Notice to Creditors in Ontario: Protecting the Executor

An executor who hands out the estate too early can be left answering for debts that surface later. That risk is why careful executors look for ways to find creditors before distributing.

Ontario's Trustee Act offers protection to a personal representative who gives proper notice. This article explains what that protection covers, what it leaves out, and the other tax and debt steps to complete before you distribute.

What the Trustee Act protection says

Under Trustee Act s. 53(1), a personal representative who gives the notices the court would have directed may distribute the assets, and is not liable for amounts distributed to any person whose claim they had no notice of at the time.

The protection depends on the notice being given properly. The exact form, wording and timing of the notices depend on the circumstances and are worth confirming with a lawyer before you place them.

What the protection does not cover

The s. 53(1) protection does not apply to heirs, next of kin, devisees or legatees claiming as such. In plain words, giving notice to creditors does not cut off a family member or beneficiary who has a claim on the estate.

It also does not deal with tax. A notice to creditors does not replace a clearance certificate from the CRA, covered below.

Contesting a creditor's claim

If a claim looks wrong, you do not have to simply pay it. An estate trustee may serve a written notice contesting a creditor's claim. The claimant must apply to court within 30 days of receiving it, or within a further three months if a judge allows. Otherwise the claim is deemed abandoned and forever barred.

Section 45 applies the same process to unliquidated claims, meaning claims where the amount is not yet fixed.

Tax and other steps before distributing

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. The final T1 return is due April 30 of the following year for a death from January 1 to October 31, and six months after the death for a death from November 1 to December 31. If the deceased or their spouse or common-law partner living with them was operating a business, the deadline moves to June 15 of the following year for deaths from January 1 to December 15, but payment is still due on the regular date.

The estate may also need its own T3 trust return. It must be filed no later than 90 days after the trust's tax year-end, and any balance owing is due within the same 90 days. A graduated rate estate may have a non-calendar tax year, while other trusts generally must use a December 31 year-end. An estate can be a graduated rate estate for no more than 36 months after the death. A trust must file if its total income from all sources is more than $500, and it must also file, even at $500 or less, if it makes a capital distribution to beneficiaries.

A clearance certificate confirms the estate has paid all amounts of income tax. If the legal representative distributes without one and tax is owing, they are personally liable for the unpaid amounts, 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. The CRA acknowledges the request within 45 days, and the assessment can take up to 120 days. If the deceased had a GST/HST number, a separate Form GST352 is also needed.

If the estate cannot pay everything, debts are paid proportionately without preference or priority, subject to existing liens. The court may relieve a personal representative who acted honestly and reasonably.

Expenses and records matter too. If you believe an expense is properly incurred in carrying out the trust, you may pay it from estate property, or pay it personally and recover it from the estate, for example a funeral paid personally, but the court may later disallow the payment or recovery. Estate trustees must also keep accurate records of the estate's assets and transactions.

What to do next

• Keep a full list of the deceased's debts, taxes and funeral costs.
• Ask a lawyer how and where to give notice to creditors in your situation.
• Give the notices the court would have directed before you distribute, and confirm with a lawyer how long to wait in your situation.
• File the final T1 and any T3 return, and pay what is owing.
• Apply for a clearance certificate once returns are assessed.
• Remember that beneficiaries are not bound by the notice.
• Distribute only after debts and funeral expenses are paid.

Frequently asked questions