When Can an Executor Pay Beneficiaries in Ontario? Steps First

Being named executor (an estate trustee) can feel like a race to get money to the family. But paying beneficiaries too early is one of the main ways an executor ends up personally responsible for a shortfall.

This article walks through the steps that generally come before any distribution under a will in Ontario, and how each one protects you. Every estate is different, so use it as a checklist to discuss with a lawyer or accountant, not as a substitute for advice.

Start with the basics: assets, funeral costs and debts

Ontario guidance says that under a will, the estate is distributed once the assets have been liquidated and the funeral and burial expenses and any debts have been paid. In practice, that means you first work out what the estate owns, turn assets into money where the will calls for it, and settle what is owed.

Keep careful records as you go. Estate trustees must keep accurate records of the estate's assets and transactions. Those records are what you will rely on later if beneficiaries ask questions or the accounts go before a judge.

If you pay an expense that properly belongs to the estate, a trustee who believes the expense is properly incurred in carrying out the trust may pay it from the estate or pay it personally and recover it from the estate. Keep the receipts either way.

Give creditors a chance to come forward

After you give the required notice for creditors to send in their claims, and once that period has expired, you may distribute the estate having regard only to the claims you then have notice of. You are not liable for claims you had no notice of when you distributed.

That protection is for you, not for the beneficiaries. A creditor or claimant keeps the right to follow the estate's assets into the hands of the people who received them, even after a protected distribution. Beneficiaries should understand that early payments are not always final.

If you pay a creditor too much while honestly trying to protect the estate, the court can grant relief in some cases where you acted honestly and reasonably.

Get the CRA clearance certificate

Before distributing any property, the legal representative of a deceased taxpayer must obtain a clearance certificate from the Minister. It confirms that all tax amounts have been paid or that security for them has been accepted.

If you distribute without the certificate, you are personally liable for the unpaid tax, up to the value of the property distributed, and the Minister may assess you at any time. This applies to any distribution, including interim ones.

A holdback is money kept back in the estate for taxes or expenses that may still arise. How much to hold back depends on the facts of the estate, so ask your lawyer or accountant to help you decide.

Special payees: children and people you cannot find

• A child entitled to $35,000 or more must generally have the money paid into court. This does not apply if a will or beneficiary designation names a trustee of the child's money, or if a judge has appointed a guardian of property.
• If a child will receive less than $35,000, it can be paid to the parent the child lives with or the person with lawful custody, who holds it until the child turns 18 or reaches the age stated in the will.
• Money owed to a beneficiary who cannot be found or paid can be paid into court under Trustee Act s. 36, and it is then subject to the court's order.
• Payment into court is made by certified cheque, money order or bank draft payable to "The Accountant of the Superior Court of Justice", or with a Direction to Receive Funds from the court office paid at a bank.

The Office of the Children's Lawyer must be served with an application to pass estate accounts where minors are involved, and it should also be served where an estate has an unborn or unascertained interest.

Compensation, passing accounts and relief from liability

An estate trustee is entitled to a fair and reasonable allowance for their care, pains, trouble and time spent on the estate, as allowed by a judge of the Superior Court of Justice. Compensation can be settled even when the estate is not before the court in an action, and a judge passing your accounts may allow a fair and reasonable allowance. If the trustee is a lawyer who provided necessary professional services, the allowance is increased by an amount considered fair and reasonable for those services.

On a passing of accounts, notice goes to beneficiaries and other interested persons, and you swear an affidavit verifying the accounts. A first passing includes a statement of assets at the date of death and accounts of all money received and disbursed. If the objection period expires and no notice of objection to the accounts or the compensation is received, judgment can be given unopposed.

If something goes wrong, the court may relieve a trustee of liability for a breach of trust, wholly or partly, if the trustee acted honestly and reasonably and ought fairly to be excused, including for not obtaining the court's directions. It is a discretionary remedy, not something to count on.

What to do next

• List the assets, the funeral costs and every known debt.
• Give the required notice to creditors and note when the period ends.
• File the required tax returns and pay or secure the tax.
• Request the clearance certificate on Form TX19, and Form GST352 if the estate has a GST/HST number.
• Identify any minor, unborn or untraceable beneficiaries before paying anyone.
• Keep a full record of money received and paid out.
• Talk to a lawyer or accountant before any interim payment.

Frequently asked questions