What Is a Holdback Reserve and Why Ontario Executors Keep One

You may have been told the estate is nearly ready to pay out, but the executor is keeping some of the money. That can feel like stalling, especially if you are waiting on your share.

In most cases a holdback is a sensible precaution. This article explains why executors in Ontario keep one, what it usually covers, and what you can do if the amount seems too high.

What a holdback reserve is

A holdback, or reserve, is a portion of the estate the executor keeps in the estate account after paying out most of the assets. It covers costs and liabilities that are not yet final. Ontario's official guidance says the estate is distributed once assets have been liquidated and the funeral and burial expenses and any debts have been paid.

How much should be held back depends on your situation, so it is worth confirming with a lawyer. It is a judgment call based on what could still come due.

Why executors keep one

• Taxes. 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 T3 trust return for the estate is due no later than 90 days after the trust's tax year-end, and any balance owing is due within the same 90 days.
• Clearance certificate. If the legal representative distributes assets without a clearance certificate and tax is owing, they are personally liable for the unpaid amounts, up to the value of the assets distributed. The request on Form TX19 is made only after the required returns are filed and assessed and taxes are paid or secured; the CRA acknowledges it within 45 days and the assessment can take up to 120 days. That wait is a major reason for holding funds back.
• Creditors. A personal representative who gives the notices the court would have directed may distribute the assets and is not liable to a person whose claim they had no notice of at the time. That protection does not apply to heirs, next of kin, devisees or legatees claiming as such. An estate trustee may also contest a creditor's claim by written notice, and the claimant must apply to court within 30 days of receiving it, or within a further three months if a judge allows.
• Executor's compensation and expenses. An estate trustee is entitled to a fair and reasonable allowance as allowed by a judge of the Superior Court of Justice, unless the will itself fixes the allowance. They may also pay proper expenses from the estate or recover them if paid personally.
• Passing of accounts. Accounts filed with the court include all liabilities and the compensation claimed.

How much is reasonable?

How large a holdback should be is not something the law answers in a single rule that you can rely on here, so it is worth asking for an explanation. The right amount depends on matters such as whether tax is still owing, whether a business or a GST/HST number is involved, and whether any creditor claims are open. If the deceased had a GST/HST number, a separate Form GST352 is also needed for the clearance certificate.

A holdback should be tied to real, identifiable items rather than a vague worry. An executor who can list what the reserve is for, and when it is expected to be released, is easier to trust. If the assets are not enough to pay all debts, they are paid proportionately without preference or priority, subject to existing liens.

If you think the holdback is too large

Start by asking for a written breakdown. If you do not get one, a person with a financial interest may move for an order requiring the estate trustee to file a statement of the nature and value of the estate's assets, give further particulars, or pass accounts. A beneficiary is an interested person who can compel accounts.

If you object to the accounts, including the compensation claimed, you must serve a Notice of Objection to Accounts (Form 74.45) at least 35 days before the hearing date. Minors may be represented by the Office of the Children's Lawyer.

What to do next

• Ask the executor what the holdback covers and how long it is expected to last.
• Ask whether an interim distribution of part of your share is possible.
• Ask whether tax returns have been filed and a clearance certificate has been requested.
• Keep a record of every request and reply.
• Speak with a lawyer before you start a court step.

Frequently asked questions