The personal liability exposure of an executor (estate trustee) is, in my opinion, the most critical concern and issue facing an executor.
If the executor fails to accurately report the estate assets and their valuations, the executor maybe subject to an investigation and re-assessment of the estate assets valuations leading to additional Ontario estate tax and penalties and by separate review, Canada Revenue Agency re-assessment for estate tax returns.
Other responsibilities of the executor include as when and where appropriate, timing of liquidation of assets to achieving realizable value, ascertaining market value, recording and accounting for all assets, income received and payments made.
For some, the stress and time involved can be overwhelming or to a lesser degree, significant.
EstateAdministrationTax.com is intended to be a collection of copyright articles written by Bryon C. Cohen to keep you aware of issues, concerns and best practice in the area of estate administration.
Cohen Barristers & Solicitors prepares applications for appointments of estate trustees with a will and without a will. We assist with the administration of estates to the extent our services are required. Upon being retained, on your first appointment we provide the confidence and advice to enable an estate trustee to proceed in an orderly and efficient manner.
We invite you to contact us to arrange an appointment.
Recent amendments to The Estate Administration Tax Act (EAT), (still commonly referred to as probate fee), impose significantly greater personal liability issues to estate trustees. These amendments were implemented in two (2) stages,
Stage one which came into effect on May 1, 2011 changed responsibility for collection of this tax to the Minister of Revenue (Ontario) and granted this Ministry the same powers of assessment and re-assessment of estate administration tax as provided under the Retail Sales Tax Act. This means that information can be shared with other government agencies to assist with enforcement, as well as with assessing information provided by the estate trustee and enforcement of estate tax payable.
The Estate Administration Tax is calculated pursuant to a formula on the valuation of the estate assets set out in the application for appointment by the person or persons seeking an order for appointment as estate trustee.
As of January 1, 2015, the estate trustee is now required to submit detailed information as to the estate assets as well as non-estate assets with itemized valuations on the prescribed form to the Minister of Revenue within 90 days of the date of the Court Order appointing the estate trustee. This reporting requirement enables the Ministry to determine the accuracy as well as compliance with reporting requirements in accordance with the regulations with the totals set out in the application for appointment. Previously only estate assets without specifics had to be declared.
The Minister of Revenue then has up to four (4) years to require the estate trustee to provide additional information and to assess and re-assess the estate assets filing. This assessment period can be extended if the Ministry can establish that the estate trustee failed to comply with the duty to give information or that he or she “made a misrepresentation that is attributable to neglect, carelessness or wilful default”. The extended period also applies when the Ministry has established fraud.
The minimum penalty is $1,000.00 and the maximum penalty is two (2) times the value of the tax payable, or two (2) years in prison. As this is a criminal offence insurance cannot protect (indemnify) the estate trustee for failure to comply with these obligations.
Unlike Canada Revenue Agency which will on request provide a certificate to the estate trustee stating all taxes have been paid, generally enabling the estate trustee to make a final distribution within two years of death, no equivalent certificate is expected to be issued under the EAT. However, it appears that a comfort letter may be obtainable.
Thus, the estate trustee can face great uncertainty as to the amount of estate assets to be held back as well as the time period(s) for such holdback(s) when making distribution(s) to beneficiaries.
Until current and possible future regulations are interpreted by Ministry published guidelines and/or through the judicial process, numerous concerns will need to be addressed by the estate trustee, relying on the assistance of professionals - accountants and lawyers, appraisers and evaluators, having the requisite knowledge and experience.
With this in mind, please remember that the information in this article and in my other articles is meant only as a guide and is not to be construed as legal advice.
Upon assuming the role of estate trustee (with or without a will) and even prior to ratification by the court of the appointment of estate trustee pursuant to a will, the estate trustee assumes personal liability for the payment of all debts and liabilities of the deceased and all debts and liabilities of the estate including payment of income taxes and Ontario Estate Administration Tax (still commonly referred to as probate fee), calculated as a percentage of the net real and personal property of the deceased person. The estate trustee is also liable for accurately determining the valuation of all estate assets as he or she is personally liable for the payment of any taxes payable as a result of any reassessment of valuation, as well as any penalties which may be assessed.
Accordingly, before assuming this role, it is imperative to determine that the estate’s assets will be sufficient to pay all of these obligations.
The estate trustees are primarily responsible for administering the estate (and trusts created under the will and codicil).
There are generally a significant number of tasks.
We discuss these tasks with our clients and provide our clients with a checklist.
DUTY OF CARE
In discharging his or her duties as estate trustee, the estate trustee has a common law fiduciary duty to the beneficiaries of the estate to act in their best interests and in good faith, in accordance with the terms of the will (if it exists) excepting in general terms, violation of applicable statutory provisions, e.g. failure to support a dependent.
The common law standard which an estate trustee must exercise is the showing of ordinary care, skill and prudence - acting as the prudent person of discretion and intelligence would act in his own affairs. However, when investing trust property, a higher standard is required so that the estate trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.
Failure of the estate trustee to exercise his or her obligations could result in the estate trustee being held personally liable to the beneficiaries for any losses.