Tax Returns Required When Settling an Estate

Only two things are guaranteed in life: death and taxes. And the tax requirement lingers on even after death.

When someone dies, Canada Revenue Agency (CRA) needs to know how much money the person earned in the (partial) year in which they died, so a T1 Personal Income Tax Return will need to be filed. This tax return is also referred to as the date-of-death return or terminal tax return. Depending on the type of assets owned, and whether or not there are any joint owners or named beneficiaries, there can sometimes be a large tax bill payable, so it is wise to have an accountant review the estate at the outset. Let’s hear the bad news now so that we can plan to pay this tax debt later.

Must the tax return be filed by April 30^th, like everyone else? Sometimes.

· Date of Death from January 1 to October 31: Due date is April 30^thof the following year.

· Date of Death from November 1 to December 31: Due date is six months after the date of death.

If last year’s tax return was not filed, then last year’s tax return and any amount owing are due 6 months after the date of death. CRA can provide you with the necessary T4/T5 tax information slips they have on file.

We are frequently asked how to claim the $2500 Canada Pension Plan Death Benefit. The CPP Death Benefit should not be included in the final tax return for the deceased. Rather, if there is only one beneficiary receiving 100% of the proceeds of the estate, then the CPP Death Benefit should get included in the beneficiary’s own personal tax return. But if there are two or more beneficiaries in the estate, then the CPP Death Benefit should get included in the T3 Trust Income Tax Return (described below).

Does an accountant need to prepare the final tax return? No, you’re permitted to prepare that tax return by yourself, but an accountant may be able to make valuable suggestions, such as applying for a Disability Tax Credit.

In addition to the personal tax return, the estate itself will likely need to file a tax return, too, known as a T3 Trust Income Tax Return. CRA needs to know how much income was earned by the estate. A T3 Trust Return will need to be filed each year, 3 months after the anniversary of the death, until the proceeds of the estate have been fully distributed (there are other reasons, too, for filing). And the last T3 Trust Return will likely be required for the partial year, up to the date of distribution. You might want to consider hiring an accountant to prepare these tax returns rather than doing them yourself, and you will need to include the names, addresses and SIN’s of the beneficiaries.

How do you get through this without pulling your hair out? Be extremely organized with your paperwork, and maintain a detailed list of revenue and expenses.

Gregg Medwid is the owner and president of Executor Support, a firm based in Coquitlam, British Columbia, with expertise assisting executors and administrators in settling estates. The project management expertise and customer service focus Medwid brings to Executor Support ensures questions are answered and help is given when it is most needed.

This article is in no way intended to substitute for competent legal advice.

Gregg Medwid, Owner
Executor Support
gregg@executorsupport.ca
604-999-2106
http://www.ExecutorSupport.ca

Behind the Scene of the Funeral Home

In an effort to help families understand the steps that are necessary in order to make final arrangements, whether when a death occurs or to plan ahead, Alternatives Funeral & Cremation Services offers informative educational seminars.

These helpful presentations will give you a better understanding of what is involved when making final arrangements: the legal requirements and the practical considerations. Once you have attended these seminars, you will be better informed and able to make decisions that are appropriate for you and your family, no matter which funeral services provider you choose.

Our seminars provide attendees with ample time to ask questions during the presentation, and if preferred, our presenter will remain on site after the seminar for private questions. In addition, you will also be provided with information handouts.

We provide these educational seminars for both the general public and our allied professionals, including clergy, social workers, palliative care staff, hospices, and seniors residents ranging from independent living residences to long term care facilities. In addition, we provide the seminars at no charge and will come to your neighbourhood from Horseshoe Bay to Hope.

Here’s an example of recent and upcoming seminars:
June 2012 Municipal Pension Retirees Association – Langley Chapter
July 2012 Rotary Club – New Westminster
September 2012 Municipal Pension Retirees Association – Burnaby Chapter
October 2012 Langley Lodge – Community Wide Presentation
October 2012 TD Price Waterhouse – Abbotsford
October 2012 Auburn Residence – Chilliwack
November 2012 Municipal Pension Retirees Association – North Shore Chapter
January 2013 International Training in Communications – Burnaby Club
February 2013 Freedom 55 Financial – Vancouver

Here are some comments from people who have previously attended one of our seminar presentations:
“This presentation was very well done. I really appreciated the careful sensitivity you used.”
“I would recommend this information session as it has information that everyone should know.”
“The seminar presenter had easy to understand explanations of the various steps and services.”
“Excellent talk. Very clear.”
“Very well delivered seminar with a personal touch and interesting details for a tough time.”

“Information was VERY complete.”
If you would like more information on this seminar or if you would like to arrange for the presentation at your church, school, seniors’ residence, library, etc. feel free to contact me, Michael Godin.  You can reach me at 604-857-5779 or via email: m.godin@myalternatives.ca or simply just drop a comment below.

Happy Thanksgiving, everybody!

Michael Godin
Director Community Relations
Alternative Funeral & Cremation Services

An Introduction to Executors and Probate

It is no wonder there is confusion around executors, estates and probate. No one wants to consider their own demise so discussions tend to be avoided. Death, however, is a certainty, and with this in mind you need the basics in place to protect your loved ones.

In this article, I will explain what an executor does, why you need one and will also provide an introduction to probate.

An executor carries out your final wishes as detailed in your will. When there is uncertainty, your executor plays a part in sorting through the details and in essence, does their best to act as you would in distributing your assets within the confines of the law. Without a will, an administrator is selected. This individual manages the estate similarly to an executor; however, the absence of a will can make for a much more involved process.

While an executor may or may not be a beneficiary, it is essential that the person you assign is responsible, organized and a good communicator. Communication plays a key role as managing an estate can be complex and an executor must keep the family and other beneficiaries informed at all points.

Among their first tasks, the executor arranges a funeral and informs others of the death. Informing extends beyond friends and loved-ones to organizations such as government agencies, banks, etc.

The executor must also complete the very detailed task of settling the estate. This begins with cataloguing all assets and liabilities and determining what items form part of the estate and what passes directly to a beneficiary. Assets with an assigned beneficiary (RRSPs, insurance products, etc.) will avoid going through probate which is another reason why pre-planning will benefit your family.

Because the process of taking inventory of assets, settling debts, and liquidating the estate can be complex and take a long time, detailed financial records must be kept for all amounts flowing into and out of the estate. Additionally, the final tax return must be prepared and submitted by the executor, as well as possibly a tax return for the estate itself.

Probate certainly has its myths and uncertainty. Most people have heard of probate, but have little understanding of how it works.

For estates with a value of more than $25,000, probate is usually required. Probate grants the executor the authority needed to settle the estate by proving that the will, and the executor’s role, is valid to banks, pension offices and other organizations.

Within the Lower Mainland, there are probate registries in Vancouver, New Westminster and Chilliwack, with others around the province. Probate filing documents can be prepared by the executor (a kit is available in many office supply stores) or by a lawyer, and must include the list of assets and liabilities with values. The fee to file is $200 plus probate fee – approximately 1.4% of the value of assets within the estate.

Generally the courts will process the application within 2 to 3 months granting the executor the authority necessary to finalize details of the estate.

Obviously the process can be time-consuming and up to 5% of the value of the estate is available for the executor for their service, however, it is important to note that this money comes out of the estate and will reduce the asset value available to beneficiaries.

Mortality is far from a fun topic, but planning and preparation will make things easier for your executor and loved ones. No one has yet figured out how to live forever, so take the time now to ensure your estate is in order.

    Gregg Medwid is the owner and president of Executor Support, a Coquitlam based firm with expertise assisting executors and administrators in settling estates. The project management expertise and customer service focus Medwid brings to Executor Support ensures questions are answered and help is given when it is most needed.

This article is in no way intended to substitute for competent legal advice.

Gregg Medwid, Owner

Executor Support

gregg@executorsupport.ca

604-999-2106

http://www.ExecutorSupport.ca