In this cycle of life, death is inevitable, yet conversations around death and estate planning are often taboo in our communities. The unfortunate result is that many families are caught off-guard when a loved one passes and are forced to filter the barrage of misinformation. The emotional toll is heavy – no doubt; however, the more we understand the basic legalities and our responsibilities, the process may be less daunting.
A few quick caveats:
– The legislation that governs Estates differs from province to province. All information provided in this article is specific to Alberta.
– The information provided in this article does not constitute legal advice. While general research is helpful, it does not replace the value that an Estate Lawyer can add.
I’ve worked in the area of Estate administration for over a decade in public office, supporting Albertans as they navigate the system. In responding to general inquiries and engaging with families, I’ve identified what I believe are the 5 most common pieces of misinformation surrounding Estate matters. Let’s do some myth-busting around expectations and what happens or doesn’t happen when a loved one passes away.
Myth #1: THE FAMILY IS OBLIGATED TO PAY FOR THE FUNERAL
Funerals are not cheap, and the conversations around who should carry this financial burden are often the first point of contention. You may be surprised to learn that Estate laws create no legal obligation for a family to pay for a funeral. The cost of a funeral is considered the ‘first charge’ against an Estate – put simply, should I die, it is solely my financial burden / the burden of my Estate to cover the cost of my funeral.
This is not to say that the family ‘should not’ pay for a funeral if they are financially stable.
- Suppose the deceased has had a working history and has contributed to Canada Pension Plan (CPP). In that case, an application should be submitted for the CPP Death Benefit which provides a maximum, single payment of $2,500 to offset the cost of the funeral. This can be made payable to either the person who has covered the cost of the funeral (if paid for by a family member) or directly to the Estate, assuming the funeral cost was paid out of the person’s bank account.
- Should the Estate not have sufficient funds to cover the funeral and the financial burden also be too much for the family, Alberta does provide some funeral benefits. One would need to explore eligibility for each Funeral Benefit program.
- Once notified of the death, bank accounts are usually frozen. Because funeral costs are considered the first charge, they are the only expense for which a Bank will consider releasing funds without additional legal documentation. The catch is that they will only pay directly to the funeral home. If the family has determined that the deceased has enough funds to cover the funeral, the family should:
- Request the invoice from the funeral home (do not pay it from your personal funds),
- Present the invoice to the Bank with a copy of the Funeral Director’s Statement of Death (generated by the funeral home),
- Request the Bank draft be made payable directly to the funeral home.
Myth #2: CREDITORS CAN COME AFTER THE FAMILY FOR PAYMENT
NOT TRUE! As discussed with funeral expenses, all debts that exist at the time of death become debts of the Estate. A creditor cannot obligate a family member to pay expenses from their personal funds; Doing so is strongly discouraged and is considered ‘intermingling’ in an Estate – mixing personal finances with Estate finances.
Without going into the weeds, one of two scenarios will exist:
- Solvent Estates: When there are more assets (bank accounts, investments, real Estate, vehicles, and other sellable personal effects) than there are debts, the Estate Administrator/Executor will be responsible for paying these creditors from the Estate account after all assets have materialized. Again, not from their funds.
- Insolvent Estates: In this scenario, the family has determined that there are not enough assets or cash available to pay all the debts; they can (and should) choose to walk away. There is no legal obligation to take responsibility for an insolvent Estate. There is no value in administering an Estate if the only benefit is to pay a chain of debtors. Once the loved one has been laid to rest, no further action is generally required.
- There are no programs available to fund Estate debts.
- Creditors may keep up with collection efforts for some time, so the family may consider letting them know in writing that no funds are available and that no one will be administering the Estate.
Myth #3: THE “GOVERNMENT” TAKES EVERYTHING IF YOU DIE WITHOUT A WILL
I have taken my fair share of frantic calls with family members who believe this bogus rumor. Yes, there is a designated Government body that may have a role in Estate matters, but this is not automatic, and those cases account for a tiny percentage of active Estates in the province. Having a Will is always preferred as it makes matters much easier for your family. The Estate is described as ‘Testate’ when someone passes with a Will. The reverse is described as ‘Intestate .’ In the absence of a Will, however, Part 3 of the Estate Administration Act lists the clear hierarchy as to who has the priority to make the application to administer the Estate. This legislation works in tandem with Part 3 of the Wills and Successions Act which dictates how the Estate will be distributed – it identifies who the beneficiaries of the Estate are when there is no testamentary document or Will.
- This may sound frivolous, but maintaining even a general record of your family tree is a bonus.
- Even without taking the step of executing a Will, it is suggested to have at least one trusted family member or friend who has a general listing of where your assets may be: Where you bank, life insurance policies, investments and even the contact for your accountant if you regularly use their services.
Myth #4: A PARENT IS AUTOMATICALLY ENTITLED TO RECEIVE/ MANAGE AN INHERITANCE ON BEHALF OF THEIR MINOR CHILD.
This step is one of the more difficult to explain to families. Still, with a rise in blended families and with co-parenting arrangements being quite common, parents must understand the impact.
Under Alberta’s legislation, unless there is a testamentary document /Will or Trust Instrument that names a Trustee for a minor’s inheritance, the Public Trustee takes priority and defaults as the holder of the funds if the amount is over the prescribed threshold (currently $25,000). The Public Trustee protects the financial interest of “vulnerable Albertans,” and children fall into this category. The office stands in the shoes of the minor, administering the Estate on their behalf and overseeing their inheritance. While the Parent or Guardian is kept informed of the Estate matters, a separate court application would generally be required to have the entire inheritance paid out in trust.
- If you are co-parenting, it is best to maintain signed agreements or Court Orders, where appropriate, to document child support arrangements. Generally, child support orders are considered binding on an Estate, which may help the Executor to quickly keep support payments going from the Estate account – well before the Estate is distributed.
- As an Estate planning strategy, carefully and regularly review your life insurance documents. If you list your minor children as beneficiaries, be sure also to name a trusted adult as Trustee to manage these funds. This circumvents the involvement of a Government entity in managing the money you have left for your children if you do pass away.
Myth #5: YOU ALWAYS NEED A TO HIRE A LAWYER FOR AN ESTATE
None of the information provided here is meant to dissuade you from retaining the services of a lawyer to manage an Estate matter. The expertise that a lawyer brings is valuable; however, let’s face it, they are expensive.
Here is the good news – if the Estate is not contentious, the assets are not complex (e.g, a standard bank account, maybe an RRSP, and a house all within the Province), and you are
prepared to take on the responsibility of an Estate administration, the documents required to make the application to administer are all FREE online.
Once the document is completed, it must be sworn before a Commissioner and submitted to the Court of King’s Bench- Surrogate matters. Depending on the jurisdiction, the application may take a few months to process. The Court will issue the appropriate authority for the administration of the Estate.
- Edmonton Community Legal Center – This service is income-based but is a reliable resource for even support with filling out the Estate application.
- Student Legal Services of Edmonton – This hub also centers services on low-income households and is powered by student lawyers
- Lawyer Referral Service – If you decide to retain a lawyer at a total cost, this service will match you to a lawyer that practices in the field you need. For our conversation, this would be Estate matters. Lawyers connected through this service will provide the first half hour of discussion at no cost.
Death is inevitable and crosses into the realm of unknowns. However, the legal systems that ‘govern’ death are known. Making end-of-life preparations through education and Estate planning helps alleviate some of the family’s burden and allows us to support loved ones more as they maneuver a loss.