF’s on the death of the last surviving spouse, any funds still invested “fall” out of the tax protected investment vehicle and become taxable income. A prudent executor should consult with an accountant to ensure enough funds are available to satisfy the tax event prior to distribution.

 

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