Dying Without a Will and Unpaid Debts in Ontario: Who Pays?

When someone dies without a will, heirs often worry that creditors will come after them. You may be asking whether the family has to pay the bills, in what order, and what happens if there is not enough money.

This article explains the general rules for paying debts from an intestate estate in Ontario. How they apply depends on the assets and the debts, so a lawyer or accountant can confirm your situation.

Debts are paid from the estate before heirs receive anything

Funeral and burial expenses and debts are paid before the estate is distributed. The estate trustee is responsible for paying taxes, bills and other debts.

The deceased's property passes to the personal representative, who holds it as trustee for those entitled. The personal representative can also sell estate property to distribute or divide the estate, not only to pay debts. The residuary real and personal property is applied rateably, according to value, to pay the debts.

The preferential share for a surviving spouse is measured against the net value of the estate. Net value is the value after paying charges on the property and the debts, funeral expenses and administration expenses. Debts therefore shrink what the spouse and other heirs receive.

Are heirs personally responsible?

In general, the estate trustee is the person responsible for paying the debts from the estate, and the estate trustee is the only person with legal authority to manage the estate. Heirs receive what is left after debts are paid.

Whether a particular heir could be personally affected, for example because they co-signed a debt or held property jointly with the deceased, depends on the facts and is worth confirming with a lawyer. Before the estate trustee is appointed, no official rule lists what a relative may safely do, so avoid paying out or distributing estate property until you have advice.

When the estate cannot pay everything

If the assets cannot cover all debts, the estate is insolvent. In that case the debts are paid proportionately, and no debt ranks ahead of another.

An estate trustee who expects a shortfall in assets may call a meeting of creditors. A meeting is required if creditors holding 10% of filed claims request one in writing.

• The court may decline to appoint the person who would normally apply where there is insolvency or other special circumstances, and it may require security.
• A bond is generally required when someone dies without a will, though there are exceptions, such as where a surviving spouse's estate does not exceed the preferential share and an affidavit setting out the debts is filed.

Protecting the estate trustee and watching for tax

A personal representative who gives the required notices to creditors and then distributes is not liable to a person whose claim they had no notice of at the time of distribution. This is why the timing of distribution matters.

Taxes are among the debts. Estate Administration Tax is nothing on estates of $50,000 or less, and above that it is $15 per $1,000 (or part) of the value over $50,000, for certificates requested on or after January 1, 2020. An Estate Information Return is due within 180 calendar days of receiving the certificate.

An unmatured RRSP is treated as received by the deceased immediately before death, and its fair market value is included in income on the final return. If no beneficiary is named, the plan is paid to the estate and divided under the intestacy rules. Where a spouse, common-law partner or qualifying dependent child or grandchild inherits, the legal representative and that person can elect to treat some or all of it as paid to the survivor, which reduces the amount taxed on the final return.

What to do next

• List every asset and every debt, including taxes and funeral costs.
• Do not distribute anything to heirs until debts and notices to creditors are dealt with.
• Keep the funeral bill and records of what you pay.
• If debts may exceed assets, get advice before paying any one creditor.
• Ask an accountant about the final tax return, including any RRSP.

A lawyer can explain how these rules fit your family's facts and help the estate trustee avoid personal exposure.

Frequently asked questions