The "Typical" Estate Administration
Jun 20, 2017
When I meet with disgruntled beneficiaries, the most complaint that I hear is “The executor is taking too long to make a distribution to me and finalize the estate.” In a future entry, I will write about how I might help a beneficiary deal with this sort of complaint. In this entry, however, I will address how we help executor clients avoid ever getting this complaint from their beneficiaries.
When advising an executor, I see my role as helping to ensure that the administration progresses as quickly as possible while minimizing the exposure of my executor client to liability. The specifics of exactly how any particular estate will proceed of course depends on the circumstances of that estate. This is why it is important for an executor to hire a lawyer to advise as to what needs to be done in an estate. In a “typical” Ontario estate handled by our office, however, here is how an administration often unfolds:
- At our first meeting, the executor and I go through the list of assets and liabilities of the deceased. We talk about how the executor can avoid personal liability for the deceased’s debts. We discuss the various issues that will have to be addressed over the course of the administration – pension issues, death benefits, date-of-death values for assets, probate fees, an “estate account”, income taxes, distributions, executor compensation, etc. By the end of the meeting, we will have decided what estate work my office will do for the executor, and what estate work the executor will do himself. I’m happy to do as much or as little as the executor would like me to do.
- If it is necessary to probate the Will, my office files the probate application after confirming date-of-death values and obtaining a bank draft for the probate fee.
- In our recent experience, it usually takes about 2-3 weeks for the Court in Ottawa to process a straightforward probate application. Once the application has been processed, I meet again with the executor, this time to complete a final court filing, and to sign the documentation necessary to liquidate the deceased’s holdings.
- Once all of the deceased’s holdings have been liquidated, I help the executor create a plan for an interim distribution to the beneficiaries. We generally want to make this first distribution as quickly as possible, but it’s very important to approach the distribution carefully and systematically. In particular, to help avoid personal liability, the executor must ensure that he holds back enough cash in the estate to satisfy all upcoming estate expenses, including income taxes.
- With the plan for the first interim distribution finalized, we provide all of the beneficiaries with a copy of the plan, an accounting (that shows all the funds that have come into the estate and all of the funds that have been paid out of the estate), and a release (in which each beneficiary is asked to approve the plan and the accounting and release the executor from all claims). If the beneficiaries are satisfied with the plan and the accounting, we ask them to sign and return the releases to us.
- After we have received signed releases from all beneficiaries, we send cheques to each of the beneficiaries representing their interim distribution.
- Generally speaking, after the interim distribution is complete, it is a matter of finishing the income taxes and then determining when the executor is ready to make a final distribution of the estate. Depending on the circumstances, this is usually after all income tax returns have been assessed, or after Canada Revenue Agency has issued a Clearance Certificate confirming it will not re-assess the executor for any further tax.
The last step above often takes quite a long time, particularly if an executor decides to request a Clearance Certificate (which in most cases I recommend). This delay, however, is not usually an issue for the beneficiaries, as the reserve being held back at that point is usually relatively small. The key is that we have moved quickly to make an interim distribution of a large portion of the estate. Getting a large chunk of a beneficiary’s inheritance into his or her hands early in the process is key to ensuring happy beneficiaries. Happy beneficiaries means an uneventful administration.
Of course, not every estate can proceed in the manner described above. Depending on the circumstances, it may not be possible to make an interim distribution for one reason or another. For example, the assets of the estate may be limited relative to the potential income tax liability for the estate, such that a distribution can only be made after all tax matters have been resolved. In these cases, communication is very important to help avoid complaints from the beneficiaries. Communication from the lawyer assisting with the administration can be especially helpful. For this reason, and more generally to help ensure that estates run smoothly and executors avoid pitfalls, unnecessary risks, and liabilities, I generally recommend that executors retain a lawyer to assist them with the administration of estates.