Do Beneficiaries Pay the Deceased's Debts in British Columbia?

Many beneficiaries worry that a loved one's credit cards, loans or tax bills will land on them. That worry is understandable, especially if the deceased owed a lot or the estate looks small.

This article explains in general terms how debts are dealt with in a British Columbia estate and the situations where a beneficiary could be affected. The details depend on the estate, so a lawyer can confirm how it applies to yours.

This article covers the law of British Columbia.

Debts are dealt with by the estate

A personal representative has the same authority over the estate as the deceased would have had if living, subject to any contrary intention in the will and to any enactment. They must use that authority to administer and distribute the estate and to account to the people they owe a duty to account to.

In practice, that means the executor or administrator is the one who collects the assets, identifies the debts and pays what is owed before beneficiaries receive their gifts. When applying for a grant, the applicant must make a diligent search and inquiry to find the deceased's property and liabilities, and must disclose them as the Civil Rules require. If the deceased was not domiciled or ordinarily resident in BC, the property is outside BC, and it is administered by a foreign personal representative or under foreign law, that disclosure duty does not apply.

How creditors are given a chance to come forward

A personal representative may publish a notice in the Gazette asking creditors to present claims within a stated period of at least 30 days. After that period, they may distribute taking into account only the claims they know of, and they are not liable for claims not presented in time.

There is also a waiting period. Except by court order, a personal representative must not distribute the estate within 210 days after the grant is issued. That can be shortened if all beneficiaries with an interest and all persons who could bring a wills variation claim consent. With no will, the estate may be distributed earlier if all intestate successors entitled to a share consent.

When a beneficiary could be affected

The creditor-notice protection protects the personal representative. It does not affect a creditor's right to recover estate assets from whoever received them. A beneficiary who received estate property may therefore have to give it up to an unpaid creditor.

• Property left with a purchase money security interest: a beneficiary left property encumbered by one is primarily liable for that secured debt.
• Early distribution: if the representative distributes early without all consents, they must set aside the shares of beneficiaries who cannot be located, plus enough to satisfy any wills variation claim, or they are personally liable for resulting loss.
• Taxes: a legal representative who distributes without a CRA clearance certificate is personally liable for unpaid amounts, up to the value of the assets distributed.

If you are a beneficiary, a practical point follows: be cautious about spending an early payment before the executor has confirmed that the debts have been dealt with.

What happens when the estate cannot pay everything

If the estate cannot pay all debts and gifts, WESA section 50 sets the order in which property is reduced. Under section 50(5), the order is:

• property specifically charged with a debt or left on trust to pay a debt;
• property passing on intestacy and the residue;
• general, demonstrative and pecuniary legacies;
• specific legacies; and
• property over which the will-maker had a general power of appointment.

For an insolvent estate, and subject to secured creditors, the proceeds go first to reasonable funeral and administration expenses, then the personal representative's compensation under Trustee Act section 89, then legal expenses of administration, followed by other listed claims such as limited wage claims, support arrears and certain taxes. All other accepted claims are then paid rateably. Other claims may rank in between, so an insolvent estate calls for legal advice.

What to do next

• Ask the executor for a list of known debts and what has been paid.
• Ask whether a creditor notice has been published and when its period ends.
• Do not distribute or spend inherited funds early without confirming debts are covered.
• If you are the executor, keep careful records and get advice before distributing, since you may be personally liable in some cases.
• If the estate looks insolvent, speak with a lawyer before paying any creditor.

Frequently asked questions