Who Pays the Debts and Bills When Someone Dies Without a Will in Ontario?

When someone dies without a will, bills keep arriving: credit cards, loans, taxes and funeral costs. It is natural to worry that you, as a family member, will be asked to pay them.

In general, debts are dealt with from the estate before the heirs receive anything. This article explains how that works, what happens if the estate cannot cover everything, and where a trustee can face risk.

Debts come out of the estate first

Funeral and burial expenses and debts are paid before the estate is distributed. The estate trustee is responsible for paying taxes, bills and other debts.

The deceased's residuary real and personal property is applied rateably, according to value, to pay their debts. In plain words, the debts are the deceased's, and they are generally paid from what the deceased left. Whether any particular debt could reach you personally, such as one you co-signed or guaranteed, depends on the documents, and a lawyer can confirm.

How debts affect what heirs receive

The shares set by the intestacy rules are worked out on the net value of the estate. Net value means the value of the property after paying the charges on it and the debts, funeral expenses and administration expenses.

This matters for a surviving spouse. If the net value is no more than the preferential share, the spouse takes the whole estate. The preferential share is $350,000 for deaths on or after March 1, 2021, and $200,000 for deaths before that date.

Taxes can also be part of the picture. For an unmatured RRSP, CRA treats the deceased as having received the plan's fair market value immediately before death, and that amount is included in the deceased's income on the final return. Where a qualifying survivor inherits, an election may reduce the amount taxed on the final return. An accountant can advise on this.

When the estate cannot pay everything

If assets cannot cover all debts, the estate is insolvent, and the debts are paid proportionately, with no debt ranking ahead of another. In that case heirs may receive little or nothing.

A personal representative who expects a shortfall in assets may call a meeting of creditors. A meeting is required if creditors holding 10% of filed claims request one in writing.

The trustee's risk

The person who administers the estate carries the most responsibility. A personal representative who gives the required notices to creditors and then distributes is not liable to a person whose claim they had no notice of at the time of distribution.

• Distributing to heirs before debts are dealt with can expose the trustee to claims, since debts are paid before distribution.
• Skipping the required notices to creditors means the protection described above may not be available.
• Treating one creditor better than others in an insolvent estate is a problem, because debts are paid proportionately.
• The estate trustee is the only person with legal authority to manage or distribute an estate, so acting without appointment can create risk.

If you are unsure whether to accept the role, speak with a lawyer first. Someone who is not yet appointed should be cautious about paying debts or distributing assets.

What to do next

• Gather statements, bills, loan documents and the funeral invoice.
• Do not distribute anything to heirs until debts and expenses are accounted for.
• Keep a written record of every payment and every notice sent.
• Ask a lawyer about the notices to creditors before any distribution.
• Ask an accountant about the final tax return and any RRSP elections.

If the estate looks insolvent, get advice before paying any one creditor in full.

Frequently asked questions