Estate executors should consider their position an honor. Typically, people name the individuals they trust the most as executors of their wills. After all, those people must ensure their final wishes get carried out in a timely way.
Along with the great honor, serving as an executor also comes with significant responsibilities. Just a sample of an executor’s duties could include appearing in probate court, contacting beneficiaries, and taking asset inventories. In addition, executors also face the challenge of filing the final taxes for the estate and the individual, a task some find the most challenging of all. Find out what estate executors should know about filing final personal and estate taxes.
An Estate Executors Guide to Filing Final Personal and Estate Taxes
In addition to preparing taxes for any money earned by the estate after the owner’s death, the executor will also need to file final personal taxes for income the deceased person earned prior to passing away. Estate executors must file taxes according to complex rules defined by the Income Tax Act. Filing personal taxes might appear simpler, but some executors find it difficult to uncover all income sources and deductions when they can no longer consult with the person who earned the money.
Failure to file correctly can delay distributions to beneficiaries and in the worst cases, result in personal penalties for the executor. Thus, executors may need to spend time learning the complex rules of final estate tax filings and gathering documentation.
The potential difficulty of filing taxes explains why many executors rely on accountants to provide guidance, ensure timely filing, and avoid pitfalls. In the best cases, the deceased person will have done estate planning before they pass away, including documentation and instructions for final taxes. Again, professional estate planning services can ease this process.
To understand what’s involved, consider these typical steps:
The executor may need access to documents from such sources as the deceased person’s bank or brokerage accounts, the Canada Revenue Agency, or former employer. These institutions will typically grant access upon receipt of the following:
- Death certificate
- Social Insurance Number
- Will and sometimes other documents, including a letter of administration, grant of probate, or trust agreement
Sometimes, uncovering all sources of income can prove challenging for executors who weren’t familiar with the deceased’s personal finances. That means the executor may have to do a little detective work. Previous tax returns, T4, T4A, and T5 slips may provide information about employers, investments, and pensions. Safety deposit boxes could hold critical documents as well.
Personal and Estate Tax Return Filing
The executor must file personal tax returns and may also need to file a tax return for the estate. After the CRA accepts the tax forms and payment, the executors must apply for and receive a Clearance Certificate before sending assets to beneficiaries.
Personal Tax Returns
If neither the deceased person nor the surviving spouse or partner ran a business, the government mandates the final T1 filing by the date of death:
- January 1st to October 31st: April 30th of the following year
- November 1st to December 31st: Six months after the deceased’s date of death
If the deceased person or a surviving spouse or partner ran a business, the executor has until June 15th of the following year for birthdays on or before December 15th. For birthdays after December 15th, the executor has six months after the death. If the deceased passed away before they could file tax returns for previous years, the executor also needs to attend to them.
Estate Tax Returns
The executor has until 90 days after the end of the year when the deceased passed away to file estate tax returns on a T3 form. The Canada Revenue Agency only requires this filing if the estate earned any money. For example, an estate consisting of only cash and a primary residence may not generate income, but brokerage or savings accounts could accrue capital gains, dividends, or interest.
How to Make Administering an Estate Easier and Faster
Sometimes, administering an estate can put incredible pressure on executors. These individuals need to work quickly to meet deadlines to avoid penalties and ensure beneficiaries get paid promptly. Meanwhile, a will alone won’t guarantee that executors have all the information they need to perform their duties.
Estate planning extends beyond just preparing a will. It can provide an executor with a roadmap to handle necessary tasks quickly and efficiently. Estate planning can also maximize an estate’s value, including using legal opportunities to minimize tax burdens and simplify filings.
At Avisar Chartered Professional Accountants, we’re here to help you grow your wealth and pass maximum value to the next generation. Learn more about Avisar’s wealth-building and estate planning services.