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Tuesday, June 30, 2015

Three years after getting a Clearance Certificate, an executor is notified of an unpaid bill. Now what?

An executor gets a letter three years after an estate is concluded, telling her that there is an unpaid bill. The executor no longer has records of what she paid. What does she do now? A reader recently asked me about this issue. Her letter and my response are below:

"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.


9 comments:

  1. .
    I could be involved in a similar situation. As Executor I am dealing with a beneficiary who is withholding Estate monies that has CRA and Probate implications. I anticipated that and wrote the beneficiary but I have yet to receive a response.

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  2. Oh my god. Estate problems just never end. I thought there was a 7 year limit? If not there sure as heck should be.

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  3. There's also the relevant statute of limitations (usually the Limitations Act). In Alberta I would think the creditors would be statute bared from brining a claim.

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  4. I can understand the situation that you’re in these all real estate problems are unpredictable and often unending.

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  5. I can understand the situation that you’re in these all real estate problems are unpredictable and often unending.

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  6. My father passed away and made my oldest brother the executor there are 5 of us kids in total. The executor did not apply for a clearance certificate and did not clear the debt my dad has outstanding with the CRA, Now 7 years later i have received a letter from the CRA saying they may be able to hold me and my other siblings responsible for the debt. Seems crazy that i can be held responsible for a debt of my fathers that is 8 years old that i was not aware ever existed should the executor be liable? any advice would be greatly appreciated i am feeling completely lost when it comes to this and would like to resolve as soon as possible.

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    Replies
    1. Hi Becky,
      CRA has pretty broad-reaching powers.

      Did you and the other siblings receive anything from your father's estate? I assume that you did, and that's what CRA is after.

      An executor must clear all debts before paying beneficiaries. But what if he doesn't, as in your case? First of all, did you sign a Release? If you did, then he isn't going to be liable because the Release usually says that you and the other beneficiaries approve of his actions and agree to indemnify him for any tax burden that wasn't covered. If you signed a release, take a look at the exact wording.

      If you didn't sign a release and the executor acted improperly, it may be possible to claw back some or all of his executor's fee to pay the taxes.

      Once you find the release you signed, or if you didn't sign one, it's worth sitting down with a lawyer who is local to you to see what can be done. A lot will also depend on the attitude and cooperation of the executor.

      Lynne

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  7. Thank you for your reply and help with this. I did not sign a release we did sell a house and each received a small amount $10,000 for the sale of the house. The CRA is now trying to do an assessment and said they will come after whoever they can for the money. There is another house that is not worth alot we are going to try and sell to settle the debt.. i just hope this gets sold before they try and make me liable for the whole amount.

    Thanks again
    Becky

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  8. Hi,

    We've been waiting 3 years to get our clearance certificate. Is this normal? What should be the expected processing period? The 2 of us are beneficieries and the executor is poorly at communicating to us. Are there any steps we can take to speed up the process? thanks for your insight.

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