If You Are an Ontario Executor Beware This Danger Sign – Part 2

Everyone has an estate horror story to tell. And each estate is different. That is why executors can’t rely on checklists to protect themselves.

I am starting a new series about the dangers Ontario Executors must be aware of to avoid trouble.

Here is the second in the series of warning signs of possible trouble down the road. (Read about the first warning sign here.)

2. You Believe Recordkeeping is Not Important

The first step is to find out what kind of recordkeeping or inventory is required.

Income and expenses are easier to track from one estate account. Always keep your personal funds separate from estate funds.

Keeping track means writing things down

Keep a list of assets and liabilities plus income and expenses. If this is on a laptop or device, make sure you have backup records.

I’ll give you a sample checklist for an asset inventory. Like all checklists, it only gives you a starting point for your work.

Inventories may be required for different purposes. You may need one to divide the contents of a house and one for a summer home. Perhaps you need to itemize a collection for appraisal. This could include paintings, art, comic books or other collectibles.

Here is a sample list for an asset inventory in an Ontario estate. This is useful for calculating the provincial estate administration tax (EAT).

Identify Ontario Estate Assets

Assets include land, money, investments, valuables and personal effects such as jewelry. You will create an inventory as you identify and secure assets. You need to include in your inventory the deceased’s debts and liabilities.

Your duty is to account for all estate assets. You will keep an inventory and act as a bookkeeper. Record all cash you receive and any bills you pay. If you keep records online, have back up documents for your protection.

Here are some things to identify in an estate asset inventory:

1. Bank accounts – identify all savings, chequing and other accounts, include names and addresses of banks.

2. Investment portfolios – look for recent statements. Monitor funds to ensure they are prudently invested. Include GICs, stocks, bonds and options.

3. Designated assets – include RRSPs, RIFs, TFSA accounts, life insurance and pension or death benefits. By contract or law, these can be designated to go directly to named beneficiaries.

Estate trustees have no control over such designated assets. Unless they are payable to the estate, they are not included in your estate inventory. If they are payable to third parties, they are not included in calculating Ontario’s estate administration taxes (EAT or probate tax). You must be aware these assets may have federal income tax consequences.
Example: RRSPs left to a surviving, qualifying spouse have no income tax consequences to the estate. If the RRSP is designated to anyone else, the estate, not the beneficiary, pays income taxes. This tax can be 50% of the value of the RRSP. Estate trustees must report and pay the estate income taxes.

4. Joint assets – Joint assets, like bank accounts, pass to the surviving joint owner. Investigate jointly-owned property to confirm survivorship benefits. Recent court decisions now presume jointly-owned assets are not gifts, but are held in trust for the estate. Unless a gift is proven of the jointly held property, the law presumes a resulting trust. The asset then belongs to the estate.

Courts presume joint bank accounts are convenience accounts, especially for the elderly. The court may declare no gift was intended and the surviving owner holds the joint assets for the estate. This is a complex area. Specific legal advice is essential.

5. Business interests – Identify private corporations and shareholdings, partnerships or sole proprietorships.

6. Will assets – assets in the deceased person’s name include real estate (less mortgages or encumbrances), vehicles, vessels, ATVs, paintings, personal effects and private loans.

7. Digital assets – include anything that exists online or is stored digitally. These may have a low dollar value but a high sentimental value. These can include social networking sites, emails and online video and photo albums. Blog traffic or e-commerce websites can also be included. Are these sites to be continued, archived or collapsed?

8. Assets outside of Ontario – these are not used to calculate Ontario EAT. If the deceased had assets outside of Ontario, you will need specific legal advice.

9. Probate assets – the Ontario government has established audit procedures to review estate values for probate effective January 2015. Detailed lists of assets in five categories are required for the estate information return. You can find a link to this government form here. Ontario executors need to keep appraisals to justify estate asset values in case audits lead to reassessment of tax. If you claim assets are exempt, evidence to support any claim must be held and not destroyed. Reassessment can occur up to 4 years after filings take place.

Make a list of bills you need to pay. You may have to pay credit cards, landlords and mortgages. You are not obligated to use your money to pay estate bills. In some cases, estate debts can exceed estate assets. If you suspect that is the case, seek legal advice from an estate lawyer.

What standard of care is required of Ontario executors?

The standard of care is ordinary prudence. If the estate suffers financial losses while you are handling it, you must be ready to explain why. If you cannot manage financial investments, real estate, insurance and estate disputes, you must hire agents to help. Agents you commonly retain are lawyers, qualified appraisers, real estate agents, tax accountants, investment advisors and property managers.

You can pay agents at the estate’s expense for tasks you can’t ordinarily perform. In simple estates with only one bank account, you may be able to prepare tax returns.
In complex situations mistakes happen. If you don’t hire tax professionals to prepare tax returns to reduce the estate’s taxes and avoid penalties and interest, this may delay distribution of the estate. No one is happy with delays.

Since 1978 I have helped executors eliminate their worries.

I can guide you so you don’t waste your time. You can act with confidence. Contact me.