Administration of Your Estate
The administration of the estate of a deceased farmer can raise some unique issues which require special attention and consideration. Unlike the passing of someone with passive assets, a farmer’s death often comes with a host of immediate problems, especially if the death occurs during a busy season or to a livestock operation.
Dying intestate (without a will) can result in a crisis with no one in authority until a Certificate of Appointment of Estate Trustee (probate) is granted. The grant may be to a person unsuited to the task. Having a will allows the person named to act, although a will without a court seal (a Certificate, formerly pro-bate) can still present practical issues for some institutions.
A host of issues can arise with the process of obtaining the Certificate (for example, valuation) particularly now that the Ministry of Finance has the power to audit estates and the payment of Estate Administration Tax (EAT), formerly known as probate fees.
There are different techniques to avoid payment of EAT. Joint Tenancy (putting assets in more than one name 18 The Canadian Association of Farm Advisors so survivors receive the asset without passing through the deceased’s estate) is subject to being challenged and overturned without the proper steps being evidenced. It can also result in adverse tax or unforeseen consequences if a named owner dies in an unexpected order. Other pitfalls include exposing the assets in question to creditors or spouses of the later intended recipients.
A beneficiary can be named in certain circumstances (RRSP, RRIF, TFSA, Life Insurance) but again, care must be taken to cover a situation in which a beneficiary predeceases. This is especially important in RRSPs and RRIFs, the income tax on which may be attributed to the share of different beneficiaries. Extreme care must be taken to ensure the last wishes of the deceased are not undermined.
Multiple wills can also be used to avoid EAT. A full discussion of this topic is beyond the scope of this article, as are the changes to the taxation of testamentary trusts which came into force January 1, 2016.
The ongoing operation of a farm while the owner’s estate is being administered, is normally limited to the time it takes to realize a sale, subject to any obligations of sale agreed to by the deceased, while alive or set out in the will. If the beneficiaries are unable to agree or specifics are not set forth in the will, a farm operation may have to be sold piecemeal or for less than fair value.
The windup of an estate requires the settlement of all liabilities of the estate, including income tax. This is followed by a full accounting to the beneficiaries and their release to absolve the estate trustee of liability for administration, other than EAT, and provide them with compensation if sought. In the absence of such release from all residual beneficiaries, a court order must be obtained. It is easy to see why the position of Estate Trustee is usually not a sought after the appointment.
This article originally appeared on page 18 of the 2016-2017 edition of Cultivating Business by CAFA (Canadian Federation of Farm Advisors).