How does an executor pay estate expenses during the probate process?

Probate and the impacts on estate expenses

Thank you for your question, Carol. This is something I’ve seen many executors face when administering an estate. Let’s start with reviewing what probate is, what the process looks like, and the effects on the estate’s cash flow for paying taxes or other estate expenses, which can include taxes on income from registered retirement savings plans (RRSPs).

What is probate?

Probate is a term that most of us have heard before; however, the official name in Ontario is Certificate of Appointment of Estate Trustee with (or without) a will. How’s that for a tongue twister? 

Since the terminology eats up most of my word count for this article (joking of course), I will continue to reference it as probate. 

Probate is process that verifies the deceased’s last will and testament. If there wasn’t a will, then the probate process confirms who the executor of the estate can be. The probate process can seem complicated, but it does have its purpose. 

Think about it this way: Here in Canada, we can write as many wills as we want. If I was feeling adventurous, I could make a new will every month, changing my executors and beneficiaries along the way. However, creating a new will every month would pose some challenges and a lot of confusion when I do pass away. It’s not something I would recommend anyone doing. 

You may have questions: How would anyone know which will is the most current document? How would financial institutions know which executor they should be working with? Which beneficiaries should receive the estate’s proceeds?

The probate process helps to clarify these things as certain steps, forms and notifications must be completed. It allows anyone with knowledge of the most recent will to come forward. If there is no will, then the probate process refers to the Succession Law Reform Act, where a “next-of-kin” format allows others to come forward to ensure that the right people are named as executors and beneficiaries.

What is the probate process?

Carol, as you may be wondering, nothing in regard to estates is a quick process, and the same goes for probate. There is a lot of information gathering, paperwork and waiting. Often, a lot of waiting.

When an executor gathers the deceased’s information to complete the paperwork to obtain probate, it’s common practice to contact financial institutions to obtain the financial details needed to complete the probate forms that are being submitted to the Superior Court.

Once the financial instructions know about the death, they will freeze the accounts, ensuring that no unauthorized transactions occur, therefore protecting both the estate and the executor while they wait for probate. The executor then submits their completed probate application to the Superior Court in the jurisdiction that the deceased lived in, and then they wait.

The wait times can vary depending on the court location where the application is submitted; for example, smaller towns may have wait times of four to six weeks, whereas large cities could have wait times of four to six months.

How to pay estate expenses while waiting for probate

Now that I’ve reviewed probate and the process for an executor, Carol, let’s look at the impacts on estate expenses, such as paying income taxes, including that from RRSPs. 

As I’ve already noted, it is likely the estate’s assets will be frozen once the executor notifies the financial institutions. However, income taxes and other expenses will need to be paid. 

The good news is that an executor can physically go into the bank with invoices, bills, or income tax returns to request bank drafts from the deceased’s bank account to pay this debt even if the executor is still in the probate waiting period, as long as the deceased’s account has enough cash to cover everything.

However, if your account does not have enough cash to cover the estate expenses during the probate waiting period, the executor has some options as well.

The executor becomes a lender to the estate

An executor can pay for estate expenses on behalf of the estate, and then once the estate has sufficient funds, they can be reimbursed.

Carol, I have to be honest; this can be a burden to an executor. Maybe they weren’t expecting to pay for estate expenses or they did not expect it to take so long to be reimbursed. I recommend discussing this with your chosen executor to confirm they would be comfortable with this process. 

The executor can ask beneficiaries for financial help

If an executor does not have the money available to lend to an estate for expenses, they could ask the estate’s beneficiaries. The beneficiaries are the people who will be receiving the proceeds of the estate once all the costs and taxes have been paid, so they may want to help move things along by lending to the estate so that the executor can pay any bills. Depending on the estate’s circumstances, Carol, this approach may not always make sense.

For example, if the people set to receive from the estate are unemployed or have their own cash flow restraints, then it is unlikely that this would be a good strategy for the executor. An executor should also be prepared for a beneficiary to say no to the request as well.

The executor can take out a loan

There are loans created specifically for these kinds of situations. For example: BridgePoint Financial has a loan program geared specifically to estate matters and can be a viable option of last resort. 

A loan from financial institutions to cover estate expenses is my least recommended approach, as it incurs interest expenses for the estate. 

Bottom line

As you can see, Carol, there is a lot for both you and your executor to discuss regarding estate expenses during the probate waiting period. However, with open communication about your RRSP, your cash flow needs and estate expenses, they should be better able to understand how they can pay estate costs in a timely manner.

Best of luck and thanks for writing!

Debbie Stanley is the CEO and senior estate administrator at ETP Canada, a boutique firm located in Guelph, Ont., specializing in estate administration. ETP Canada helps executors navigate their role with services such as executor support, estate accounting and professional executor services. For more information, please visit etpcanada.ca.

Read more on estate planning:

• What are the fees for becoming a joint tenant on a parent’s property?
• Can you avoid probate taxes on TFSAs?
• How to leave money to your grandkids
• Are you entitled to anything when your ex-spouse dies?

About Debbie Stanley, TEP, MTI

Debbie Stanley is an estate and trust professional, and CEO of the estate firm ETP Canada. She is a writer, speaker and regularly featured guest on Zoomer Radio.

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