Your Tax Responsibilities as The Executor of a Will
The executor of a will helps carry out the instructions set out in a legally prepared will and is responsible for administering the deceased’s estate. If you have been named as the executor of a loved one’s will, you might well be worried about what that might entail when it comes to taxes.
The death of a loved one is a stressful enough time without the added worry of the potential tax implications that their passing may have on you as the executor of their will. To help put your mind at ease and better prepare you for the day when your duties as executor kick in, here is a brief guide to your tax responsibilities:
What must you do when named as an executor of a person’s will?
As the named and legal representative of the person who has died, part of your responsibilities include filing the deceased’s tax returns, ensuring all owed taxes are paid, and advising all beneficiaries named in the will of any taxable amounts they are due to receive from the deceased person’s estate.
It is important to understand that you can be held personally liable by the Canada Revenue Agency for any taxes owed by the deceased should you proceed with estate distribution before obtaining a certificate of clearance from the CRA.
It is also worth remembering that you can opt to decline the responsibility of being the deceased’s legal representative.
What is the first thing you must do as will executor when the person dies?
Assuming you’ve accepted the responsibility, your first job as will executor is to notify both the CRA and Service Canada of the date of the individual’s death.
Do you need to file a final tax return for the deceased?
When a person dies, all income received up until the date of their death must be filed as a tax return and, for tax purposes, the deceased is deemed to have disposed of all properties that they owned. Because this can create a tax liability of some significance in the year of their death, it makes failing to file a return promptly even riskier and you could face big penalties and an interest assessment.
As executor of the deceased’s will you have a period of at least six months to avoid any fees and file the return. If the person died between the 1st of January and the 31st of October, their final tax return will be due by the 30th of April of the following year. Should the person pass between the 1st of November and the 31st of December, the filing must be done 6 months after the date upon which they died.
What happens if the deceased receives income following their death?
Any income received after their death must be reported on what is called a T3 Trust Income Tax and Information Return. This must be filed every year until their entire estate has been distributed as per the instructions laid out in the will. There are some instances in which a T3 Trust Return may not need to be filed; an experienced lawyer can guide you on this.
Can you be held personally liable for taxes as the legal representative?
This can happen but by working with a lawyer experienced in wills and probate you can make sure that it doesn’t. Your lawyer will make sure that you file a CRA clearance certificate as soon as all of the tax returns have been assessed and before the distribution of any property to beneficiaries. This certificate makes it clear that every amount for which the deceased person is liable has been paid to the CRA. In short, failure to properly address the tax debts of the deceased and distribute the estate in accordance with their wishes, as expressed in their will, could have significant legal ramifications for any named executors. To avoid any such issues, simply hire a professional will lawyer and let them guide you effortlessly through your responsibilities.