When Can an Executor Safely Distribute an Ontario Estate?

Being named executor often means beneficiaries are asking when they will be paid. It is natural to want to hand money out quickly, but an executor, called an estate trustee in Ontario, can be personally responsible if a distribution turns out to be a mistake.

This article walks through the main points that affect when distribution is safer: debts and creditors, tax clearance, court relief if something goes wrong, and what to do with shares that cannot simply be paid out. Every estate is different, so a lawyer or accountant can confirm how this applies to yours.

Start with debts and expenses

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. Distribution is the last stage of administration, not the first.

In practice, that means identifying what the deceased owned and owed, keeping accurate records, and paying what must be paid before beneficiaries receive their shares. Estate trustees must keep accurate records of the estate's assets and transactions, and those records are what an accounting would be built from.

Creditor notice and its limits

Under Trustee Act s. 53(1), once the required notice for creditors to send in claims has been given and the period has expired, an estate trustee may distribute the estate having regard only to the claims they then have notice of. They are not liable for claims they had no notice of at the time of distribution.

There is an important exception. Trustee Act s. 53(2) preserves a creditor's or claimant's right to follow the estate's assets into the hands of the people who received them, even after a protected distribution. So the protection is for the executor, but beneficiaries may still face a claim. Ask a lawyer how the notice should be given in your situation.

CRA clearance certificate

Before distributing any property, the legal representative of a deceased taxpayer must obtain a certificate from the Minister confirming that all tax amounts have been paid or that security for them has been accepted. A representative who distributes without the certificate is personally liable for the unpaid tax amounts, up to the value of the property distributed, and the Minister may assess them at any time.

The certificate is requested on Form TX19, after the required returns are filed and assessed and all income taxes are paid or secured. The supporting documents include a statement of distributions made to date and a statement of the proposed distribution of any holdback or residual amount. An estate with a GST/HST number also needs Form GST352.

There is no fixed official percentage for a holdback. How much to keep back depends on the facts, so an accountant or lawyer can help you judge it.

If something goes wrong: court relief

The court may relieve a trustee who is personally liable for a breach of trust, wholly or partly, if the trustee acted honestly and reasonably and ought fairly to be excused for the breach and for not obtaining the court's directions. A similar kind of relief is available to a personal representative who overpays a creditor or claimant, if they acted honestly and reasonably to protect or conserve the estate's assets.

Relief is discretionary. It is not something to count on, which is why careful steps beforehand matter more than excuses afterward.

Shares for minors or missing beneficiaries

If a beneficiary cannot be found or cannot be paid, the Superior Court of Justice may let a sole trustee, or a majority of trustees, pay trust money into court, including to the Accountant of the Superior Court of Justice. Money paid in is subject to the court's order. Payment 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.

For children, the amount matters:

• 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 the child will receive less than $35,000, it can be paid to the parent the child lives with or to the person with lawful custody, who holds it until the child turns 18 or reaches the age stated in the will.

What to do next

• Gather the records of assets, debts and payments to date.
• Confirm that funeral costs and debts are paid before planning a distribution.
• File the required tax returns and apply for the CRA clearance certificate before distributing.
• Check whether the estate has a GST/HST number.
• Identify any minor or missing beneficiaries and how their shares will be handled.
• Speak with a lawyer about creditor notice and about interim distributions before you pay anyone.

Frequently asked questions