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Will, Estate, Trust

Obligations of Estate Trustee – Estate Taxation 2/4

by |Published

Previously, it was said that:

  • If there is a will and an executor is named, that executor is called the Estate Trustee.
  • If there is no will, and the court appoints someone to administer the estate, that person is called the Administrator.
  • Both were generally referred to as PR (personal representative).

However, nowadays, these distinctions have faded, and the term Estate Trustee is commonly used for both roles.

The Estate Trustee is responsible to do taxes. 

The Estate Trustee holds personal liability for: 

  1. CRA:
    • Tax filing responsibility, AND
    • Actual tax money owing to CRA
      • As s.150(3) Income Tax Act (ITA) imposes personal liability for failing to discharge it

  2. Other creditors: 
    • So the Estate Trustee shall not dispose of property before creditor’s claims
    • Because the creditor has the right of priority over the beneficiaries, and can pursue a beneficiary who received funds before them

Specifically, the Estate Trustee’s tax responsibilities are:

  • Before disposing of property, the Estate Trustee must get a clearance certificate from CRA showing that taxes, interest, and penalties are paid, without this clearance certificate there is a huge risk of personal liability for all these payments 
    • The Estate Trustee can apply for clearance certificate after tax returns are assessed
    • Technically speaking, the Estate Trustee can get:
      • an interim certificate (to the date of death), and/or 
      • a final clearance certificate (to the date of distribution)

  • When the estate is winding up, the Estate Truess calculates income earned up until past date and undertakes to distribute promptly once the certificate is given

  • The Estate Trustee should retain a reserve to be able to pay for anticipated taxes, and it’s better to keep this amount a bit more conservative, until the certificate is granted.

Tips to Estate Trustee’s taxation work:

  • The clearance certificate is not always needed if the Estate Trustee him/herself is the sole beneficiary of the estate
  • When there is no final clearance certificate issued, CRA can reassess a tax return for up to three years after the expiry of a normal annual assessment period 
  • When the final clearance certificate is issued, there is no more liability for the Estate Trustee for any future reassessment from CRA
  1. T1 return for the period of time when the taxpayer was alive
    • The last T1 return is also called a terminal return or final return 
    • Fiscal year = from Jan 1st till date of death in the year:
      • If death occurs between Jan 1 – Oct 31
        • T1 filing and tax payment deadline = April 30 of next year
      • If death occurs between Nov 1 – Dec 31
        • T1 filing and tax payment deadline = 6 months from death date
  2. T3 return for the period of time after the person dies
    • T3 return is to report income earned or deemed to be earned by the estate
    • Fiscal year is from the “next day of death” in the year, till:
      • Option 1 → December 31 of the same year
      • Option 2 → 12 months after testator’s death
    • T3 filing and tax payment deadline = 90 days (not 3 months) after fiscal year end

Important Notice:

This blog series provides readers with a basic and general understanding of estate tax issues. If you encounter estate tax matters in your personal situation, it is crucial to consult with your lawyer or accountant. As always, it’s better to leave professional matters to the professionals.

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