How an Executor Handles a Deceased Person's Business in Ontario

Inheriting the job of executor is hard enough. When the person who died ran a business, you may also face employees, customers, suppliers and bills that do not pause while the estate is sorted out.

This article explains in general terms what an Ontario executor must think about: what you are dealing with, your authority, the tax deadlines, creditors and the choice between keeping the business going and winding it up.

Sole proprietorship or private company?

The first question is how the business was set up. In a sole proprietorship, the owner and the business are the same legal person, so the business assets and debts are part of the deceased's affairs. If the deceased owned shares in a private corporation, the corporation is a separate entity and the shares are the estate's asset.

Generally, the deceased's property, other than property passing by survivorship, vests in the personal representative as trustee, subject to payment of debts. Property held with a right of survivorship passes to the survivor and does not form part of the estate. Check how each asset was held. For a company, also look at the articles, any shareholders' agreement and any business partner arrangements, which may control what happens to shares.

Your authority and day-to-day decisions

If the deceased owned real property or assets held by a financial institution, the estate normally must be probated, though Ontario's guidance says probate is not always required. A person named as estate trustee does not have to act. Until your authority is clear, take only urgent, protective steps such as securing premises and keeping insurance in place.

An estate trustee who believes an expense is properly incurred in carrying out the trust may pay it from estate property, or pay it personally and recover it from the estate, but the court may later disallow it. Whether and how you may continue operating the business depends on the will and the facts, so check the will for any express powers and confirm with a lawyer before you carry on.

• Keep estate money separate from your own and from business accounts that cannot be tracked.
• Keep accurate records of the estate's assets and transactions.
• Avoid buying the business or its assets yourself without beneficiary consent or court approval, because that is a conflict of interest.

Tax filings and clearance

As legal representative, the executor must file all required returns for the deceased, make sure any balance owing is paid before distributing the estate, and confirm that all balances owing to the CRA are resolved.

A trust must file a T3 if it has total income from all sources of more than $500, or if it makes a capital distribution to beneficiaries even at $500 or less. If the estate pays executor fees, it must file a T4 Summary and the related T4 slips. A graduated rate estate may have a non-calendar tax year, but can be one for no more than 36 months after the death.

A clearance certificate confirms the estate has paid all amounts of income tax. Distributing without one when tax is owing makes the legal representative personally liable up to the value of the assets distributed. Request it on Form TX19 only after the returns are filed and assessed and taxes are paid or secured. If the deceased had a GST/HST number, a separate Form GST352 is also needed, and a corporation being wound up or dissolved needs a clearance certificate before its property is distributed.

Creditors, and keeping or winding up

Ontario's guidance describes distribution as happening once assets have been liquidated and funeral and burial expenses and any debts have been paid. A personal representative who gives the notices to creditors the court would have directed may distribute without liability to people whose claims they had no notice of, though that protection does not cover heirs, next of kin, devisees or legatees claiming as such.

If you dispute a creditor's claim, you may serve a written notice contesting it. The claimant must apply to court within 30 days of receiving it, or within a further three months if a judge allows, or the claim is deemed abandoned and forever barred. If assets are insufficient, debts are paid proportionately without preference or priority, subject to existing liens, and the court may relieve a personal representative who acted honestly and reasonably.

Whether to sell the business, keep it running for a short transition or close it depends on its value, its debts, the will and what the beneficiaries want. An executor who breaches a duty may be personally liable, although the court may wholly or partly relieve a trustee who acted honestly and reasonably and ought fairly to be excused.

What to do next

• Gather the will, business records, bank statements, leases and any shareholders' agreement.
• Confirm whether the business is a sole proprietorship or a corporation.
• Make a list of employees, suppliers, customers and urgent deadlines.
• Confirm whether probate is needed and who has authority to act.
• Diarize the final return, T3 and any GST/HST deadlines.
• Keep full records, because a beneficiary can compel accounts.
• Talk to a lawyer and an accountant before selling, continuing or closing the business.

Frequently asked questions