Distributing an Estate Within Six Months: Risks for Estate Trustees

Beneficiaries often want their money quickly, and some press the estate trustee to pay out within weeks. If you are the trustee, you may feel caught between family pressure and a nagging worry that something could go wrong.

This article explains the main reason for caution about early distributions in Ontario: the dependant support claim and its six-month window. It also covers the other risks that make an early payout riskier than it looks. It is general information and does not replace advice on your estate.

The six-month rule: what it actually says

Under the Succession Law Reform Act, where a deceased person has not made adequate provision for the proper support of their dependants, the court may order support from the estate, whether or not there was a will. A dependant includes a spouse, parent, child or sibling whom the deceased was supporting or was legally obliged to support immediately before death.

No dependant's support application may be made after six months from the grant of letters probate of the will. The period runs from the grant of probate, not from the date of death. The court may allow a late application as to any portion of the estate that remains undistributed.

So six months is a deadline for the person claiming, not a waiting period written for the trustee. But it explains why trustees commonly wait: until the window has passed, a claim could still arrive.

Why an early distribution is risky

Once a support application is made, the personal representative must not distribute the estate until the court has disposed of it. If the trustee distributes in breach of a support order, the trustee is personally liable for the amount distributed, to the extent the order should have been paid from that portion of the estate.

That is the heart of the problem. If you pay out early and a claim is later made, the money may already be in the beneficiaries' hands, which can leave you exposed. Whether a particular early payment would turn out to be a problem depends on the facts, including whether a claim is ever made.

It is also worth knowing that a dependant's claim can reach more than the assets that pass under the will. Property held as joint tenants at death, certain joint deposits, beneficiary designation amounts and life insurance proceeds are deemed part of the estate for the purposes of a support claim. A named beneficiary does not fully shield the money from a support claim.

Other reasons to wait

The dependant claim is not the only risk. Others include:

• Taxes: a legal representative who distributes before getting a CRA clearance certificate can be personally liable for unpaid tax, up to the value of the assets distributed. The certificate is requested on Form TX19 only after returns are filed, assessments received and amounts owing paid or secured.
• Creditors: the trustee is protected from creditors whose claims they had no notice of only if the notices the court would direct were given and the notice period passed. Creditors can still follow the assets into the hands of those who received them.
• Debts shared out: residuary property is applied rateably to debts, funeral and testamentary expenses and administration costs, unless the will shows a contrary intention, and beneficiaries who already received a share must refund their rateable part of a later-established debt.
• Intestacy: where there is no will, no distribution is made until one year after death, subject to section 53 of the Trustee Act.

Safer practice in Ontario

Many trustees choose to hold off on a final distribution until the six-month period after the grant has passed, and until taxes and debts are dealt with. That is a matter of prudence rather than a statutory command, and the right timing can vary with the estate.

If a trustee has acted honestly and reasonably and ought fairly to be excused, the court may relieve them from personal liability for a breach of trust. That is a discretionary remedy after the fact, and it is much better not to depend on it.

What to do next

• Note the date the certificate of appointment (letters probate) was granted and calculate six months from that date.
• List anyone who might qualify as a dependant, including a spouse, parent, child or sibling who relied on the deceased for support.
• Check what tax returns remain and whether a clearance certificate will be sought.
• Give beneficiaries a realistic timeline in writing, so the pressure eases.
• Before any early or partial payment, talk to a lawyer about the risks and how to record the payment.

Frequently asked questions