The taxpayer bequeathed his property, part of which will attract a capital gain, to a non family member. Estate has no other assets, so no way to pay the tax. I’m not sure what to advise the Executor.
Lots of missing information here to give a proper answer.It is the obligation of the liquidator to pay all the bills including taxes. If the non-family member is the only inheritor, he could borrow to pay the taxes for the estate or the property could be sold by the estate and the balance given to the inheritor. A consensus should be reached among the inheritors The attorney or notary handling the estate would be better positioned and experienced to give the proper advice.
This one is tough. Are there any family members, perhaps beneficiaries of joint assets? Or is this a case of someone with no family and just a close friend?
Do you know if the beneficiary prefers the property vs the realized value of the property? Could be that they’re open to the property being sold. Or would they be willing to buy the property from the estate and to receive the after tax value of estate in cash? (Depending on how the will is worded.)
Thanks for both of your replies. I’ll have a discussion with the Executor and give her the options.
“Estate has no other assets, so no way to pay the tax”
Of course the Estate has a way to pay the tax.
The land is sold, CRA is paid, and the heir gets the residue after ALL other estate debts are paid (and AFTER the Executor receives the final final tax clearance certificate).
This process is called Abatement, which the Executor is required to do.
To protect themselves from potential future litigation, the executor should hire a lawyer to draft an agreement for the heir to sign off on the Abatement.
If the heir really wants the property, they would need to pay in sufficient funds to pay ALL of the Estate’s liabilities, including the Executors fee, reimbursements, legal fees, and including CRA.
If that heir neglects/refuses follow through to pay in sufficient funds, the Executor proceeds with the sale.
The EXACT legal interpretation of the Will needs to be very thoroughly understood. This generally requires some legal training.
Thank you justjoe, very succinctly expressed. I now know to refer them back to the Estate lawyer and I’ll help them with the taxes.
Payment of the tax may be deferable.
IIRC (and I haven’t looked), there is a form T2075 that allows the deferral of payment for up to ten years, with equal instalments (and interest) due each year, provided adequate security is supplied to CRA. It is conceivable that - if that is the ONLY asset, the beneficiary could secure that debt, freeing the Executor from liability.
This will absolutely require the assistance of both a lawyer and the concurrence of CRA. But it is worth exploring, depending on the values and growth potential involved. There is a time limitation involved.
Best advice yet
Yes, great advice - I’ll look into the possibility of deferral.
Yes, I recently dealt with a similar case in a lot of detail, and in which the beneficiary’s lawyer initially failed to understand abatement.
I once asked CRA exactly what they understood by the meaning of such “security”.
They replied: “Money”.
They’ll take a Letter of Credit too.