Written by: Marie Kazmer, JD & Kavina Nagrani, C.S., JD, TEP

The passing of a loved one is undoubtedly a challenging time, and while dealing with their grief, family members and executors must navigate the complex terrain of estate administration. In this blog post, we’ll explore the key considerations and lessons that can be gleaned from Ontario’s legal framework regarding Estate debts and priorities – one aspect of estate administration that is often confusing and misunderstood. 

Priority of Payments

In Ontario, the Succession Law Reform Act establishes a framework regarding the priority for settling debts from the deceased’s estate. Estate Trustees (aka Executors) must adhere to this framework to ensure that obligations are fulfilled in accordance with the legislated scheme. The priority typically includes funeral expenses, estate administration expenses, and then payment of secured creditors before others.

Funeral Expenses and Estate Administration Costs:

Upon the death of an individual, the estate is generally responsible for covering reasonable funeral /burial expenses. Additionally, estate administration costs, such as legal fees Estate Administration tax (aka probate fees), and executor’s fees take precedence and must be settled before addressing other debts.

Secured and Unsecured Debts:

Understanding the nature of debts is crucial. Secured debts, backed by collateral, may allow creditors to seize specific assets if the debt remains unpaid. A typical secured debt an Estate Trustee might encounter is a mortgage on a real property. Unsecured debts, on the other hand, do not have specific assets tied to them, but they still need to be settled from the estate’s assets if the Estate Trustee determines they are legitimate debts of the estate and provided there are sufficient funds in the Estate to pay them. These may include credit card bills, subscription services that are billed monthly and other recurring payments, for example.

Creditors’ Claims:

Creditors have a specific period to file a claim against the estate. Estate Trustees should be diligent in addressing these claims, and if necessary, seek professional legal advice to assess the validity and priority of each claim. A proactive Estate Trustee would be wise to advertise for creditors or publish a “Notice to Creditors” in a local newspaper or now more commonly, online, through NoticeConnect: https://www.noticeconnect.com/view-notices.

A Notice to Creditors serves to inform potential creditors that the deceased person has passed away and provides them with an opportunity to come forward with their claims against the estate.

Insolvent Estates

If the estate lacks sufficient assets to cover all debts, it may be deemed insolvent and, in some cases, need to be assigned into Bankruptcy. In such cases, Estate Trustees should seek legal guidance to navigate the complex process of distributing the available assets among creditors in accordance with statutory priorities.

Navigating the liability of an estate to pay certain debts in Ontario requires careful attention to legal obligations, a thorough understanding of the estate’s financial standing, and effective communication with creditors. Estate Trustees play a pivotal role in ensuring that debts are settled in an orderly fashion, allowing for the smooth administration of the estate. While the Estate Trustee does not ‘inherit’ the deceased person’s debts personally, they may become personally liable for mishandling Estate debts and obligations or if they make premature distributions to beneficiaries prior to satisfying legitimate liabilities. 

Seeking professional legal advice, therefore, can be invaluable in handling these matters with diligence and in compliance with Ontario Law.   At NIKA LAW LLP, we consider ourselves experts in estate administration matters and are often retained by Executors to guide them in their communications with creditors.   

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