A friend’s father died last Sunday at the age of 67. He was far too young and had battled a long illness. My own father died thirteen years ago, at the age of 62. He also battled illness for a long time. Life is never the same again after you lose someone close to you. Time doesn’t necessarily heal wounds – it just helps you to adapt to them.
The financial and tax implications of death are not usually at the forefront of a grieving person’s mind. However, at some point, matters of the estate do need to be dealt with, so here are some things to keep in mind.
Don’t pay any money to beneficiaries yet
When people hear that they have been mentioned in a will, they often expect to receive their money within a few months. It can take years to resolve an estate, so beneficiaries should be aware that it will take some time. The executor (also called the trustee) needs to pay any outstanding debts, and get a clearance certificate from Canada Revenue Agency before funds can safely be released. Note that a clearance certificate cannot be obtained until all outstanding tax returns have been filed and assessed.
Canada Pension Plan (CPP) and Employment Insurance (EI)
Service Canada should be notified as soon as possible for four reasons:
- To obtain the CPP death benefit. The amount of this benefit is calculated based on how long the deceased person was contributing to the Canada Pension Plan. The maximum payment is $2,500.
- To stop other benefits that the deceased person was receiving. If the deceased person was receiving Employment Insurance, Old Age Security or CPP retirement, disability, or other benefits, those need to be stopped. Benefits are payable for the month of death (for CPP), and up to the day of death (for EI), but any payments received beyond that need to be repaid. Trust me, the paperwork is a lot easier if you just stop them rather than repaying them later.
- To apply for survivor benefits. If there is a surviving spouse and/or children aged 25 or under, those people may be eligible for benefits. You can find the details of the calculations here.
- To prevent someone else from using the deceased person’s Social Insurance Number (which would be SIN fraud).
If the deceased person was receiving pension benefits from his/her employer, the employer needs to be notified for the same reasons as noted for Canada Pension Plan payments. There may be a death benefit and/or survivor benefits (depending on the terms of the plan), and regular monthly payments need to be stopped.
If the deceased person was actively working, then their employer will obviously need to be notified as well.
Life insurance companies should be contacted to receive payment of policies. These payments are tax-free.
The deceased person may have had extended medical insurance for dental, travel, etc. These companies should be contacted to get the premiums adjusted or cancelled.
Investment holdings and bank accounts
Whether the deceased person had stocks, GIC’s, mutual funds, or other products inside an RRSP account, a RRIF, a TFSA, or another type of brokerage account, you’ll need to know the market value of the investments on the date of death. Work with the account holder to get this information now. It’s a lot easier when the dates are recent than trying to dig it up months or years into the future.
The bank or brokerage company needs to be notified so they can transfer the assets according to beneficiaries listed on the accounts and/or the terms of the deceased’s will.
Make a list of all the assets that the deceased person owned at the time of death, so that you can discuss the specifics of each one with the professionals you will be dealing with. This will also help you determine just how complicated the estate is.
Find a lawyer and an accountant
You need legal representation to probate the will and advise you on the legal implications of asset transfers.
You need an accountant to work through the tax implications of transferring assets to beneficiaries and to help you work through the calculations. There are a number of different tax returns to file for a deceased person and an accountant will help you determine which ones need to be filed for the deceased person in question, and how you can minimize the taxes the estate and beneficiaries will pay.
If there is a surviving spouse and everything is being transferred to that spouse, then the situation is not that complex, and any qualified accountant should be able to complete the return. If the situation is more complicated – for example, assets outside of Canada, a spousal trust, or any number of other items, you may want to consider seeking a qualified accountant who also has the TEP designation (TEP stands for Trust and Estate Practitioner). An accountant with the TEP designation has taken extended education in the area of trusts and estates.
Read Canada Revenue Agency’s documentation
If you want to be better prepared for your meeting with your accountant and/or lawyer, you can read some of the ins and outs of the tax rules here.
Watch your relationships
Settling a deceased person’s affairs is a LOT of work, even in a straight forward case. If you are the named executor/trustee, you’re in for the long haul. If you’re a beneficiary, be patient and co-operative. Remember: Money does funny things to people! It’s heart-breaking when settling a will drives wedges between people who are supposed to love each other.
When my father died, my sister and I decided right off the bat that we were going to work together and look out for each other during the whole process, and we did. When there were decisions to be made, we talked through them together and our relationship did not suffer. It gets harder when there are more people and opinions involved – pleasing everyone may prove impossible. Take a deep breath and do your best.