Estate Trustee Personal Liability for Missed Taxes or Debts in Ontario

Being named an estate trustee can feel like being handed a risk with no pay cheque attached. If you miss a tax filing or pay beneficiaries before a debt appears, can you be personally responsible? The honest answer is that it depends on what happened and why.

This article explains where personal exposure can come from in Ontario and the practical habits that reduce it. It is general information, and a lawyer can assess your own situation.

Where personal liability can come from

The deceased's property vests in the personal representative, who holds it as trustee for the people entitled, subject to the payment of debts. That trustee role is what creates the duty. If you distribute before debts are paid, or handle assets carelessly, someone may complain.

On a passing of accounts, the judge may fully inquire into the deceased's whole property and its administration, and may hear complaints of misconduct, neglect or default that caused loss and order payment to the estate. The court may also remove a personal representative on any ground that would justify removing another trustee.

You do not have to act just because you are named in a will. A named executor who renounces probate loses all rights as executor, and a renunciation is made on Form 74G (Part A). Whether stepping aside is right for you depends on your situation, so it is worth confirming with a lawyer before you take any steps.

Taxes and filings

The estate pays Estate Administration Tax, not the representative personally. The risk lies in the filing duties. An Estate Information Return must be filed within 180 calendar days after the certificate is issued, even if no tax is payable, and an amended return within 60 days of learning that it is incomplete or inaccurate.

Failing to file the required information, or making false or misleading statements, is an offence with a fine of at least $1,000 (up to twice the tax if the tax exceeds $1,000), imprisonment of up to two years, or both. It is not an offence if the person did not know, and could not reasonably have known, that a statement was false. If you used an estimated value, you must file a sworn statement of the actual value and pay any additional tax within six months.

Getting the value right matters. For applications on or after January 1, 2020, no tax is payable if the estate is worth $50,000 or less, and above that the tax is $15 for each $1,000 or part of $1,000 by which the value exceeds $50,000. Real estate outside Ontario is not included in the value, but other property worldwide is. Ontario real estate is valued less encumbrances such as a mortgage, while unsecured debts such as credit card balances and lines of credit cannot be deducted.

If tax was overpaid after the certificate was issued, the refund request goes to the Ministry of Finance, made by filing or amending the Estate Information Return. If the certificate has not yet been issued, a refund of the deposit is requested from the Superior Court of Justice office where the application was filed.

Debts and distributions

The estate is distributed only after funeral costs and debts are paid. If assets are not enough, debts are paid proportionately. A trustee who has given the required creditor notices may distribute and is not liable to a creditor whose claim they had no notice of at the time. Whether any other tax or debt issues affect the final distribution depends on your situation, so it is worth confirming with a lawyer or accountant before you distribute.

Some beneficiaries need extra care. A surviving married spouse must elect between taking under the will (or intestacy) and claiming an equalization payment, and the election must be filed with the Estate Registrar for Ontario within six months of the death. If a child is a beneficiary, in most cases a total of $35,000 or less does not have to be paid into court, while larger amounts are paid into court or to a court-appointed guardian of property. Where there is no will, a child's share over $35,000 is paid into court, but a will that sets up a trust and names a trustee can govern how the share is held. The court may also order support from the estate for a dependant who was not adequately provided for, generally on an application made within six months of the grant of the certificate.

Ways to reduce the risk

• Value assets at fair market value at the date of death and keep supporting documents.
• Calendar the filing deadlines, including the 180-day return.
• Give the required notices to creditors and keep proof.
• Do not distribute early. No distribution may be made within six months of a spouse's death without written consent or court authorization.
• Before selling real property only for distribution, get the beneficiaries' concurrence, or approval from the Children's Lawyer or the Public Guardian and Trustee. A sale involving a minor's interest needs the Children's Lawyer's written approval or a judge's order.
• Where co-trustees or beneficiaries disagree, ask the court for directions.
• Keep clear records so you can pass accounts if someone requires it.

You are also entitled to a fair and reasonable allowance for your care, pains, trouble and time, as allowed by a judge.

What to do next

If you think something has already been missed, do not wait. Gather the records, stop further distributions, and speak with a lawyer or accountant about fixing it. If information in the Estate Information Return turns out to be incomplete or inaccurate, an amended return must be filed within 60 days of becoming aware of it.

Frequently asked questions