Bookkeeping Requirements When Settling an Estate

Posted by on July 21, 2017

There is more to settling an estate than just probating the will, selling the house and distributing the proceeds to the beneficiaries. I wish it were that easy! Many people understand that the T1 Income Tax Return needs to be filed for the year of death, but many people are unaware that the estate itself may also need to file an income tax return, known as a T3 Trust Income Tax Return. The accountant will need to be provided with the list of assets & liabilities and the list of revenue & expenses, so these figures need to be documented.

When I speak of bookkeeping requirements, I’m referring to the following:

  • List of all transactions in all bank accounts. In other words, generate a long bank statement that covers many months. I tend to re-create the bank statements, replacing any ‘bank talk’ with easy-to-understand English descriptions, and the new list of transactions shows where every penny went;
  • List of all revenue earned and expenses incurred. An example of revenue is interest earned in the bank, and an example of an expense is the realtor commission for selling the home. Where appropriate I also include cheque numbers and brief descriptions to add context; and
  • List of assets & liabilities. This is the list you would have generated in order to apply for probate.

Creating such financial documents doesn’t need to an onerous task, but the documents do need to be complete, accurate and easy to understand. Keep it clear and simple.

In addition to the tax returns, the beneficiaries need to Pass the Accounts, meaning the beneficiaries need to review and approve the expenses of the estate. In order to add context for the beneficiaries and to keep everything as transparent as possible, I like to also include the list of assets & liabilities as well as the list of bank transactions. All of this bookkeeping data should be provided to each beneficiary.

Some estates are considered to be insolvent, meaning the value of the debts exceeds the value of the assets. In these estates the creditors will receive either nothing at all or only cents on the dollar, but either way, the creditors deserve to receive proof of your statement that there are insufficient funds. The financial documents will need to be provided to each creditor, along with a covering letter explaining the insolvency.

If all of this sounds a little tedious, well, it is. So, here are a couple of ideas which can simplify matters. Firstly, separate your own money from the estate’s money by using an Estate bank account, leaving you with fewer accounts to manage. Next, if the deceased had numerous bank accounts, close all but one of them as soon as possible. Again, this simplifies matters. Lastly, since executors need access to available cash in order to pay expenses, often times it is helpful to open a Line of Credit. Invoices can be paid from the LOC, and the interest expense gets charged to the estate.

Source by Gregg Medwid

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