Debts Must Be Paid After Testator's Death

Updated: Oct 24, 2019

Your debts must be paid off by your executor before any of your beneficiaries can receive any money or property you leave behind. After all debts have been paid, your executor should obtain a clearance certificate from the Canada Revenue Agency (CRA), certifying that all final taxes have been paid.

Debts your executor must pay before your beneficiaries can receive anything include the following:

1) Probate Fees

Probate (which is paid by the beneficiaries rather than the executor) provides court certification of the fact that your executor is the person authorized by your will to represent and manage your estate.

Most estates require probate, particularly if the estate is passing from one generation to the next. On the other hand, if the estate is passing from one spouse to the other upon death (particularly if the estate was owned in joint tenancy with a right of survivorship and the surviving spouse was the designated beneficiary of any RRSP, TFSA, life insurance and/or pension), probate may not be required since there technically is no estate for the court to probate.

Probate fees (officially "estate administration tax") are calculated as follows:

  • If your estate is less than $1,000, there is no probate fee

  • If your estate is between $1,000 and $50,000, there is a probate fee of 0.5%

  • If your estate is more than $50,000: for the first $50,000, the probate fee is 0.5%; the rest of your estate will have a probate fee of 1.5%

2) Tax on Capital Gains (Deemed Disposition)

You will be deemed to have disposed of all capital property at death, as if you had just sold your assets immediately before your death. This means your estate (in the hands of your executor) must cover the tax on any capital gains. Capital gains are taxed at 50%.

This means that if a cottage was worth $700,000 the year of your death, and the year afterwards the cottage's worth had risen to $1,800,000, capital gains would be $1,100,000. Since capital gains are taxed at 50%, $550,000 would have to be handed over to the government as your final return.

Note, however, that your primary residence is exempt from the tax on capital gains. You can read more about that here.

3) Tax on Tax-Sheltered Savings Plans

Registered plans such as RRSPs and RRIFs can be transferred tax-free to your spouse's plan - however, if you do not have a spouse, these savings will be fully taxable at your death.

What Can You Do To Reduce Estate Costs?

1) Establish multiple wills.

For example, one can be for assets that must go through probate and one can be for non-probatable assets, such as the shares of a privately held company. Speak to a lawyer to make sure these wills do not revoke one another!

Read about 8 Reasons You Need a Will!

2) Buy permanent life insurance.

Life insurance proceeds, which are always tax-free because they are not considered part of your estate, can be used to cover estate costs or left to a beneficiary.

Find out more here about how buying life insurance will help you to reduce estate costs.

3) Jointly own property.

If you hold assets (such as real estate) jointly with another person, you can reduce probate fees. Joint ownership ensures that the assets will pass automatically to the surviving joint owner. These assets are not considered part of your estate; as such, they are not subject to probate fees.

4) Establish trusts.

Assets held in a trust will be dealt under the terms of the trust rather than as part of your estate, thus avoiding probate.

Disclaimer: This blog post is for general information purposes only and is NOT intended to be relied upon for legal advice, or to be construed as legal advice. Please consult with us directly through email ( for legal advice about your specific situation.

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