- An executor must make a diligent search for the deceased's property and liabilities, and paying valid debts is one of the basic duties.
- Distributing the estate while debts remain unpaid can make an executor personally liable.
- A notice to creditors and a clearance certificate from the Canada Revenue Agency help protect you before you distribute.
Being named executor often means dealing with bills, loans, credit cards and tax before anyone receives an inheritance. It is natural to wonder who gets paid first, what to say to creditors, and what happens if the money runs out.
This article explains the general steps in British Columbia: finding the debts, handling creditor claims, and avoiding personal risk. It does not set out a ranking of debts, which depends on the facts. If the estate may be short of money, speak to a lawyer before paying anyone.
This article covers the law of British Columbia.
Start by finding out what the estate owes
An executor's basic duties include listing all assets and debts, paying valid debts, filing tax returns and distributing the estate. Someone applying for a grant of probate or administration must make a diligent search and inquiry for the deceased's property and liabilities.
The grant application also includes an affidavit of assets and liabilities. For a domiciled estate that is Form P10, and for a non-domiciled estate it is Form P11. Gathering this information early gives you a realistic picture of whether the estate can pay everything.
- Bank, credit card and loan statements
- Mortgage and property tax records
- Income tax records and notices of assessment
- Mail and email addressed to the deceased, which often reveals bills you did not know about
Your authority and your personal risk
A personal representative has the same authority over the estate as the deceased would have had, subject to the will and other laws. A grant of probate or administration gives the personal representative exclusive authority to administer the estate.
With that authority comes risk. BC government guidance warns that an executor who distributes the estate while debts remain unpaid may be held personally liable for them. For tax debts specifically, a legal representative who distributes property without a clearance certificate is personally liable for the unpaid tax, up to the value of the property distributed.
Dealing with creditors
A personal representative may publish a notice to creditors and other claimants in the Gazette, setting a deadline of at least 30 days. This gives people a clear date to come forward before you distribute the estate.
If you dispute a claim, you give notice to the claimant. The claimant must then start a court proceeding within 180 days after the notice, or after the claim falls due if it was not yet due.
When there is no will, the notice of proposed application for a grant goes to the intestate successors and to creditors whose claim exceeds $10 000. Do not ignore smaller creditors because of that rule. They may still have valid claims.
| Situation | What the rules say |
|---|---|
| You want to set a claim deadline | Publish a notice in the Gazette with a deadline of at least 30 days |
| You dispute a claim | The claimant has 180 days after your notice to start a court proceeding |
| Tax is owed | Obtain a clearance certificate before distributing |
Taxes and the clearance certificate
Before distributing property they control, a legal representative must obtain a clearance certificate from the Minister of National Revenue certifying that the amounts owing are paid or secured.
The CRA says to request the certificate on Form TX19 only after all returns are filed, notices of assessment are received and all amounts are paid or secured. The request should not be made at the same time as filing the returns. Form GST352 is also needed if the deceased had a GST/HST number.
If the estate may not cover the debts, and what to do next
If it looks as though the debts exceed the assets, stop and get advice before paying or distributing anything. The order in which debts must be paid in a shortfall is a legal question that depends on the type of debt and the facts. An executor may also petition the court for its opinion, advice or direction on a question about managing the estate, without starting any other proceeding.
If you act honestly and reasonably and ought fairly to be excused, the court may excuse a trustee, wholly or partly, from personal liability for a breach of trust. That is a safety net, not a plan, so it is better to avoid the problem.
- List every asset and debt, and keep the records
- Consider publishing a notice to creditors and wait out the deadline
- Respond to each claim in writing and keep copies
- File the tax returns and request the clearance certificate at the right time
- Do not distribute to beneficiaries until you have confirmed the debts are dealt with
- Get legal advice if the estate may be insolvent
Frequently asked questions
Do I have to pay the deceased's debts from my own money?
Generally the debts are paid from the estate's assets. A personal representative is liable for the deceased's wrongful acts or breaches only up to the value of the estate assets they control. You can still become personally liable if you distribute the estate while debts remain unpaid.
Can I pay beneficiaries before the debts are settled?
It is risky. An executor who distributes while debts remain unpaid may be held personally liable. There is also a general bar on distributing within 210 days after the grant is issued, with exceptions such as consent from the people entitled, unless the court orders otherwise.
What if a creditor shows up after I have distributed?
This is the situation a notice to creditors and a clearance certificate are meant to prevent. Late claims raise questions about personal liability, so speak to a lawyer promptly.
Can I ask the court for help if I am unsure?
Yes. An executor may petition the court for its opinion, advice or direction on a question about managing the estate. A lawyer can tell you whether that step suits your situation.
Sources
- Wills, Estates and Succession Act, s. 142(1) — bclaws.gov.bc.ca
- Government of BC – After a death: wills and estates — www2.gov.bc.ca
- Supreme Court Civil Rules, Rule 25-2(2) — bclaws.gov.bc.ca
- Income Tax Act, RSC 1985, c. 1 (5th Supp.), s. 159(2) — Justice Laws (federal)
- Canada Revenue Agency – Apply for a clearance certificate — canada.ca
- Trustee Act, RSBC 1996, c. 464, s. 96 — bclaws.gov.bc.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a wills & estates question
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