Having personal liability means that you are personally responsible (accountable) for mistakes you make. In the context of being a estate trustee, this means that you are responsible for your actions in your role as an estate trustee. If any loss of property (e.g., homes, money, etc.) occurs due to specifically your actions, you may be held personally liable for paying any loss of money or any monetary loss caused by your actions.
Liability with Taxes
The estate trustee is responsible for ensuring that all taxes owed by the estate (e.g. incomes taxes of the deceased or estate) are filed and paid before a distribution to the beneficiaries.
If a distribution of the estate occurs before the taxes are paid, the estate trustee is liable to pay taxes personally up to the amount in the estate.
Clearance Certificate
An estate trustee should consider seeking a “Clearance Certificate” from the Canada Revenue Agency (CRA), which is a letter indicating that the estate does not owe any income taxes, before distributing an estate. It is common for the estate trustee to “hold-back” a portion of the estate in anticipation of potential taxes required to be paid by the estate.
As the Clearance Certificate is the final step and may take a considerable amount of time (and the beneficiaries may wish to receive their money). Upon filing and paying the taxes, and after applying for the Clearance Certificate, the estate trustee may consider distributing most of the estate, but hold back a portion pending receipt of the Clearance Certificate. An accountant can advise the estate trustee the recommended amount to hold back. Once the Clearance Certificate is received and the taxes are satisfied, the estate trustee would distribute the remaining hold back, if any.
Although this is not required, some estate trustees may choose this to do this to minimize the risk of personal liability.
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