Who Pays a Dead Person's Debts in Ontario?

After a death, many families worry that they will be left with the person's credit cards, loans or other bills. The short answer is that debts are generally dealt with by the estate, not by relatives personally, but there are exceptions worth knowing.

This article explains how Ontario estates pay debts, what happens if the money runs out, and when a family member or the estate trustee could be responsible. Your own situation may turn on documents you have signed, so a lawyer can confirm the details.

Debts are paid from the estate first

When a person dies in Ontario, their property passes to the estate trustee, who holds it for the people legally entitled to it after the deceased's debts are paid.

Unless the will says otherwise, the deceased's debts and funeral and testamentary expenses are paid out of the residuary estate, shared rateably according to the value of each part. In plain terms, beneficiaries receive what is left after debts are dealt with.

If the deceased owned mortgaged property and did not show a contrary intention, that property is primarily liable for the mortgage debt as between the people claiming through the deceased. Whoever inherits it generally takes it subject to the mortgage.

When the estate cannot pay everything

If the assets are not enough to pay all debts, the Crown's debts, the personal representative's debts and other creditors' debts are paid proportionately, with no debt ranking ahead of another. The rule does not affect any lien the debtor gave over their property during their lifetime, so secured creditors keep their security.

Under the federal Bankruptcy and Insolvency Act, the executor or administrator of a deceased insolvent person may make an assignment of the deceased's property for the general benefit of creditors, and this may need the court's permission. In the bankruptcy of a deceased person, reasonable funeral and testamentary expenses incurred by the legal representative are paid first, subject to the rights of secured creditors.

Insolvent estates are technical. If the debts look larger than the assets, get legal advice before paying anyone.

When family members are and are not personally liable

Being a relative does not make you responsible for the deceased's debts. For spouses, the Family Law Act says that during cohabitation a spouse can make both spouses jointly and severally liable to a third party for necessities of life, unless the other spouse has notified the third party that this authority is withdrawn. Outside this rule and debts the survivor signed for themselves, such as joint debts or guarantees, the Act does not make a spouse liable for the other's debts.

Collection practices and co-signed or secondary credit cards raise questions beyond these rules. If a creditor contacts you, a lawyer can review what you actually signed.

Risks for the estate trustee, and assets outside the estate

The person most at risk is the estate trustee who pays out too early. A legal representative must obtain a clearance certificate before distributing property they control, and if they distribute without one, they can be personally liable for unpaid amounts, but not for more than the value of the property distributed. The certificate is requested on Form TX19 only after the returns are filed and the notices of assessment received.

A personal representative who gives notice to creditors of the kind the court would have directed may distribute once the time in the notice has expired, and is not liable to any creditor whose claim they had no notice of at the time. They must still have regard to claims they already know about.

• A person wronged by the deceased, other than in libel or slander, may sue the executor or administrator, but not more than two years after the death.
• Where a life insurance beneficiary is designated, the insurance money is not part of the estate and cannot be claimed by the insured's creditors from the time of death.
• If the estate is named as the beneficiary, the proceeds are paid into the estate and that protection does not keep them away from creditors.

What to do next

• Do not pay debts from your own money until you know whether the estate can cover them.
• List the debts, noting which are secured, such as a mortgage, and which are joint or guaranteed.
• Check whether any life insurance names a beneficiary or the estate.
• If you are the estate trustee, do not distribute before dealing with creditors and the CRA clearance certificate.
• Keep letters from creditors, and get advice before agreeing to pay anything personally.

Frequently asked questions