Tuesday, June 30, 2015
Three years after getting a Clearance Certificate, an executor is notified of an unpaid bill. Now what?
Posted by Lynne Butler
"My sister and I were executors of my father's estate. We received the final clearance certificate from Revenue Canada nearly three years ago, and so the estate was disbursed and the estate account was closed out. Now nearly three years later, I got a letter claiming that a bill was not paid. I thought I sent them a cheque at the time, but it's been so long that I am not certain. We did do an advertisement at the time to make sure there were outstanding debts and had no response. So I thought it was over and done with, long ago. Now I am getting this letter. Are my sister and I responsible even though the estate was long ago wrapped up and we got the clearance certificate?"
I'd like to deal first with the significance of the Clearance Certificate. Receiving this certificate means only one thing, which is that the estate does not owe any more taxes. It doesn't mean that the government has in any way approved of other aspects of the estate. It doesn't mean that you can't be held responsible for other things, such as unpaid debts.
I wanted to start with that comment because I'm often asked by executors and beneficiaries alike about who at the government approves of the estate and closes it. They often assume that a Clearance Certificate is a blanket approval that the estate was all handled correctly. However, nobody from the government does that. Nobody at the government reviews the debts and checks to see whether they've been paid, except for taxes. It's up to the beneficiaries of the estate, with the assistance of the courts if necessary, to police an estate.
Now on to the rest of the question. You and your sister are executors for life, so you do legally have to deal with anything that comes up on the estate.
If you paid out the beneficiaries when there was an outstanding debt, you may be responsible for the payment of the debt yourselves.
You raise a good point about advertising for creditors. If you had never heard of this creditor and they missed out on the deadline you imposed in your notice to creditors, you would have a good case for refusing to pay them. After all, that's the purpose of advertising for creditors - to limit the claims of a creditor to a reasonable period so that the estate can be wrapped up efficiently and the executor can be confident that distribution is correct. However, it seems obvious that you did know about them because you said you thought you sent them a cheque.
If you paid estate debts using cheques, do you still have the cancelled cheques? Or can you find the cheque online using the bank account number? If not, perhaps the bank would be able to assist with a printout.
Do they refer to any earlier correspondence or phone calls? If they cannot establish that they discussed the bill with you within time, they may just be out of luck. The answer to your question might lie in what evidence exists that you and they were in touch during the estate administration. Have you asked them to remind you of when and how they contacted you earlier? Three years really does seem like a very long time for someone to wait to follow up on earlier correspondence or phone calls, so I wouldn't be surprised if they are unable to prove they asked within time.
An executor really should still have estate records three years later, since it's not that unusual for things to pop up. For their own protection, executors really should hang onto records for several years, as they cannot be certain that they'll never be asked to prove what they did or didn't do.