What are Your Tax Obligations as the Executor of a Will?

Robert E. Flux
Insights
| 4/14/2020

I was named the executor of a friends will. Do I need to do anything?

Yes, as the named legal representative of the deceased your responsibilities include filing all necessary tax returns for the deceased, making sure all taxes owing are paid, and letting the beneficiaries under the will know, which, if any, of the amounts they receive from the estate are taxable. The Canada Revenue Agency (CRA) can hold you personally liable for any amount of taxes the deceased owes if you distribute estate funds before getting a clearance certificate from CRA.

Do I have to accept the responsibility of legal representative?

No, you can opt to turn down this position.

I've accepted the responsibility as a legal representative, what should I do first?

You should contact the CRA and Service Canada to notify them of the deceased date of death.

Do I have to keep making the deceased personal tax installments?

No.

Does the deceased need to file a tax return?

Yes, a tax return that reports all income received up to the date of death must be filed. When a person dies they are deemed for tax purposes to have disposed of ALL properties owned by them. This can create a significant tax liability in the year of death, hence failure to file a return on time can result in large penalties and interest being assessed. You have at least 6 months to file this return. So if the date of death was between January 1 and October 31, the return is due April 30 of the following year. If the date of death was between November 1 and December 31 the return is due 6 months after the date of death.

What about income received after the date of death?

This income needs to be reported on a T3 Trust Income Tax Return, and this return must be filed annually until the entire Estate is distributed in accordance with the Will. In certain cases, where the estate is distributed immediately after the person dies, or if the estate did not earn income before the distribution, you will not be required to file a T3 Return.

Are there any tax planning opportunities in all the filings?

Yes, though outside the scope of this Q&A, things to consider in preparing the filings include, but not limited to: filing the optional tax returns to report certain incomes; electing out of the spousal rollover provisions; utilizing all loss carry-forwards; claiming 24 months of medical expenses; carrying back capital losses of the estate to offset capital gains in the deceased final return; allocating income to the beneficiaries from the estate; and much more.

I'm concerned that I can be held personally liable as the legal representative.

To minimize this risk we recommend filing for a clearance certificate from the CRA once all the tax returns have been assessed and before any property is distributed to the beneficiaries. A clearance certificate certifies that all amounts for which the deceased is liable to the CRA have been paid.

The above all seems pretty confusing. Should I get help with this?

It is highly recommended that you work with your advisors in winding up deceased persons affairs. Again, as the legal representative, you are liable for the deceased tax debts and are responsible to the beneficiaries for distributing the estate according to the Will. Failure to do so properly can have significant legal ramifications to you, as such there is significant value in dealing with advisors that have experience in these matters.

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RFlux
Robert E. Flux
Partner, Incorporated