When tasked with the administration of an estate, an estate trustee has a duty to identify and satisfy creditors of the estate. Almost without fail, an estate trustee can anticipate tax owing to the Canada Revenue Agency, either in the form of the deceased’s tax arrears or the estate’s taxes. Under the Income Tax Act, an estate trustee may be held personally liable for failing to pay amounts owed under the Act by the deceased taxpayer.[1] While satisfying the debts of one creditor may be simple enough, the exercise becomes complicated when there are multiple creditors, and the estate is insolvent.
Consider the following simplified estate administration scenario:
The estate assets consist of real property worth $50,000. The estate liabilities are credit card debt in the amount of $5,000, a line of credit in the amount of $10,000 and significant income tax arrears owing to the Canada Revenue Agency in the amount of $45,000. It is obvious here that the estate will not be able to satisfy all of its debts. The estate is insolvent.
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