Can Creditors Go After a Beneficiary's Inheritance in BC?

Inheritance questions about debt come in two forms. Some people worry that the deceased's creditors will come after what they received. Others have their own debts and wonder whether a creditor can claim a share of an inheritance.

This article covers what the BC rules say about the first question and is clear about where the answer depends on the facts. The second question is one to take to a lawyer or a licensed insolvency professional.

This article covers the law of British Columbia.

Debts come out of the estate first

An executor must settle unpaid debts and overpayments, including taxes owed to the CRA, before distributing the remaining assets to the beneficiaries under the will. The personal representative uses the authority of the deceased to administer and distribute the estate and to account to beneficiaries and creditors.

In general, the estate's assets are the source of payment. A representative is liable for the deceased's wrongful acts or breaches only to the extent of the assets belonging to the estate, subject to the exceptions in WESA s. 149. A claim against a deceased person is not annulled by death alone, and it can continue against the estate with the personal representative as the party.

When a creditor can still reach what you received

A personal representative may publish a notice to creditors in the Gazette. It must set a claims period of at least 30 days from publication. After that period ends, the representative is not liable for claims not presented in time.

That protects the executor, but it does not protect everyone. A notice to creditors does not prejudice a creditor's right to recover estate assets from whoever received them. So a late creditor may still pursue people who received distributed assets.

Tax is a particular risk. If a legal representative distributes property without a CRA clearance certificate while tax is owing, the representative is personally liable up to the value of the assets distributed. Once a certificate is issued, liability for unpaid tax shifts from the legal representative to the estate, trust, corporation or the people who received the assets.

Timing of distribution is a separate rule. Distribution within 210 days after the grant is not allowed without a court order, except with the consent of all beneficiaries and all persons who may bring a wills variation claim.

If a creditor makes a claim against the estate, the executor may give written notice disputing it. If the claim is already due, the claimant must then start a proceeding within 180 days after notice, or the claim is forever barred. That bar does not apply to beneficial-interest claims by beneficiaries or intestate successors, or to wills variation claims.

Benefits that pass outside the estate

A benefit payable to a designated beneficiary under a WESA Part 5 benefit plan, such as an RRSP or similar plan, does not form part of the participant's estate and is not subject to the claims of the participant's creditors.

• The protection depends on a valid designated beneficiary.
• If the estate itself is the beneficiary, or no designation takes effect, the benefit is part of the estate and available to creditors.
• For an irrevocable designation, the benefit is not subject to the control of the participant or the participant's creditors.

Life insurance has its own rules that depend on the policy and on who is named. If you are unsure, ask a lawyer before assuming it is protected.

Your own creditors and your inheritance

Whether a creditor of a beneficiary can reach an inheritance depends on the facts. Relevant points include the kind of debt, whether a court judgment exists, whether the inheritance has been paid out yet and whether you are in a formal insolvency process. A lawyer or a licensed insolvency professional can look at your particular situation.

Do not move or hide an inheritance to avoid a debt. That can create serious problems of its own.

What to do next

• If you are a beneficiary, ask the executor whether a notice to creditors has run and whether a CRA clearance certificate has been requested.
• Hold on to any money received until you know the estate's debts.
• If you are an executor, speak with a lawyer before distributing.
• List your own debts and talk to a lawyer if you have judgments or collection letters.
• Check how any RRSP or similar plan names its beneficiary.

How this applies depends on your situation, so it is worth confirming with a lawyer before you distribute or spend any inheritance.

Frequently asked questions