Dealing With a Deceased Person's Debts in Ontario

When someone dies, many families worry that they will have to pay the person's debts out of their own pockets. In general, debts are dealt with by the estate, and the person managing the estate has duties to creditors before the beneficiaries receive anything.

This article explains how an Ontario estate deals with debts, what happens when there is not enough money, and the points where a personal representative can be exposed if they move too quickly.

Who pays the debts of someone who has died

Debts of the deceased are generally paid from the assets of the estate, not by relatives personally. Your own exposure usually depends on your role. If you are the estate trustee or administrator, you have duties to follow. If you are only a family member or a beneficiary, you are not automatically responsible for the debts.

Some assets pass outside the estate, for example by joint ownership with survivorship or to a designated beneficiary. Whether a particular asset is reachable by creditors can depend on the facts, so it is worth confirming with a lawyer.

When the estate does not have enough

If an estate does not have enough assets to pay its debts, the debts are paid proportionately, with no debt ranked ahead of another. Debts owed to the Crown and to the personal representative rank alongside the other debts. Liens that existed during the debtor's lifetime are not affected.

In practice, this means a shortfall is shared among creditors rather than the first to ask being paid in full. How this applies to a particular estate, including when and whether beneficiaries can be paid, depends on the facts, so it is worth confirming with a lawyer before any payments are made.

Notices to creditors and distributing the estate

A personal representative who has given the required notices to creditors may distribute the estate. They are not liable to a creditor whose claim they had no notice of at the time of distribution.

There is an important limit. A creditor keeps the right to follow estate assets into the hands of the people who received them. That means a beneficiary who has already been paid may still face a claim.

Taxes: the clearance certificate and the final return

A legal representative who distributes estate assets without a CRA clearance certificate, requested on Form TX19, while tax is owing is personally liable for the unpaid amounts, up to the value of the assets distributed.

The final return is generally due April 30 of the following year for a death between January 1 and October 31. For a death between November 1 and December 31, it is due 6 months after the death. If the deceased, or their cohabiting spouse or common-law partner, was carrying on a business, the return is due June 15 of the following year (or 6 months after a death between December 16 and 31), but any balance owing is still due by the regular date.

Property is deemed to be disposed of immediately before death at fair market value, and any resulting capital gain is reported on the final return. Property passing to a spouse, common-law partner or qualifying spousal trust can roll over at cost if it vests indefeasibly within 36 months after death, although the representative may elect out.

Estate Administration Tax and the Estate Information Return

Ontario also charges Estate Administration Tax when a certificate is applied for. For applications made on or after January 1, 2020, no tax is payable on estates worth $50,000 or less. Above that, the tax is $15 for each $1,000 or part of $1,000 by which the estate exceeds $50,000.

The estate representative must file an Estate Information Return with the Ministry of Finance within 180 calendar days after the estate certificate is issued, even if the estate is worth $0. No return is required for certain succeeding estate trustee certificates or a Certificate of Appointment of Estate Trustee During Litigation. If the representative learns that a return is wrong or incomplete, they must file an amended return within 60 days of finding out.

If the deposit was based on an estimated value, the applicant must give an undertaking. They must then file a sworn statement of the actual value and pay any extra tax within six months after giving the undertaking. The Minister may generally assess or reassess the tax within four years after it became payable, but can assess at any time if someone failed to file the return, made a misrepresentation or committed fraud.

What to do next

• Do not distribute anything to beneficiaries until debts and taxes are understood.
• List the deceased's assets and debts, and note which assets pass outside the estate.
• Give the required notices to creditors and keep a record.
• Request a CRA clearance certificate before distributing.
• Note the date the estate certificate is issued, so the Estate Information Return is not missed.
• Do not pay one creditor ahead of others if the estate may be short.
• Speak with a lawyer or accountant if the estate looks insolvent.

Frequently asked questions