Executor Duties When the Estate Includes a Business in Ontario

When someone who owned a business dies, the executor (the estate trustee) has to deal with more than a house and a bank account. A sole proprietorship, a share in a private company or a partnership interest each raises its own questions about who runs things day to day and what the business is worth.

This article explains the general duties that apply to an Ontario estate trustee and how they connect to a business. What the business is worth, whether it can keep running and what the shareholder or partnership agreements say all depend on the facts, so a lawyer and an accountant should confirm those points.

Start with the will and the paperwork

The will is the first place to look. Investment directions or limits in the will take priority over the general statutory rules, because the Trustee Act says its investment provisions do not authorize or require a trustee to act in a way that is inconsistent with the terms of the trust. A will may also say whether the business should be kept going, sold or wound up.

If the estate has to go through probate, the application is filed in the court for the county or district where the deceased lived at death. If the deceased lived outside Ontario, you apply at the courthouse where they owned Ontario property.

• The will and any codicils
• Shareholder, partnership or buy-sell agreements
• Business bank statements, tax returns and financial statements
• Leases, loans, supplier contracts and employee lists
• Business licences, insurance policies and vehicle ownership papers

Keeping records and paying expenses

Estate trustees must keep accurate records of the estate's assets and transactions. With a business, it helps to document its money and transactions clearly from the start, and an accountant can help you set that up. If accounts are later filed with the court on a first passing, they must include a statement of assets at the date of death and accounts of all money received and disbursed.

If a trustee believes an expense would be properly incurred in carrying out the trust, they may pay it directly from the trust property, or pay it personally and recover it from the trust property. Keep every receipt, and be cautious about spending on the business before you understand the estate's debts.

Running, selling or winding up

Whether the business can continue after a death depends on its structure, its contracts and what the will allows. A trustee who invests trust property must use the care, skill, diligence and judgment of a prudent investor. A trustee who relies on investment advice is not in breach of trust if a prudent investor would rely on that advice in comparable circumstances.

A trustee may also delegate investment functions to an agent to the same extent a prudent investor might, and the agent must meet the standard of care expected of a person in the business of investing other people's money. Hiring a valuator, accountant or manager is a practical way to get qualified help, and how this applies to your choices depends on your situation, so it is worth confirming with a lawyer.

If you are unsure whether you have the authority to take a step, the court can sometimes excuse a trustee who acted honestly and reasonably and ought fairly to be excused, including for not obtaining the court's directions. That is a safety net, not a plan, so ask for advice first.

Debts, taxes and clearance before you distribute

Under a will, the estate is distributed once assets have been liquidated and funeral and burial expenses and debts have been paid. After giving the required notice to creditors and once the period has expired, a trustee may distribute having regard only to the claims they have notice of, and is not liable for claims they did not know about at that time. A creditor can still follow the estate's assets into the hands of the people who received them.

Before distributing property, the legal representative must obtain a clearance certificate from the Minister showing all tax amounts are paid or secured. A representative who distributes without one is personally liable for the unpaid tax, up to the value of the property distributed. The certificate is requested on Form TX19 once the required returns are filed and assessed and the income taxes are paid or secured. An estate with a GST/HST number also needs Form GST352.

What to do next

• Read the will and any business agreements before making decisions about the business.
• Get an accountant to help with valuation and the required tax returns.
• Keep detailed records and receipts from the first day.
• Before distributing, complete the creditor notice steps and obtain the CRA clearance certificate, since a representative who distributes without one is personally liable for the unpaid tax.
• Speak with an estates lawyer if the business is large, has partners, or the beneficiaries disagree.

An executor who feels out of their depth can ask the court to be relieved of the office. A beneficiary, a co-executor or the executor themselves can apply under the Trustee Act.

Frequently asked questions