Clearance certificates are written notices from Canada Revenue Agency that state that taxes owing, and any interest and penalties on those taxes, have been paid by an estate. This is important because if an executor should distribute the assets of an estate before getting a clearance certificate, and not all taxes have been paid, the executor can be personally liable for payment of the taxes out of his or her own pocket.
The final clearance certificate absolves the executor from that liability. I refer to "final" certificate here because it is also possible to get interim certificates if you are working on a lengthy or complicated estate.
To get a clearance certificate you have to apply for it, because it will not automatically be issued. Usually the accountant who prepares the income tax returns for the estate will send in the application along with the final tax return. You do have to specifically ask the accountant to do this, so if he or she doesn't bring it up for some reason, you should bring it up yourself. If you have a lawyer helping you with the estate, do not expect that the lawyer will apply for this because it's an accounting function.
There is a long wait to receive the clearance certificate once you have applied for it. Allow six months for this. Usually beneficiaries of an estate are unhappy about waiting an additional six months to receive their inheritance, even though they are told that the executor must hold onto at least enough of the estate to pay upcoming taxes. In a future post I'll talk about how to distribute the bulk of the estate while waiting for the clearance certificate.
Lynne's edit: that "future post re interim distribution" is here.
It isn't required by law that an executor get a clearance certificate. However, if you're an executor, it's certainly a good idea to have that confirmation in your hand that you are no longer personally at risk for payment of estate taxes.
The final clearance certificate absolves the executor from that liability. I refer to "final" certificate here because it is also possible to get interim certificates if you are working on a lengthy or complicated estate.
To get a clearance certificate you have to apply for it, because it will not automatically be issued. Usually the accountant who prepares the income tax returns for the estate will send in the application along with the final tax return. You do have to specifically ask the accountant to do this, so if he or she doesn't bring it up for some reason, you should bring it up yourself. If you have a lawyer helping you with the estate, do not expect that the lawyer will apply for this because it's an accounting function.
There is a long wait to receive the clearance certificate once you have applied for it. Allow six months for this. Usually beneficiaries of an estate are unhappy about waiting an additional six months to receive their inheritance, even though they are told that the executor must hold onto at least enough of the estate to pay upcoming taxes. In a future post I'll talk about how to distribute the bulk of the estate while waiting for the clearance certificate.
Lynne's edit: that "future post re interim distribution" is here.
It isn't required by law that an executor get a clearance certificate. However, if you're an executor, it's certainly a good idea to have that confirmation in your hand that you are no longer personally at risk for payment of estate taxes.
My dad's wife is the executrix of this estate. She is also the only residuary beneficiary. My sibling, myself and my dad's wife were all gifted shares in a holding co. She will be finally applying for a clearance certificate in the next few weeks. She wants to wait to distribute the shares until the clearance cert is received and that makes sense to me..however....she has taken non-business cash out of the company that we are all shareholders of (loans, personal expenses, trip etc) and she has used a great deal of the assets outside of the company to buy a house etc (what would qualify as the residue). Would my lawyer have any grounds to pressure her to do an interim distribution on the grounds that she has already essentially given one to herself by using co. assets for personal expenses? Or should I be asking for a passing of accounts at this point? I feel that there is a huge conflict of interest but not sure what I can actually do about it at this point. My current lawyer is not a litigator. Would I be better off to get a litigator at this point? Thanks!
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