Canada Revenue Agency - what to do when someone has died

Here is an extremely useful link for executors from Canada Revenue Agency. It's called "What to do when someone has died" and contains information about which tax returns need to be filed. It also contains information and forms for dealing with RRSPs and RRIFs of a decceased person. Personally, I would never try to handle an estate without consulting an accountant, but I like to be as informed and prepared as possible to make the most of my consultation. This page is also great for just getting that overview of what your job as executor is going to take. Click here to visit the page. I'll add it to my "interesting links" section so that executors can find the link in the future.

Why is there a second distribution on a small estate?

Did you ever wonder why you receive your inheritance, only to get a second, smaller cheque from the estate months later? This reader had the same question:

My mother died in 2011, leaving a modest estate. I'm told there is a second distribution coming. I want to know if this is standard, seeing as how my mother's estate is small.

Yes, it's very common for estates to be distributed in two (or occasionally more) portions. This really has little to do with the size of the estate.

The second distribution is generally much smaller than the first one, and this has to do with the reason for the division in the first place. Usually an executor wants to get the estate handled quickly and the money out to the beneficiaries in a timely manner. At least, that's supposed to be how they think. I'm ignoring all of the rogue executors out there for the moment.

The executor must pay bills and taxes before he or she can pay beneficiaries. Bills aren't much of a problem in terms of delays. Taxes, on the other hand, can be another matter. It can take several months to get a Clearance Certificate from Canada Revenue Agency to show that all taxes have been paid. And normally beneficiaries don't want to wait that lon. To get the bulk of the estate into the hands of the beneficiaries, an executor may do an interim distribution. (Note that I said "may" do this, as he or she is not required to give the beneficiaries their shares early).

This involves holding back enough estate money to cover anticipated taxes and any last expenses (usually accounting and legal fees). The executor then distributes everything except this holdback. Months later when the Clearance Certificate arrives, the executor distributes any money that is left over. In this reader's case, this is almost certainly the second distribution that has been mentioned. As I said, I would expect this distribution to be smaller than the first one.

Another possibility, though one that is admittedly less likely, is that the executor found that your mother owned more assets than were known about earlier.

In multi-million dollar estates, there can be several distributions over time. This is usually because it takes time to sell businesses or homes in Mexico, and new sums of money flow into the estate as time goes on. However, in most cases, especially in smaller estates, there wouldn't be more than two distributions.

It sounds to me as if the executor in this case has a good grasp on things and is following all the right steps.

Canada Revenue Agency warns Canadians of mail scam

The Canada Revenue Agency warns Canadians of mail scam

(this article from the CRA webpage)
The Canada Revenue Agency (CRA) is warning taxpayers to beware of a recent scam where some Canadians are receiving a letter fraudulently identified as coming from the CRA and asking for personal information. The letter is not from the CRA. A PDF version of the letter is available on the CRA Web site at http://www.cra-arc.gc.ca/alert/index.html.
The letter claims that there is “insufficient information” for the individual’s tax return and that in order to receive any “claims,” they will have to update their records. The letter attaches a form specifically requesting the individual’s personal information in writing, via fax or email, including information on bank accounts and passports. This letter is not from the CRA and Canadians should not provide their personal information to the sender.
All taxpayers should be vigilant when divulging any confidential information to third parties. The CRA has well established practices to protect the confidentiality of taxpayers’ information.
The CRA has notified the proper law enforcement authorities of this scam.
For information about this and other similar scams, or to report deceptive telemarketing activity, visit http://www.phonebusters.com/, send an email to info@phonebusters.com, or call 1-888-495-8501.

Tax scheme too good to be true?

I found this article in the Financial Post to be truly interesting, particularly as it reveals the numbers of Canadians who are using (or WERE using) these donation schemes in the hopes of reducing taxes. It's a long article but very well done and informative. Please read the article here if you're thinking of going to a seminar to learn how to use tax shelters.

Dealing with an estate can be complex

This article from Gabriele Banka, an accountant in Kelowna, describes the various steps in estate planning. She also talks about the role of an accountant, which I think is very important for people to understand. Lawyers should be able to "red flag" areas in which taxation might be a problem, but it's the accountants who know the tax rates and the CRA rules. Quite a few of my clients bring in an accountant to help with the estate planning, particularly if there is a business or a farm to deal with. Click on the link below to read the article.

Dealing with an estate can be complex

How do I get a Tax Clearance Certificate

A tax clearance certificate is a notice you receive from Canada Revenue Agency that states that all taxes owing on an estate have been paid. Although it is not the law that every executor must get one, the majority of executors will do so. This is because if the executor goes ahead and distributes the estate to the beneficiaries and then later finds out that there is tax owing, the executor himself might have to pay the taxes out of his own money.

I'm often asked how a person goes about getting a tax clearance certificate. The certificate does not come out automatically; it has to be requested in the right way at the right time. The vast majority of executors that I've worked with have asked the accountant who does the tax returns for the estate to request the clearance certificate. This is because accoutants who are familiar with taxation know how and when to get it.

However, if you want to request one yourself, here are the basic steps:

1. file all of the necessary tax returns for the deceased and the estate;


2. receive the Notice of Assessment for the returns you've filed;


3. fill in a form called TX19, that you can find online here;


4. send the form to your local tax office, along with a copy of the Will, a copy of all probate documents and a statement of proposed distribution.


5. wait.

It takes a long time to get the tax clearance certificate. You should expect to wait several months in most cases. Because of the long wait and the unwillingness of beneficiaries to wait longer than necessary for their inheritance, there is a process in place for making an interim distribution of the bulk of the estate while keeping back enough money to pay the taxes and future expenses. I'll post about that interim process in a separate post.

To go to the Canada Revenue Agency page on clearance certificates, click here.

If I open an RDSP for my disabled child, will he/she lose government benefits?

The Registered Disability Savings Plan (RDSP) has been around long enough now that most people involved with disabled adults are aware of the general operating rules. However, I do still get quite a few questions from parents who wonder if they might accidentally cause their children to lose their government disability benefits by creating this kind of account.

Provincial plans pay eligible handicapped individuals a monthly support amount, as well as offering free medical, dental, optical and other services. Obviously this is very important to most families as a financial benefit for the handicapped child. However, the provincial plans impose a financial test on the handicapped individuals so that if the individual has either more assets or more income than is allowed, they lose their benefits.

While parents are interested in setting up an RDSP, they want to make sure they don't lose those provincial benefits.

The Canada Revenue Agency has clearly stated that the money paid into an RDSP and the earnings on that money are not counted as an asset for the purpose of figuring out what a handicapped individual owns. In other words, opening an RDSP will NOT cause your child to be cut off from provincial benefits.

A few highlights about RDSPs:

• - a handicapped person is the beneficiary of the RDSP


• - there can be only one account per beneficiary


• - the account can be opened by the beneficiary him/herself or by the parents or legal representative of a beneficiary


• - the beneficiary must live in Canada


• - the maximum amount that you can contribute to the RDSP is $200,000 during the beneficiary's lifetime, but there is no limit per year


• - contributions put into a plan are not tax-deductible


• - anyone can put money into an existing RDSP


• - contributions must stop the year the beneficiary turns 59


• - there are matching government grants that are based on family income


• - the government matching grants can be as high as $70,000 during the beneficiary's lifetime


• - there are additional grants (bonds) for low-income families


• - when the beneficiary takes out money, he or she does not pay tax on the amount that the family contributed; he or she only pays tax on the portion the government contributed, and earnings on the government contributions


• - when the beneficiary dies, any money left in the RDSP must go into his or her estate.

If you want to know more about these, talk to your banker or your financial planner.

Who do leave my estate to if I don't have kids?

From time to time I meet clients who don't have spouses or children and they want ideas about where to leave their estates once they pass away. The first thought most people have is to divide the estate among their siblings, and that is a viable idea.

A variation on that is to leave money in trust for family members such as nieces and nephews, with instructions that the trust be used to pay for their education.

Another popular idea is to leave some or all of your estate to charities. Some people have causes that are dear to their hearts because a charity helped them or family members in the past. I met one client who is leaving several million dollars to a group of charities that deal with different aspects of illiteracy, as well as public libraries, because he struggled with reading his whole life.

Many clients like to leave money to the college or university they graduated from. It is possible to use your Will to set up a scholarship at a particular faculty at a particular school to help future students who may not be well off financially.

You can benefit several charities and get a tax break for yourself now by giving money to a charitable foundation such as Scotiabank`s Aqueduct Foundation or the Edmonton Community Foundation. In this kind of arrangement, your monetary gift is invested and the interest on it is used each year to give charitable gifts to the charities of your choice. The principal is not used, except to generate more income. You can then use your Will to give the rest of your estate to the foundation and continue on your pattern of giving.

To get ideas about which charities are out there and what kinds of activities they are involved in, go to http://www.donorsguide.ca/ . For more in-depth information on charitable organizations, go to http://www.charitycan.ca/.

If you are interested in any organization in Canada and want to know whether it`s a registered charity or not, check out the Canada Revenue Agency website at http://www.cra-arc.gc.ca/charities/.

Sometimes people wonder whether the government will take their estates if they don`t have a Will and don`t have a spouse or children. The government does not become a beneficiary of your estate unless and until absolutely no relatives can be found. The Intestate Succession Act of Alberta sets out who gets your estate if you die without a Will. If you do not have a spouse or children, the Act says your estate will go to your parents, your siblings and eventually more distant relatives. The better idea is to make a Will that sets out your wishes.

You should ask your estate-planning lawyer for ideas and talk over the possibilities.