Assets That Do Not Form Part of the Estate

When somebody die, they are deemed to have sold all of their assets just before death. Of course, in reality, nothing has been sold yet, and it will be up to the executor to sell or bequeath the assets of the estate, following the terms of the will. However, in many estates there are assets which are not owned by the estate. But how can that be? How can the assets be owned by the deceased while he was alive, but not owned by his estate after death? If the estate doesn’t own those assets, who does?

Some assets are owned jointly, with each owner having the right of survivorship. For example, a joint bank account. Each of the two owners owns the entire bank account, and when one of them passes away, the name of the deceased is removed from the account, leaving the survivor as the only owner. The estate is not the owner of that bank account, but rather the survivor is the owner. Another common example is the family home, which is often times owned by a couple in joint tenancy. When one of the two owners dies, the name of the deceased is removed from title, leaving the survivor’s name on title. Once again, the house does not form part of the estate.

There are other common examples, too, such as insurance policies and retirement savings. Most insurance policies and retirement savings accounts have one or more named beneficiaries, so the proceeds of the policy will go directly to the named beneficiaries, meaning the policy and RRSP/RRIF do not form part of the estate.

If you need to file for probate, only those assets owned by the estate will get included, meaning you will not have to pay probate fees for those other assets. So why then are insurance policies sometimes included in the probate application? If the policy owner never named a beneficiary, or if the beneficiary died, then the estate becomes the beneficiary, meaning the value of the policy needs to be included in the list of assets, on which probate fees are calculated.

By now some of you might be thinking you could save a lot of time and money if you became a joint owner on your parents’ house. You’d save on probate fees, and you might even eliminate the need for probate altogether. Well, you’d be correct on those two points, but there’s more to consider, especially for your parent(s), so you’d be well-advised to speak with an accountant before going on title.

Sometimes real estate is owned by two or more people as Tenants in Common, rather than Joint Tenancy. If one of the owners dies, that person’s share of the property forms part of the estate, can be sold or bequeathed, and does not automatically transfer to the surviving owner(s). You’d rarely see this type of ownership for the family home, but you would frequently see it for investment properties.

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

Owning Shares in a Company When You Die

What happens to your company when you die? Does it die with you? Live on? Who will supervise and pay the staff? Or, perhaps the deceased was a 1-person-show… no staff… does that mean we can just ignore the company? Are there partners? Other shareholders? Was the company incorporated, or was it a sole proprietorship? Or, perhaps the deceased didn’t run his/her own company, but rather played the stock market, meaning there are shares in a few publicly-traded companies. Every scenario is different, so this article will touch on a few of the more common issues.

Sole proprietorship – These companies are usually very small, often times a 1-person-show. Typically, with the death of the owner, the company dies with them. There may well be assets and liabilities which will need to be dealt with, 3^rd parties who need to be contacted, staff, customers, unfilled orders… but likely everything will likely be on a smaller scale. The good news is that there’s no corporate entity to dissolve or sell, and any revenue & expenses of the company are included in the deceased’s final personal tax return.

Small, incorporated company – Small doesn’t necessarily make it easy. First thing, find the Minute Book, which might be in the deceased’s office or the lawyer’s office. This will provide a breakdown of the corporate ownership, information about directors and officers and, hopefully, information about how shares owned by the deceased are to be treated. You will need to determine the value of the company, possibly with professional assistance, so that you can determine the value of the deceased’s shares. After probate has been granted, the shares can be transferred as set out in the Minute Book. For instance, they might get sold back to the company at fair market value or for the original purchase price. Or, they might get transferred to other shareholders. Again, the sale price is important. You will need to determine if the deceased owed money to the company, or vice-versa, as this will impact the list of assets and liabilities. Someone may need to be brought in to run the company, especially if there is staff, customers and unfilled orders.

Publicly-traded shares – You will need to determine the value of the shares as of the date of death, so just look up the closing price for each company on the date of death, multiple by the number of shares, and that’s the value. Those are the easy ones. The tough ones are those ancient certificates you find in the safety deposit box, where the company has been bought and sold numerous times, amalgamated with other companies, and the name has been changed. You will need to do some research to find out the current name of the company, or find out if/when the company was de-listed. Researching old companies can be quite a chore. After probate has been granted the shares will need to be transferred to the executor or someone else, which requires you to find out the name of the transfer agent and then fill out a few forms. Sometimes the transfer fee is more than the shares are worth, so you will have to decide if you even want to bother.

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

How much time does it take to settle an estate?

Settling an estate after someone dies can take a considerable length of time to complete, usually longer than you anticipate. Can it be settled in 6 months? Maybe, but it’s unlikely. 12 months? Sometimes, but in my experience it takes 12 – 18 months to settle most middle-class estates. “But I just have to cancel a few pensions and close the bank account”, you say. There is usually more to it than that, so without boring you with all the finer details, let’s talk about some of the time-consuming tasks.

The funeral is over now, family members have gone back home, and everyone is beginning to settle back in to their daily routine. But not the executor… that person’s role has just started. Since the will likely needs to be probated let’s begin with generating a list of assets and liabilities, including the values as of the date of death. This is an iterative process, requiring you to communicate with numerous companies and, since most of these companies require a copy of the death certificate, one will have to be mailed to them, or you will have to attend in person. Here are a few questions to get you thinking:

• Where are the bank accounts, and what are the balances?
• What is the outstanding balance on the mortgage of the house?
• Are the monthly condo strata fees up to date?
• Have property taxes been deferred?
• What is the value of the Canada Savings Bonds and/or GIC’s? Hint: need to determine accrued interest.
• If the person was self-employed, what is the value of the corporate shares?
• Are there any assets and/or debts outside of Canada, such as a home in Arizona or Florida? Don’t forget about timeshares. You may have to file for probate again in these other jurisdictions.
• What is the coin collection worth? Art? Hockey cards? Jewelry?

OK, the list of assets & liabilities is finished and you (or your lawyer) have prepared the probate documents. In my experience the probate registry usually takes 2 – 3 months to process the documents. Sometimes sooner, but don’t bank on it.

While you’re waiting for the Grant of Probate to be issued, we can prepare the home for sale, including deciding what to do with all of the possessions. Some things can be given to family members, some can be sold, and other items will need to be thrown out. Complete any necessary work in the home, such as painting and carpet cleaning.

If the deceased was self-employed there may be a company to manage. Someone will need to oversee the staff and there may be customers requiring attention. This company likely has value, so the executor needs to ensure the value is maintained. Consider professional assistance.

The terminal income tax return will need to be filed and, possibly, a Trust return for the estate itself. Each one will take time for Canada Revenue Agency to process, and you should also request Tax Clearance Certificates, again, each taking time for CRA to process.

Well, so far, so good. Although we’ve been at it for a number of months now, at least everything is progressing. But wait! One of the children is upset because he was written out of the will, so he files a lawsuit to challenge the terms of the will. Now all bets are off because it’s anyone’s guess how long it will take to settle this estate. Don’t kid yourself… this is becoming all too common, especially with the ever-increasing value of estates.

Now it’s time to distribute the proceeds of the estate. The assets have been sold, debts paid, tax returns filed, and lawsuits settled. Before distributing the money, the beneficiaries need to pass the accounts, meaning they need to approve the expenditures. This can be quick & easy, or long & drawn out. By the way, you were maintaining detailed bookkeeping records, right? Sorry, I forgot to mention that little detail earlier.

In addition to everything described above, the executor likely has other obligations, too, such as family and work. The executor may also have to research how to settle an estate in the first place, may be uncomfortable using a computer, and might simply procrastinate. But the clock keeps ticking while the beneficiaries are waiting.

To summarize, settling an estate can take a surprisingly long time and it can be very time-consuming.

Gregg Medwid is the owner and president of Executor Support, a firm based in Coquitlam, BC 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

6 Important Steps to Take Before the Funeral

Making final arrangements is not an easy task, especially when a death has occurred.

Here are some important steps to take, particularly at time of need:

1. Contact family members to make them  aware
2. Know the final wishes of the Deceased: Funeral or Memorial Service, No Service, as well as Burial or Cremation
3. Call your chosen funeral home to arrange an appointment
4. If applicable, call your church to inform the Pastor or Priest and to arrange a date and time for the preferred service
5. When meeting with the Funeral Director, ask them to co-ordinate the Funeral or Memorial Service with your church and, if applicable, the cemetery
6. Before you meet with the Funeral Director, you will need to gather the following information about the Deceased and provide it to them:

• Full legal name (including Maiden name, if applicable)
• Date, place and time of death
• Doctor’s name, address, and phone number
• Name and birthplace of parents
• Social Insurance Number
• Citizenship Card (if applicable)
• BC Card Card
• Executor name and phone (if applicable)

The above information is required to be gathered and submitted by the funeral home to Vital Statistics. This forms the first part of what must be submitted, the second being the Medical Certification of Death that must be provided to the funeral home by the doctor. Once both elements are submitted to Vital Statistics, the Death Certificate(s) and Burial or Cremation permits are prepared and issued.

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

Michael Godin
Director Community Relations
Alternative Funeral & Cremation Services
E: m.godin@myalternatives.ca
P: 604-857-5779

So what happens to your debts when you die?

If you have debt, you may wonder what happens to it when you die. Well, it depends on if there is any money in your estate to pay the creditors and it also may depend on the creditor that the debt is owed to.

Credit card debt

If there is no money in your estate to pay outstanding credit card amounts then any debt on credit cards solely in your name will typically be written off as a loss by the lending company should you die. They’re considered unsecured creditors and would be at the back of the line of debt-holders trying to collect from your estate.

If, on the other hand, your credit cards are joint accounts with your partner or spouse, he or she will be responsible for continuing to make any payments owed.

If you (or an executor) make a payment on a debt of a loved one, a case could be made that you have accepted responsibility for the loved one’s debt after their death.

Mortgage and car loan debt

Mortgages and car loans, however, are considered secured loans and the lenders will come after your estate to ensure they’re paid in full. Odds are these larger purchases were co-signed by you and your spouse so the surviving person will be required to continue to make the payments as before.

If your partner or spouse is unable to maintain payments without you or if you have a substantial amount of debt that your spouse and family may end up being held accountable for, you should have a plan in place to pay for that. Your best bet is an insurance policy.

Uncollectible debts

If there is no money in the estate to pay the debt and if the debt is only in the name of the deceased person, the credit grantor will be left with no option but to write off the debt as uncollectible.

A debt does not automatically transfer to a surviving spouse. You are only responsible to pay for debts that you have contractually created. So, there needs to be contractual evidence that both spouses signed for the debt in the first instance.

If you are contacted by a creditor, be prepared to supply the creditor with documents proving there is no estate and that there is no ability to pay the debt.

No one can leave a debt to you that you have not contractually created. Do not accept a debt for a deceased person by signing documentation from a creditor after death. Do not make debt repayments personally after death on behalf of someone else.

A Will

Typically a will has control over the financial affairs of a deceased person. However, a will can only distribute assets, not debts. Before any money can be distributed to heirs, all the proven debts must be paid. If there are not enough cash assets to retire the debt load, some things may be sold to pay the proven debts. After the debts are paid, the remaining assets are distributed amongst the beneficiaries.

If you are unsure, it is always recommended that you speak to a professional about your specific situation before taking any action.

Lynn Williams
Professional Financial Advisor
President & CEO of The Lifestyle Protector
E: Lynn@lifestyleprotector.ca
P: +1604 833 0348
1322 – 1111 W Georgia St
Vancouver, BC, Canada

“We try to ensure the information and advice is correct at time of publising. The information is provided as a public service and does not constitute solicitation or provision of financial advice. The information is intended for residents of British Columbia, Alberta and Saskatchewan.  E & O E. “

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

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