- Debts, including taxes owed to the CRA, are settled before the remaining assets go to beneficiaries under the will.
- BC has no single section ranking every estate debt; WESA sets rules for secured gifts and for reducing gifts when assets run short.
- An executor who distributes without a CRA clearance certificate while tax is owing can be personally liable up to the value distributed.
If you are an executor and the money in the estate looks smaller than the bills, the first question is usually who gets paid first. The honest answer is that British Columbia law answers part of that question clearly and leaves other parts to the facts of the estate.
This article walks through what the law does say, where the rules change if the estate is bankrupt, and the steps that protect you personally. It is general information, and an estate that is short of money is a good time to get a lawyer's advice before you pay anything.
This article covers the law of British Columbia.
Start with what the estate is and what you must do
In the Wills, Estates and Succession Act (WESA), the estate means the property of the person who died. As personal representative, you have the authority the deceased would have had if living, and you must use it to administer and distribute the estate and to account to beneficiaries and creditors.
Part of that job is settling unpaid debts and overpayments, including taxes owed to the CRA, before the remaining assets go to the beneficiaries under the will. If you apply for a grant, you must also make a diligent search for the deceased's property and liabilities and make the required disclosures.
There is no single statutory ranking for an ordinary estate
People often expect a neat list: funeral costs, then administration costs, then secured debts, taxes, unsecured creditors and finally gifts. In practice, WESA does not set out that whole list in one section. What the statute does provide are specific rules, set out below. How the other debts line up in a solvent estate, or in an insolvent estate that is not bankrupt, depends on the facts and is worth confirming with a lawyer before you pay.
| Situation | What the rule says |
|---|---|
| A gift of property with a loan secured on it, such as a mortgage that financed it | The gift generally passes with the debt, and between people claiming through the will-maker the beneficiary's interest is primarily liable for the secured debt. |
| The will shows a different intention | The secured-gift rule yields to a contrary intention, but a general direction to pay debts does not by itself show that intention. |
| Estate cannot satisfy all debts and gifts | WESA s. 50 applies, subject to a contrary intention in the will, and land and personal property are reduced together. |
| Estate is bankrupt | The Bankruptcy and Insolvency Act sets a ranking, subject to the rights of secured creditors. |
Reasonable funeral and disposal expenses may be awarded in a proceeding by the personal representative. Keep the receipts and keep the costs reasonable.
When assets run short, gifts are reduced in a set order
If the estate cannot pay all debts and gifts, WESA s. 50(5) says assets are reduced in this order:
- First, property specifically charged with a debt or left on trust to pay a debt.
- Second, property distributed as an intestate estate and the residue.
- Third, general, demonstrative and pecuniary legacies.
- Fourth, specific legacies.
- Fifth, property over which the will-maker had a general power of appointment.
There is an exception. If the will-maker charged land with payment of debts or pecuniary gifts, that land is primarily liable for them, and a contrary intention in the will overrides the s. 50 order.
Some assets may never reach the estate. A benefit payable to a designated beneficiary under a WESA Part 5 benefit plan, such as an RRSP, does not form part of the estate and is not subject to the claims of creditors. That protection depends on a valid designation. If the estate is the beneficiary, or no designation takes effect, the benefit is part of the estate and available to creditors.
If the estate is bankrupt, the federal order applies
In a bankruptcy distribution, payment is subject to the rights of secured creditors. The first priority is reasonable funeral and testamentary expenses of a deceased bankrupt, incurred by the legal representative. Next come the costs of administration, including the trustee's fees and legal costs, then the levy under s. 147 and unpaid wages under ss. 81.3 and 81.4. Later paragraphs cover municipal taxes, landlord arrears and certain Crown claims.
The Crown paragraphs have changed over time, so tax ranking in a bankruptcy is something to confirm against the current Act rather than assume.
Protecting yourself and what to do next
Your personal exposure usually comes from your own acts, such as distributing improperly, rather than from the debts themselves. These steps reduce that risk:
- Publish a notice to creditors in the Gazette under WESA s. 154. The claims period must not be less than 30 days from publication.
- After that period ends you are not liable for claims not presented in time, though a creditor who missed it may still pursue those who received estate assets.
- Do not distribute within 210 days after the grant without a court order, unless all beneficiaries and all persons who may bring a wills variation claim consent.
- Give written notice disputing a claim you doubt. The claimant then generally has 180 days to start a proceeding if the claim is already due. This does not apply to beneficiary claims or wills variation claims.
- A CRA clearance certificate is requested on Form TX19. If you distribute property without one while tax is owing, you can be personally liable for the unpaid amounts, up to the value of the assets distributed. Once it is issued, liability shifts to the estate or those who received the assets. Exactly when a certificate is needed is worth confirming with the CRA or an accountant.
If debts clearly exceed assets, talk to a lawyer before paying any one creditor. How to handle each creditor depends on the facts of the estate, so it is worth confirming your approach first.
Frequently asked questions
Do funeral costs get paid first?
Reasonable funeral and disposal expenses may be awarded in a proceeding by the personal representative. In a bankruptcy, reasonable funeral and testamentary expenses of a deceased bankrupt rank first. Outside bankruptcy, the full ranking depends on the facts.
What happens to a mortgage on a house left to someone?
A secured lender keeps its security. A beneficiary generally takes the property subject to the debt unless the will shows a different intention. Loan terms vary by lender, so check the mortgage documents.
Can I be personally liable as executor?
Yes, but your personal exposure arises mainly from your own acts, such as distributing improperly, rather than from the debts themselves. For the deceased's own wrongful acts or breaches, a personal representative is liable only to the extent of the estate's assets, subject to the exceptions in the Act. You can also face personal liability if you distribute without a CRA clearance certificate while tax is owing.
Can I advertise for creditors?
Yes. A notice in the Gazette sets a claims period of at least 30 days. It protects you from claims not presented in time, but not necessarily the people who received assets.
Sources
- Wills, Estates and Succession Act, s. 1(1) (BC Laws) — bclaws.gov.bc.ca
- Canada.ca – Represent someone who died — canada.ca
- Bankruptcy and Insolvency Act s. 136(1) (Justice Laws) — Justice Laws (federal)
- CRA – Apply for a clearance certificate — canada.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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