Advertising for Creditors: Executor Protection in Ontario

Before an executor hands anything to the beneficiaries, there is a worry that keeps many of them up at night: what if a creditor turns up later? If the estate has already been distributed, the executor can feel personally on the hook.

Ontario law gives executors a way to reduce that risk. This article explains what notice to creditors does, what it does not do, and how to deal with a claim you dispute.

Why creditors matter before you distribute

The deceased's property, other than property passing by survivorship, vests in the personal representative as trustee, subject to payment of the deceased's debts. In plain terms, debts come first. Ontario's official guidance says the estate is distributed once assets have been liquidated and funeral and burial expenses and any debts have been paid.

If the estate does not have enough to pay everyone, debts are generally paid proportionately without preference or priority, subject to existing liens. The court may relieve a personal representative who acted honestly and reasonably.

What the notice protection does

Under the Trustee Act, a personal representative who gives the notices the court would have directed may distribute the assets. They are not liable for amounts distributed to any person whose claim they had no notice of at the time.

The key words are "at the time." The protection is about claims you genuinely did not know about when you distributed, after you took the steps the court would have required. It does not help if you knew of a debt and ignored it. The exact form, wording and placement of notices should be confirmed with a lawyer for your estate.

Who the protection does not cover

The protection does not apply to heirs, next of kin, devisees or legatees claiming as such. If someone says they are entitled to a share of the estate as a family member or beneficiary, notice to creditors will not shield you from that claim.

Tax debts raise a separate question, and how they apply to your estate is worth confirming with a lawyer or accountant. If you distribute without a clearance certificate and tax is owing, you are personally liable for the unpaid amounts, up to the value of the assets distributed. A clearance certificate confirms the estate has paid all amounts of income tax. If the deceased had a GST/HST number, a separate Form GST352 is also needed.

Disputing a creditor's claim

You do not have to accept every claim. An estate trustee may serve a written notice contesting a creditor's claim. The claimant must apply to court within 30 days of receiving it, or within a further three months if a judge allows. Otherwise the claim is deemed abandoned and forever barred. The same process applies to unliquidated claims, which are claims where the amount is not yet fixed.

What to do next

• Make a list of every debt you know about, including the funeral account and any credit cards or loans.
• Ask a lawyer what notices suit your estate and keep proof that each one was given.
• Hold back distributions until the notice steps are done and debts are dealt with.
• File the required tax returns and make sure any balance owing is paid.
• Request a clearance certificate on Form TX19 only after the returns are filed and assessed and taxes are paid or secured.
• Keep a written record of any claim you contest and the date you served your notice.

Allow time for the clearance certificate. The CRA acknowledges the request within 45 days, and the assessment can take up to 120 days. If the estate is short of funds or a claim is large, speak with a lawyer before paying anyone.

Frequently asked questions