Are Family Members Responsible for a Deceased Person's Debts in Ontario?

A few weeks after a parent or spouse dies, the phone starts ringing. A collection agency wants to know who will pay the credit card, the line of credit or the unpaid bill. It is natural to feel that the debt has landed on you.

In most cases, a debt that belonged only to the person who died is a matter for their estate, not for their family. The details depend on who signed what, who is acting for the estate and what the estate holds. This article walks through the general picture in Ontario.

Who pays a deceased person's debts?

In Ontario, the estate trustee is responsible for paying the taxes, bills and other debts of the person who died. Where there is a will, the estate is normally distributed only after assets have been liquidated and the funeral, burial and debts are paid.

That means the money comes out of the estate's own assets, such as bank accounts, investments or a house that is sold. Whether your own money could ever be involved depends on whether you signed for the debt or received estate money, which is covered below.

If the estate does not have enough, the law generally spreads residue rateably across the debts, funeral and testamentary expenses and administration costs, unless the will shows a different intention. An estate that cannot cover everything is a situation where a lawyer's advice on the order of payment is worth getting.

What collectors are and are not allowed to do

Ontario's collection rules say a collector must not collect or try to collect a debt from a person it knows, or reasonably ought to know, is not liable for the debt. Collectors may also generally contact a spouse or relative only in narrow cases, such as when that person guaranteed the debt.

So a caller who treats you as personally responsible just because you are family deserves a calm, firm response. You can say that you are not the estate trustee, that you did not sign for the debt, and that they should deal with the estate trustee in writing.

• Ask the caller for the name of the agency, the original creditor and the account details, in writing.
• Do not agree to pay, and do not promise to pay, over the phone.
• Keep a log of the date, time and content of every call or letter.
• Pass along the estate trustee's contact details if someone has been appointed.
• Do not give out information about the estate's assets.

When a relative can be personally liable

A relative is generally liable only if they signed for the debt, for example as a guarantor. If you co-signed a loan, guaranteed a line of credit or are a joint borrower on a card or loan, the contract you signed generally governs. Whether you are liable depends on the documents, so check them or ask a lawyer to.

There is a second way family members can be affected: by receiving estate money. If the estate trustee has already paid out shares and a debt is established later, beneficiaries who received a share must refund their rateable part of that debt. Creditors can also follow estate assets into the hands of those who received them.

Assets that may sit outside the estate

Some money passes to a named person instead of falling into the estate. Where a life insurance beneficiary is designated and the insured dies, the insurance money is not part of the estate and is not subject to the insured's creditors. However, if no designated beneficiary survives, the money is payable to the personal representative and so falls into the estate.

The Ontario Court of Appeal has also held that RRSP proceeds paid to a designated beneficiary are removed from the owner's estate and are not available to the estate's creditors. A separate point is that these amounts can still be treated as part of the estate for a dependant's support claim. Joint bank accounts are more complicated, because a joint account does not always go to the surviving holder alone.

Protecting the estate trustee and what to do next

If you are the estate trustee, be careful about distributing early. A trustee who has given the notices the court would direct may distribute after the notice period and is not liable to a creditor whose claim they had no notice of. Even so, creditors keep their rights against a personal representative personally in some circumstances. A trustee who distributes before a CRA clearance certificate can be personally liable for unpaid tax, up to the value of what was distributed. The court may relieve a trustee who acted honestly and reasonably, but it is better not to need that.

Practical steps in the first weeks:

• Find out whether a will exists and who the estate trustee is.
• List the debts, and note which ones anyone other than the deceased signed.
• Send collectors a short written message that you are not liable and refer them to the estate trustee.
• Keep estate money intact until the debts and tax position are clear.
• See a lawyer if the estate looks too small to pay everything, or if a collector keeps contacting you.

Frequently asked questions