Dealing with the death of a loved one

Critical financial decisions required to settle an estate

Losing a spouse or a close family member is devastating. Despite your grief, there are several issues with financial implications you'll need to deal with sooner rather than later. Here's what to do.

A loved one's death is not just emotionally stressful – it involves financial challenges and disruptions as well. Depending on your situation, these changes can be significant. Unfortunately, you may have to make major decisions during an extremely difficult time. So it's important to get professional financial and legal advice, round up all the appropriate documentation, and have a clear picture of your circumstances. Your decisions could have a lasting impact on your family's financial well-being.

Ask for help

Stress can often lead to impulsive choices and bad decisions. Let others help. Having one or two friends or close family members take some of the burden of daily life off your shoulders will keep you focused on what's important.

Get the proper documentation

You'll need multiple copies of the death certificate to deal with different organizations. Some funeral homes can help you obtain these documents or you can order them online from the government (fees apply).
You'll need to submit an individual certificate when applying for life insurance, retirement, and social insurance benefits, settling the estate and for assuming control over any real estate properties, bank accounts, investments, and other assets. Getting copies can normally take around two weeks, so ordering should be done as soon as possible.

Review and prepare estate matters

Hopefully a valid and up-to-date will has been prepared and an executor named. If so, the executor should be notified, along with a lawyer. Ask about probate fees, which will be owed to the province to settle the estate. If the deceased was your key income provider, you'll need to manage the loss of income. All joint accounts will be frozen until the estate is settled, so cash could be tight until additional financial resources such as life or medical insurance benefits become available.

Notify the relevant organizations

Following a death, there are a number of tasks to be completed and organizations to inform. While this can be a lot to cope with emotionally, doing so as soon as possible will help protect your assets and obligations for the future.

• Governments: The deceased's SIN card, passport(s), and driver's license should be returned to prevent fraud or identity theft. If the deceased was receiving benefits (welfare, employment insurance, CPP, OAS, or Veteran's Pension), you'll need to contact the various departments: Canada Revenue Agency, Service Canada, or Veteran's Affairs. It's important to clarify or cancel benefits if required, as you may have to repay them later.
• Insurance companies: You'll need to track down all companies and policy numbers. If you're not sure you have them all or can't locate any, contact the Canadian Life and Health Insurance Association online or at 1.800.268.8099.
• Financial institutions: Identify accounts and safety deposit boxes, mortgage holders, and investment firms. You should take particular care with credit cards solely in your loved one’s name, as interest charges could be incurred on any balance owing. If credit card insurance was purchased, the outstanding balance will be automatically covered. Also check if any death benefits are payable to you.
• Employer: If the deceased was working, it's important to contact their employer to make sure everything owing is paid to the estate: salary, vacation days, stock options, deferred compensation, life insurance, and more. If your family's health care coverage was through work, you'll need to contact them within 30 days and determine whether you can continue coverage under the group policy. If you have a private family policy, informing the carrier may lower the premiums.
• Other: Cellular and internet service providers, magazine and online subscriptions, health and other club memberships, associations or groups – all should be notified and services amended or cancelled if they were in the deceased's name.

Apply for death and survivor benefits

You’ll also need to make sure that you’ve applied for all the benefits due to you and your family in the event of an untimely death.

• Life insurance: When applying, you may need to decide how you want to receive payment – lump sum, installments, annuitization, or deferred until a future date. Some decisions can't be changed, so consult your financial advisor and lawyer before making a commitment.
• Canada Pension Plan: If your spouse contributed to CPP for at least three years, there are three types of Survivor Benefits your family might be eligible to receive: a maximum of $2,500 lump sum to the estate; a monthly Survivor's Pension payable to the spouse; and a monthly Children's Benefit. You can find more information at the Service Canada website.
• Employer benefits: Check to see if there is an employee group plan that offers compensation. The HR department or payroll administrator should be able to point you in the right direction.
• Hidden benefits: Less obvious may be death benefits attached to credit cards, home and auto loan protection, as well as union membership or professional organizations. These may take time to track down, but may be financially worthwhile.

Understand the impacts of inheritance tax

When someone dies, a "final tax return" must be filed with the Canada Revenue Agency within six months. Your executor or lawyer can help, but it is the surviving family members who are responsible.

The CRA regards all the deceased's assets as if they were converted into cash. It's as if the car, home, and RRSPs have all been sold and taxes must be paid on the total before anything is distributed. Here are other tax implications:

• Life insurance naming a beneficiary isn't taxed (but interest earned on the amount paid out may be).
• RRSPs and TFSAs naming a beneficiary aren't usually taxed. RRSPs and TFSAs can be transferred to a spouse or cashed out without penalty. Since the registered portion of each plan is dissolved at death, any earnings accrued after that will be taxable.
• If a principal home has been left to you, the estate won't have to pay tax on capital gains (the difference between the original purchase price and its fair market value if sold today). If you've been left a secondary property, like a vacation home, capital gains tax will have to be paid. For example, a $150,000 ski condo purchased in 1999 worth $650,000 today generates a capital gain of $500,000, half of which is added to the estate's taxable income.

Review your will

After all the changes in your life, at some point you'll need to revise your own will and estate plan. It's a good time to talk to your financial advisor.