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Sunday, April 17, 2011

Just what are the assets of an estate?

It's important for an executor to have a thorough understanding of which assets are in the estate he or she is trying to administer, for several reasons. The executor has to create an inventory of assets and liabilities, which is sworn to be accurate and filed at the court. Also, the executor is personally liable for errors and negligence, and neglecting to deal with an asset would certainly count as negligence. Also, the executor usually has to answer a lot of questions from beneficiaries who are counting on the executor to be the most informed person in the group.

Some assets cause problems for executors just by their existence, and often the problem has arisen because nobody really understands whether those assets are in the estate or not. So let's try to clear up those misunderstandings.

As a general rule, assets that are held in joint names with a right of survivorship are not in an estate. This is because when the deceased person died, all of his or her right in the property automatically transferred to the surviving joint owner. An executor doesn't have to deal with the jointly owned property if he or she is looking after the estate of the first joint owner and does not have to include it in the estate inventory. All the executor has to do is inform the surviving joint owner of the death, and provide a death certificate.

The exception to that general rule is an asset that is held between a parent and an adult child as joint owners. Now those joint assets are to be considered as being held in trust by the child when the parent dies. Unless there is clear evidence that the parent did in fact want the child to own the joint asset, it must be paid into the estate and looked after by the executor.

If the deceased person owned real estate as a tenant-in-common with another person, the deceased person's share of the real estate is included in the estate.

Another asset that is not going to be part of the estate is a life insurance policy that names a specific person as beneficiary. Again, the executor isn't responsible for looking after this. The executor should let the insurance company know that the policy owner has died and provide a death certificate but after that, it's up to the beneficiary to get the money paid out.

If the insurance policy named the estate as the beneficiary, then it is the executor's job to get the money paid to the estate so that he or she can deal with it.

If the deceased owned assets such as RRSPs, RRIFs or LIRAs that name an individual as the beneficiary, the executor's duty is once again restricted to advising the plan holder (e.g. bank) of the death of the owner and providing a death certificate. If any of these plans name a beneficiary who has already passed away, the funds will be payable to the estate and in that case it's the executor's responsibility to look after it.

Usually the household goods of a married (or common law) person are only included in the estate if the spouse does not survive.

Vehicles, equipment, collections etc that are in the name of the deceased only are included in the estate. In fact, any items of any kind, from land to digital assets, that are owned by the deceased alone are included.

When the executor is preparing the inventory of the estate for filing at the court, he or she must include all assets that the deceased owned on the date of death, even if that asset has been sold or given away on the day in the inventory is done. For example, if Joe owned a car on June 19, the day he died, then his executor sells the car on July 30 and prepares the inventory on July 31, the car should still be shown on the inventory. This is because the inventory is intended to be a snapshot of the deceased's financial situation on the date of death, not on some random later date.

19 comments:

  1. This is really educational in some way. Plus it is an interesting way of teaching it to us. I did learn from this.
    llc

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  2. I'm just wondering if step kids try to bring a lawsuit under The Wills Variation Act and find out they can't because there's virtually nothing in the "Will" so then they try to change the beneficiary on an RRSP account in favor of them is this considered an separate lawsuit.

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  3. After my wife passed away my lawyer included our joint bank account in the estate. I was asked to produce records for the past year to be sure I hadn't switched out any money in my wife's final days. I thought a joint bank account didn't form part of an estate. These records are now going to the plaintiffs lawyer to review. This just doesn't sound right???????

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    1. You're right. Normally a joint bank account between spouses is not considered part of an estate. The fact that there is a plaintiff involved suggests that there is more going on here than a simple estate administration.

      Lynne

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    2. So even though a joint bank account passes to spouse by "right of survivorship" I decided to forward all our joint bank documents because there was such a minimal amount in the account and I wanted a chance to prove there was no extra money.I've since done my research on Joint bank accounts and I do realize I didn't have to forward the statements to them but I also know that they're not entitled to anything in a JOINT ACCOUNT, I do think it's pretty disgusting that they're going through their dead mother's personal finances just looking for a buck. It's almost morbid.

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    3. Didn't your lawyer tell you that a "JOINT BANK ACCOUNT" between spouses passes to surviving spouse by "right of survivorship." So these stepkids are actually spending money on this stupidy. Don't they have the internet to do some research. Everyone knows that an asset like an RRSP, LIF or Life Insurance or a Joint Bank Account do not form part of an estate and do not qualify under "The Wills Variation ACT" I think that's why spouse are putting everything they own with "DESIGNATED SOLE BENEFICIARY. because these items cannot be contested. Well they can be but they're wasting their money. Basically in a "Will" there's only personal items. Like your own vehicle or tools or dishes or if you have your own bank account. (NOT JOINT) So it seems pointless to even think about contesting a "WILL" because nobody puts much in their "WILL"

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    4. Although naming a beneficiary may have the effect of keeping assets out of an estate, that's not the only reason people name beneficiaries. By naming a spouse as a beneficiary on a RRIF or RRSP, they can get a tax rollover, for example.

      You are right that between a husband and wife, when the first one dies there isn't usually much in the estate other than personal goods. It's only when the second spouse dies too that everything falls under the will.

      Lynne

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    5. I think it's really sad when an estate settlement comes to this. All too often stepkids are looking at the step-parent like they're some kind of greedy monster. The stepkids think this only because they have a "misplaced sense of entitlement" they don't want to wait their turn until the other spouse has passed. But I think it's a step-parents obligation to explain the law to them. But I guess they don't want to listen. They just seem to have $$$$ signs in their eyes. And it's amazing the number of people that don't know estate law. They think an "estate" is everything and by contesting the "WILL" this means every asset their parent owned from the beginning of time. But it's actually only the small stuff in an "estate". I think because these kids are looking for $$$$$$$ that they're so nieve that they can't think straight.

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    6. Yes, it's sad, but it happens every day. But don't think it's just step-children who see dollar signs; biological children do exactly the same thing.

      I agree that almost nobody really knows anything about estate law or how it applies to them. That's why I write this blog, and why it has almost 1.5 million hits as of today.

      Lynne

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    7. So my question to you Lynne is in an estate dispute because our joint bank account is not an asset of the "estate" I actually don't have to produce bank records on a joint account that was with my spouse???????

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  4. I understand that if a parent holds a joint account with an adult child that upon death the account becomes part of the estate. Is it better then, to set the account up as P.O.D and name the adult child as a beneficiary?

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    1. You can't name a beneficiary on non-registered accounts so naming a child as beneficiary only works for registered stuff like RRSPs and RRIFs. Why does the child need to be added at all? Is there some compelling reason that the parent cannot just leave the account in the parent's name and let the will distribute the account? If the parent wants help with the banking perhaps a POA would be a better idea.

      Lynne

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    2. Hello Lynn,

      I've been reading your blog and have found it an excellent resource on wills and estate planning and administration! Well done! A quick question about P.O.D. or T.O.D. accounts - does Canadian law respect such designations on non-registered accounts made on foreign accounts? It is possible to setup bank accounts in the US with designated beneficiaries. https://www.wikihow.com/Avoid-Probate-in-Canada (see section 3). If a Canadian were to setup an account in the US with P.O.D or T.O.D. designation, and the Canadian will conflicts with the designation, is the P.O.D./T.O.D beneficiary designation still valid?

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    3. Re POD/TOD:

      I have not run into that situation and neither have I done any research on it, so I will give an answer based on my general knowledge of estate administration.

      The fact that our law does not allow us to name beneficiaries on a specific type of account does not mean that our law will not recognize that it can be done elsewhere. I can think of no reason why such a designation would not be respected here.

      If anyone out there knows more about this, please feel free to add your two cents.

      Lynne

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  5. My brother recently passed away in Ontario without a will. He was living at home, so he didn't have any property or assets except for a vehicle. I think he may have had some credit card debt. My parents are the ones who took out the loan for the vehicle. They are still making payments on the vehicle, but they want to be able to sell it and pay off the loan. What are the steps that they should be taking?

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  6. My wife recently passed away and owed money on her personal credit card. She also had a small overdraft on her personal chequeing account. Both the credit card and the bank account were in her name only. The Bank has sent the outstanding amount owing on the credit card to a collection agency and they have asked the estate to pay the outstanding amount. My question as the executor of her estate is am I required to pay this off as there is no money in the estate. The house and her RRSP were left to me as the sole beneficiary and therefore are not part of the estate. We had a join bank account at another bank but again I was the sole beneficiary and thus I do not believe that was part of the estate. She owned no other tangible assets. The only thing I can think the bank could go after as an estate asset to pay off the bill outstanding is the CPP Death Benefit as it was made out to the estate. Or should I let them take this to court? I don't believe I am liable for my wife's debt upon her death.

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    1. You are correct. As her executor, you are not liable for her debts beyond what is in the estate. You are also correct that the items you have described that were left to you directly or jointly are not in the estate.

      However, the CPP death benefit is an asset of the estate. If you used it to pay for the funeral or Canada Revenue Agency, you can simply tell the bank that the funds were used to pay creditors that outrank them. Lines of credit and overdrafts are unsecured debts and they rank behind certain other debts, including as I said, funeral and taxes.

      If, however, you do not need the CPP death benefit for those purposes, you should make those funds available to pay debts such as the bank.

      Credit card companies do not give up easily and I have seen many of them insist that the spouse is liable for the debt. But it rarely goes to court unless it's a large amount because their legal position isn't strong.

      Lynne

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  7. Hi I am really worried about your comment "The exception to that general rule is an asset that is held between a parent and an adult child as joint owners"

    My dad has low income (24k annually) and I added him to my bank account so it is a joint account. I am a high earner (200k+) and all of the money in there is mine. If he dies, would the bank account be considered to be in his estate? Will I have to pay taxes on my own bank account? What if it can be proven to CRA from his past tax returns that he did not earn much and all of the money is mine?

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    1. In my opinion, the account you have mentioned does not fit the description required to fall within the rule and the account would not form part of your Dad's estate. This is because it was your money first. The rule that includes an inter-generational account in the parent's estate related to accounts that were owned by the parent where a child was later added. However, to be absolutely sure there is no problem, it is easy simply to mention the account in both your dad's will and your will, to clarify who is supposed to own it on the death of one of you.

      Lynne

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