You have just learned that you have been appointed the liquidator of your brother’s estate (succession). Here are some useful lessons to ensure that you are released from all the deceased’s tax liabilities.
As a liquidator (formerly known as the testamentary executor), you have responsibilities. According to the tax laws, you must:
- File all the income tax returns required for the deceased person and his/her succession;
- Ensure that all the current taxes are paid;
- Inform the beneficiaries about the taxation of the amounts they receive from the estate (succession).
You must also ensure that you obtain the necessary authorizations and clearances to avoid incurring your personal liability for the tax debts of the deceased.
Québec – Authorization to distribute the property of the estate (succession)
In Québec, the liquidator must obtain a certificate authorizing the distribution of the property of the estate (succession) before distributing any funds, and even before paying bills. Failing to request such a certificate may be costly. Any amount distributed before this certificate is obtained will render the liquidator personally liable for the tax liabilities of the deceased, up to the limit of the amounts distributed without authorization. However, the tax authorities allow distribution of funds or payment of bills, without a certificate, up to a limit of $12,000.
For this purpose, a prescribed form must be filed as soon as possible after obtaining the inventory of the deceased person. In addition to basic information on the deceased, this form will present his assets and liabilities and the amounts already distributed or paid since the death.
Federal – Clearance Certificate
The liquidator (legal representative) must obtain a Clearance Certificate for federal tax purposes. As in the case of Québec, failure to obtain this certificate will render the liquidator personally liable. However, the scope of this liability will not be related to the valuables distributed before the certificate is obtained. In fact, contrary to the rules in Québec, the Clearance Certificate can only be requested once all the income tax returns have been filed and assessed – in other words, after the estate (succession) is liquidated. It is generally suggested that the liquidator retain a certain amount until the Clearance Certificate is obtained, in order to cover the tax debts that could appear during the analysis of the application.
Given the special tax consequences applicable in case of death and the possible liability of the liquidator, it may be wise to consult a tax specialist.
Please do not hesitate to consult our team specializing in this field. It will be their pleasure to assist you.
15 May 2013 | Written by :