The age old saying “you can’t take it with you” is interpreted to mean that your money and possessions cannot transcend beyond the grave, and therefore you should enjoy yourself while you are alive.
Without delving into a debate of what people of different socioeconomic status view as enjoyment, the concept peels back the curtain on what may emerge as troubling trend that has come with what we as a Licensed Insolvency Trustee (“LIT”) see during challenging economic times. Canadian consumer debt is at an all time high, and consumer insolvency filings are on the rise. The rift between those who are living comfortably and those that live paycheque to paycheque (or worse) is growing.
Those who have saved into retirement and whose wealth has outlasted them are fortunately able to leave a monetary legacy. Others who are less fortunate and have accumulated debt throughout their lives may pass on with debt.
Our firm has in recent years, in addition to being an LIT, also provided services as an Estate Trustee, especially when there is litigation or complexity in settling the Estate and no one wishes to act as Executor or Estate Trustee. There are many similarities between the work we do in our capacity as Receiver and as Estate Trustee – monetizing assets and dealing with resolving disputes and priorities of claims to the proceeds. Professionally, we have seen both sides of this coin and are often consulted for advice on what to do when a person dies with debt.
When a person passes, and has a will, an individual is named to act as Executor, responsible for settling the affairs of the deceased person’s estate. This involves filing final tax returns, taking an inventory of assets and distributing the estate's assets in accordance with the will. The Executor must make sure that all debts are settled from the assets of the estate prior to making any distributions. Should the Executor determine the Estate to be insolvent (more debt than assets) the prudent thing to do is consult a lawyer and LIT. Where there is no will, things become slightly more complex, and an estate trustee may need to be appointed by the court. Not to mention, the Succession Law Reform Act (in Ontario, or equivalent legislation in other provinces) will dictate how the estate is to be divided where the estate is solvent.
We have acted on many occasions where the Executor determines the estate to be insolvent, they obtain an order from the bankruptcy court that permits them to assign the estate into bankruptcy and then an LIT administers the bankruptcy of the deceased’s estate. As with a living bankrupt, the assets, if any, vest in the LIT and the LIT follows the normal claims procedure to deal with the deceased’s creditors.
A question we are often asked, is if anyone else is responsible for the debts of a deceased. The short answer is no, unless anyone has guaranteed the debts or is a co-borrower. The mere fact that someone is the deceased’s relative, or Executor, does not make them automatically responsible. That doesn’t mean an unscrupulous collector won’t pressure the survivors into paying the debt of the deceased. If in doubt, the advice of an LIT and legal counsel should be sought.
We have had instances where the widow of a spendthrift spouse needed to file an assignment in bankruptcy. She was unaware that she had joint credit cards with her husband, and despite never using her cards, on his death the widow was contacted by the banks and told she had joint and several responsibilities for his debts. It was a double shock as not only did her late husband conceal the fact that they were destitute, now she had to file an assignment in bankruptcy to deal with the debt her husband incurred, for which she was legally responsible.
Protecting your estate and dependents from having to deal with potential debt on death is part of prudent estate planning. Getting good advice from a lawyer and or accountant qualified in that area can be a good way to protect your loved ones. There are various forms of insurance that a person may take out during their lifetime to cover potential debts on death. As with any product, make sure that the cost of the premium is worth the protection offered.
The best planning is being proactive and dealing with your debt while you are alive and consulting with a Licensed Insolvency Trustee so that even if you are not fortunate enough to leave a monetary legacy to your family, you will at least not burden them with having to worry about the impact of your debt.