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The Big Questions Behind Settling An Estate

How much will I inherit and when will I receive it? Such questions are top of mind for beneficiaries. As executor, you provide the answers. With decades of professional executor experience, see how Thomas Junkin approaches settling an estate.

04.28.2021 - Thomas E. Junkin, Senior Vice President, Personal Trust Services and Operations

From a favourite rocking chair to the family cottage to millions of dollars, when it comes to settling an estate, everything is important. Whether you are an executor or beneficiary, items large and small are all pieces of this major life event. With over 40 years as a professional executor, Thomas Junkin, Senior Vice President, Personal Trust Services, helps unravel the steps and challenges that accompany fulfilling a person’s final wishes.

Q: What common concerns do executors and beneficiaries share?

Thomas Junkin: There are two questions I always work to answer for beneficiaries as soon as possible: How much will they inherit? When will they receive their inheritance?

Put yourself in their shoes. Though we encourage families to talk about what the estate holds, 90% of the time children have no real idea of what to expect. My job is to answer this end-of-life mystery. Beneficiaries wonder whether their inheritance will mean they can stop working, buy a new home or basically carry on as is. In a time of grief, understanding their inheritance helps people start building a path forward. We know delays, often beyond our control as executors, can be painful.

Q: What is key to answering these questions in a timely way?

Thomas Junkin: Every estate is unique. However, there are basics that shape the answers. Being aware of them can help executors and beneficiaries alike. For instance, there are two categories of beneficiaries and their rights are a little bit different. If your aunt leaves you the grand piano or $10,000, that is a legacy or bequest, and you are termed a legatee. You should receive some general information about the estate but are not entitled to know its full value or details. Legacies are paid first, before determining the residue of the estate.

If you are to receive a percentage or fractional share of the estate, you are a residual beneficiary and entitled to have comprehensive knowledge of the estate. The amount of money you inherit depends on the estate’s final value and establishing that figure is one of the critical steps an executor undertakes.

Turning to the role of executor, very briefly, the buck stops with them. They have a duty to act in the best interests of all beneficiaries and, as such, may have to make decisions that do not make everyone happy all the time. They are responsible for providing residual beneficiaries with a full picture of the estate’s value, including the inflow and outflow of funds. When the executor is ready to distribute the estate, beneficiaries should be able to link the beginning and ending values together.

An executor basically manages a time-sensitive project with several milestones that need to be achieved. However, there can be a lot of waiting between milestones. Beneficiaries should expect to hear from the executor when there are major decisions to be made, or when a major milestone is met. There will definitely be times when the executor has nothing new to say.

Q: What is involved in answering the question of how much?

Thomas Junkin: For legatees, the bequests are spelled out in the will. However, to answer that question for residual beneficiaries, the executor must have a good handle on the estate’s inventory. Is there real property and how much is it worth? What about property contents? What is the value of a collection ranging from art to livestock? It takes time to determine the value of many assets. What liabilities are there? Are there unexpected claims that emerge? What about expenses such as the funeral or memorial service, legal, probate and/or real estate fees? Is someone contesting the will, prompting additional legal proceedings and incurring further costs? Were there any personal or property taxes outstanding? What about the executor fee, which anyone who acts as an executor is entitled to charge? What taxes will be owed?

Q: Please expand on that last point.

Thomas Junkin: Broadly speaking, estates are taxed in three ways:

  • Any tax-deferral vehicle, such as an RRSP or RRIF, becomes taxable upon a person’s death. The common exception is on the death of the first spouse, tax can be deferred until the second spouse passes. Ultimately, every RRSP or RRIF becomes taxable.[1]
  • Capital gains tax. When a person dies, everything they own is deemed to be disposed of at fair market value. Capital gains tax is assessed on any property that has appreciated in value. This covers everything from stocks and bonds, real estate (excluding, the principal residence), art, jewelry or other collectibles of substantial value. Capital gains tax can be deferred until the death of the second spouse, but eventually this tax is due.
  • Probate taxes: Several provinces charge probate tax on an estate’s value as it passes through the probate process. In British Columbia, Ontario and Nova Scotia, those taxes can range from 1.3% to 1.6% of the estate value.[2]

Q: Let us focus on probate for a moment.

Thomas Junkin: Probate is generally misunderstood. It is simply the process that provides proof that a will is valid. Since anyone can make a will any time, and many people die with more than one will in existence, there is no way of knowing whether a particular document is valid or not. Probate is the public process that gives people a chance to make a claim against the presumed last will. If no one comes forward, then it is assumed the will is correct and things move ahead. This is where the waters sometimes get stormy. For example, a child may claim Mom was unduly influenced by their new spouse and the will should be considered invalid, or Dad lacked testamentary capacity and that is why the will should be considered invalid. Probate also gives creditors a chance to make claims. For example, a contractor may claim they were not paid for the recent kitchen renovation. Such claims generally trigger legal proceedings and delays. Probate also protects executors and third parties such as bank representatives. Proof of probate assures them that they are following the directions of the right will and distributing funds to the right people. With proof of probate, they cannot be held liable if things go awry later.

We know people use tools such as beneficiary designations and joint property as a means of maintaining privacy and bypassing the public probate process. No one wants to pay unnecessary tax. However, in many provinces, probate is simply a protection mechanism for everyone involved in the estate settling process. That point is sometimes overshadowed by the delays or expenses that can accompany probate. Keep in mind things like taxes, unresolved marital issues, missing beneficiaries and minor children named as beneficiaries can also weigh on the speed of settling an estate.

Q: While there are more detailed pieces to the process, how do things generally come together in settling an estate?

Thomas Junkin: Very high level, there will be a flurry of activity shortly after a person dies. That often involves establishing an estate inventory, selling real estate and selling or allocating contents. The complexity of the estate and family relationships are key drivers of this step. Then the executor gathers the information needed to apply for probate. That application is submitted to the courts and once approved (this step can take at least six months), the executor can then gather all the assets and file the necessary tax return(s).

Once there is an estate inventory, I can establish the overall value and provide a residual beneficiary with a rough sense of the dollar amount they will receive, based on the percentage share written in the will. As professional executors, we will try to draw some funds from the estate in the form of an advanced distribution somewhere between six and 12 months after the date of death. That is our goal. We must hold back a substantial amount of money until we have the tax clearance and know how much must be paid. So, the balance of the estate is generally distributed 18 to 24 months after a person passes. This timeline assumes a straightforward will and relatively smooth sailing.

While settling an estate is a detailed, technical process, we never underestimate the very human side of the equation, because that is where the tough questions truly emerge.

 

NOTES:

  1. There are special rules when minors or disabled children are beneficiaries.
  2. Probate fees in other provinces are significantly lower.

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Thomas E. Junkin, Senior Vice President, Personal Trust Services and Operations

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