THE ROLES AND RESPONSIBILITIES OF ESTATE TRUSTEES IN ONTARIO
By Yuliya Pozdnyakova and Monica Beffa
When a loved one dies, it can be a difficult and emotionally charged time. In addition to grieving, there are often practical matters that need to be taken care of. If you have been named as an estate trustee, or are considering taking on this role, you should know the duties of an estate trustee.
If the deceased has left behind assets, an estate trustee must help distribute those assets in accordance with the deceased’s Will. Sometimes the responsibility of being the trustee falls may fall on you. This is no small task. It is often confusing, long, and expensive.
Who is the Estate Trustee?
An estate trustee, also called an estate executor, is responsible for winding up the deceased’s affairs and managing their estate after their passing. In Ontario, the trustee is the only person who is given legal authority to administer the estate.
Usually, the estate trustee is named in the deceased’s Will. If, however, the deceased died without a Will or the named trustee cannot perform their duties (i.e., the trustee is deceased, the trustee declines the duties, there is no alternative trustee named in the Will, etc.), the estate beneficiaries may choose to nominate another person to act as the trustee. Alternatively, the court may appoint one if there is a dispute about who the trustee should be. There may also be more than one trustee for an estate.
What Are My Responsibilities as an Estate Trustee?
If you are named the estate trustee in someone’s Will, you will not be forced to take on the duties and are allowed to decline the role. However, if you choose to act as the estate trustee, here are some things you will be responsible for in the administration of the deceased’s estate:
Immediately After Death:
- Find and review the deceased’s Will
- Arrange the funeral, cremation, burial, etc., in accordance with the deceased’s wishes
- Obtain the Death Certificate
- Retain and meet with an Estate Administration Lawyer and an Accountant
- Make any arrangements for the care of minors, if necessary
In the Following Weeks:
- Determine the names, addresses, and ages of all the beneficiaries
- Notify the beneficiaries of their interest in the estate
- Inform banks, utility companies, and other service providers of the deceased’s passing
- Cancel the deceased’s passport, credit cards, memberships, etc.
- Identify and secure assets (i.e., house, business, vehicle, valuables, etc.)
- Arrange appraisals for the valuation of assets
- Collect any debts owing to the estate
- Pay the deceased’s debts and liabilities
- Ensure assets with designated beneficiaries are paid
- Apply for probate
- File and pay administrative taxes
- Distribute assets to the beneficiaries in accordance with the Will
- Mediate any conflicts between beneficiaries
- Maintain records and accounts of all actions taken on behalf of the estate
- File a Final Tax Return
Duties of an Estate Trustee:
When settling the affairs of the deceased, the estate trustee has some general duties relating to the manner in which he should act. These duties include:
- Fiduciary duty to act
- Duty to administer the estate property
- Duty to administer the estate in a timely manner
- Duty to protect assets: real estate, bank accounts, cottages, etc.
- Duty to avoid conflict between beneficiaries
- Duty to file income taxes
- Duty to account to beneficiaries
- Duty to maximize the recovery & value of the assets of the estate
Liabilities of an Estate Trustee:
If the estate trustee does not act in accordance with their duties, they may be liable for any losses to the estate or the beneficiaries. The courts may find the trustee personally liable in contract or tort law if the trustee:
- Did not follow the terms of the Will
- Failed to pay the estate’s debts
- Made improper investments that led to losses for the estate
- Treated beneficiaries unfairly and unequally
- Did not protect the estate assets
- Failed to keep accurate records
- Distributed funds without advertising to creditors
- Distributed assets to the wrong beneficiary
- Committed fraud
The estate trustee must always be cognizant of their actions to not breach any duties or act negligently when managing an estate. However, mistakes sometimes occur. In contemplation of such innocent mistakes, the legislation outlines some relief for trustees who, despite making an error, acted in good faith and to the best of their knowledge and abilities (Trustee Act). However, as a trustee’s actions or lack thereof may expose them to personal liability, it is still best to obtain estate trustee liability insurance.
What is Probate?
To initiate the distribution of assets, you would sometimes need to go through a process called probate. Probate is the legal process through which the court formally approves the Will of the deceased and grants authority to the trustee to manage the deceased’s estate. The legal name for probate in Ontario is a Certificate of Appointment of Estate Trustee.
When is Probate Necessary?
Depending on the assets in the estate, probate may or may not be required. You should apply for probate if:
- The deceased person died without a Will
- The deceased died with a Will, but the Will did not name an estate trustee
- The deceased owned real property (i.e., a house) which did not pass to another person by right of survivorship (joint tenants)
- A financial institution asks for proof of a beneficiary’s right to receive assets or funds from the deceased’s estate
- There is a dispute about the choice of estate trustee
- There is a dispute about the Will’s validity
- Someone is challenging the Will
- A beneficiary is unable to provide legal consent on their own (i.e., the beneficiary is a minor, is mentally disabled)
Unfortunately, you cannot avoid probate simply because an estate may be small, all the beneficiaries agree on its distribution, or there is only one beneficiary.
What Assets Do Not Require Probate?
- Any real estate that is located outside of Ontario
- Any real estate in Ontario that was converted to Land Titles System after it was purchased by the deceased and that has not had any “dealings” since that time
- RRSP, RRIF, or TFSA that have a designated beneficiary
- Insurance proceeds that are paid directly to a named beneficiary
- Canadian Pension Plan death benefits
- Assets that were held as joint tenants and will transfer on survivorship
Do I Have to Pay “Death Tax”?
You are not required to pay estate administration tax if the estate’s value is under $50,000. However, a 1.5% tax is paid on any value over $50,000.
The estate’s total value is the combination of the value of real property owned by the deceased in Ontario and the value of any personal belongings owned at the time of the deceased death. Estate Tax does not have to be paid on any real property owned outside of Ontario, assets that are transferred by right of survivorship, assets with a designated beneficiary, and any debts owed by the deceased.
Example: Sarah’s estate is valued at $470,000 at the date of her death. Her estate does not have to pay tax on the first $50,000. However, the estate must pay 1.5% on the remaining $420,000. Thus, Sarah’s estate owes a total of $6,300 in Estate Administration Tax.
Will I Be Compensated For Being an Estate Trustee?
It is no secret that administering an estate can be a complex and time-consuming endeavour. While most people do not take on this task for the money, it is important to understand that there is monetary compensation for serving as an estate trustee.
Entitlement to compensation is sometimes spelled out in the deceased’s Will. Furthermore, if there are only adult beneficiaries to the Will, the amount for the compensation can be agreed upon by the beneficiaries without the interference of the court.
The legislation also outlines a guideline for trustee compensation. An estate trustee may look to the Trustee Act which entitles them to a fair and reasonable fee for their efforts in settling an estate. The guidelines state that the estate trustee can receive up to 5% of the value of the estate. This is the cumulation of 2.5% of the money received from any capital, and 2.5% from revenue receipts. The estate can also claim a management fee which is an extra 0.4% of the annual gross value of the assets being administered in the estate.
Sometimes estate trustees or beneficiaries want to deviate from the guidelines. To do so, you would the involvement of the courts. The courts will consider five factors to determine the amount of compensation appropriate in the situation:
- The size of the trust;
- The care and responsibility involved;
- The time spent in performing the duties;
- The skill and ability displayed by the trustee; and
- The degree of success resulting from the administration of the estate.
Example: Flynn is an estate trustee in a simple estate consisting of only one house that is worth $4,000,000. A 5% fee would amount to $200,000. The beneficiaries believe this is an unreasonable fee for the service and may involve the court to determine what would be lesser, but fair fee in this circumstance.
In contrast, Jamie is an estate trustee for an estate with a value of $200,000. This estate is very complex as it has ten beneficiaries who are in dispute, three minor children for whom the estate trustee must arrange care, and many pieces of artwork and furniture that must be appraised. A 5% fee for the administration would only be $10,000. Jamie may look to the courts to determine a higher fee as 5% may be unreasonable for the amount of work Jamie would need to do to properly settle the estate.
Overall, it is beneficial to discuss estate trustee compensation prior to the death of the owner of the estate. This way, it is less likely for a dispute to arise once the estate administration process begins.
It is important to note that any compensation received by an estate trustee is considered income and will be taxable.
How Long Does Probate Take in Ontario?
Unfortunately, there is no definite answer to this. The more complex the estate, the longer it may take to gather and file all the necessary documents for the probate application. Once this is done, the courts take approximately 15 days to process the probate application. If there are no issues with the application and probate is granted, it generally takes estate trustees a few months to a year to fully settle an estate.
Who Can and Cannot be an Estate Trustee?
Practically anyone can be an estate trustee. The only legal requirements are that the trustee is at least 18 years of age and is mentally capable of comprehending what is required of them as a trustee. Preferably, the estate trustee should also not have a criminal record or have filed for bankruptcy in recent years.
How Much Does it Cost to Obtain a Certificate of Appointment?
To obtain a Certificate of Appointment from the court, you must pay the estate administration tax with your probate application. In addition, you may also have to pay lawyer fees and any fees to retrieve documents that are necessary to file for the probate application, such as the Death Certificate, Marriage License, etc.
I Do Not Know If There Is A Will, What Do I Do?
Even if you may not know whether the deceased left a Will or not, make an attempt to locate it anyway.
As many Wills are created with the help of a lawyer, you should contact the deceased’s lawyer to see if they have a copy of the signed Will in their possession. If they do not, they can try to locate the Will by searching the court record or a Will registry. You can also try to look in the deceased’s home. Often Wills are kept in safety deposit boxes or even in desk drawers. Ask the deceased’s relatives as they may also know of the whereabouts of the Will.
Unfortunately, not everyone creates a Will. If this is the case, or you have not found one, the deceased’s estate will be distributed based on the laws of intestacy. Ontario’s Succession Law Reform Act outlines the rules by which the deceased’s closest next-of-kin would inherit all or parts of the estate.
Even if a Will cannot be found, it is still necessary to have an estate trustee be appointed for the deceased’s estate and the person who wishes to become the trustee must apply to the court for a Certificate of Appointment of Estate Trustee Without a Will. This certificate will give the estate trustee the same authority to manage the deceased’s estate as when there is a Will.
Do I Need The Original Will?
Yes, in Ontario if you are applying for probate you are required to have the original Will, not a copy of it. The original Will must be signed by the deceased in the presence of two valid witnesses, signed by the witnesses, and must be accompanied by Affidavits of Execution. The Will cannot be signed digitally.
If you do not meet these requirements, the deceased’s assets will be distributed based on the laws of intestacy.
Do I Have to File Taxes for the Deceased?
Yes, the estate trustee must file a Final Tax Return for the deceased. This tax return should include all income and capital gains earned by the deceased in their year of death up to their date of death. If the deceased owes income tax, the trustee must pay the such amount from the estate funds.
If the deceased earned income after the date of death, this income should be reported on a T3 Trust Income Tax Return.
Generally, the tax return must be filed by April 30th of the following year. However, if the death occurred between November 1st and December 31st, the tax returns should be filed no later than 6 months after the date of death.
What Do I Do With The Car?
A car is treated like any other asset in an estate. If it is included in the Will, it will be gifted to the person named as its beneficiary. The estate trustee will need to bring a copy of the Will, the Certificate of Appointment of the Estate Trustee, and the Death Certificate along will vehicle documentation and ID to complete the transfer of the vehicle to the new owner.
If the deceased did not designate a beneficiary for the car, the estate trustee has authority over the vehicle and may sell it. The proceeds will go back to the estate and will be distributed according to the Will.
When applying for probate, you must include the value of the car in the calculation of the estate’s total value.
Consult an Estate Lawyer
Being an estate trustee can be an overwhelming and complicated job, particularly if you are also grieving the loss of a loved one at the same time. Fortunately, you do not have to go through this process alone. If you are facing the daunting task of administering an estate, consider hiring an estate lawyer to help you.
At Beffa Law, we will support you in your role as trustee, help you gather the necessary documents, file for probate, and provide guidance through the administration process. Call us at 647-812-8462 or email us email@example.com to set up an appointment to discuss your estate questions or concerns.