Beneficiaries vs Creditors: Who Gets Priority During Probate

Your next-of-kin had substantial debts when they died. Now creditors are knocking on your door as estate trustee, asking to be paid. 

Should or shouldn’t you honour outstanding bills of a recently deceased’s estate? 

As estate trustee, your task is to tally up the assets and distribute the proceeds to beneficiaries after bona fide (real and valid) debts are settled. Regardless of what’s in the Will, beneficiaries may get a fraction or nothing at all of what the deceased intended.  

That’s because creditors almost always, with a few exceptions, take priority over beneficiaries.


Seven Pressing Questions for Estate Executors

Can creditors sue your estate?

Creditors with a “verifiable interest” in an estate can apply for legal standing in Ontario probate court. They must prove the estate actually owes them for secured debts like vehicle loans or unsecured liabilities like credit lines. 

Since Ontario law doesn’t allow creditors to collect from beneficiaries, a claim can only proceed if the court agrees the estate is financially liable. Before you agree to settle with a creditor who may not have a legal claim, ask Axess Law for a referral to an experienced probate lawyer.. 

Top 10 tasks for estate executors.


What happens to mortgages after death?

Hopefully, your kin had mortgage life insurance. That pays the mortgage in full so beneficiaries inherit the home, but not their debts. 

Supposing they didn’t. Their spouse can apply for survivorship rights, have their name removed from title and continue living in the home just by paying the monthly mortgage and property taxes.  

Common-law spouses have no property rights unless they are included on the title to the property. Otherwise, you as executor can pay the mortgage from the estate assets until the home can be sold or rented. Typically, executors arrange for insurance, hire a real estate agent and distribute any profits to creditors and beneficiaries. 

What to expect if the deceased lived common law.

Can creditors make a claim against jointly owned property?

Not if the owner was a legally married spouse. That’s called joint tenancy. Again, spouses have a right of survivorship in Ontario and can live in, rent, sell or otherwise dispose of the home without any recourse by creditors.  

Creditors can make claims against real property (homes or land) or unregistered investments or savings jointly owned with adult children, provided they are financially independent. That’s because the onus is on offspring to prove they weren’t holding the home in trust for the estate. 

Estate administration taxes are owed and the home passes to the estate trustee unless the joint owner can produce emails, letters or other legal documents showing evidence such as:

  • when they became joint owner
  • if the deceased intended and understood the home would pass to their child upon their death
  • and if they had legal advice when they made a Will.

How joint tenancy affects real property.

Axess Law refers estate trustees and beneficiaries to trusted legal partners to prepare an application for directions from Ontario probate court. Contact us for a referral if you believe an asset is not being property handled. 


Do minors have priority over creditors?

When Will makers are concerned their debts outweigh their assets, they can name their children as direct beneficiaries of investments or life insurance policies. That ensures those assets go directly to a trust account, instead of passing through the estate and probate court, where they will be subject to creditor claims. 


When is a trust required?

Any time minor children under 18 are involved. Minors can’t inherit directly in Ontario. Instead, a trustee or administrator is named in the Will to invest and arrange financial assets according to a court-approved management plan. The trustee turns over the assets when the minor turns 18 or whatever age the Will stipulates. 

If no trustee or administrator is appointed, the province will hold minor children’s bequests, and interest earned from any investments, in a trust account until they reach legal age.

Appoint trustees in your Will for minor children.

Can creditors claim bequests left to adult children with disabilities? 

Assets over $10,000 a Will maker leaves for financially dependant adults with disabilities or mental illness may be treated as income, unless their inheritance is set up as a trust. Dependants can be forced to use their inheritance to live on and Ontario Disability Support Income Program payments they rely on may be reduced or withdrawn.

Set up a Henson trust for a minor or adult with disabilities.

You can assist a deceased’s financial dependants by placing up to $100,000 of the combined total of assets (investments, life insurance, cash) bequeathed them in a Will into a trust account.

Creditors won’t be able to touch the trust account because only an estate, not the beneficiaries, is liable for a deceased’s debts.


Is the estate liable for debts if the deceased had dementia or a disability?

Yes, but you can have the estate lawyer write to creditors and ask to have the deceased’s debts discharged. For example, a relative with a head injury, mental illness or dementia may have lacked mental capacity to make sound financial decisions. Include medical evidence, such as a physician’s letter, to substantiate your request. If creditors refuse, you may have to make payment or place the estate in insolvency or bankruptcy.

Arrange guardianship for a relative with dementia.


Four Questions to Ask Probate Lawyers

Find answers to common questions about probate, like —  

  1. Are debts like credit card balances extinguished when you die? 
  2. What happens if an estate is bankrupt or insolvent? 
  3. Can the executor avoid paying creditors? 
  4. Can creditors go after real property or bank accounts jointly owned by spouses? 

— at Who Pays Debts When Someone Dies?


Why You Need a Lawyer

Axess Law has Wills and estates (Ontario) lawyers who can rewrite existing Wills to ensure beneficiaries’ interests are protected. Using a Wills lawyer ensures final bequests meet all the legal requirements for Ontario Wills. 

If you’ve been named estate trustee, we assist you to apply for a certificate of appointment of estate trustee with a Will. Deceased without a Will? You can apply to be appointed executor of their estate. We prepare the legal paperwork for you.

Our virtual lawyers contact you through secure, online video conferencing services, anywhere in Ontario. E-signing your Will is easy and convenient. You pay just  $199.99 and up plus HST ($149.99 each and up plus HST for couples) to make a new Will. Add power of attorney for personal care and property at the same time and pay just $249.99 and up plus HST for everything.

If you’re the executor, your first probate consultation is free! Ask us for a quote on probating an Ontario Will.


Make Remote or In Person Appointments

Axess Law’s licensed lawyers in Toronto, Greater Toronto Area or Ottawa can meet with you online or in person 7 days a week. Online booking is simple and fast. Or call our 1-647-479-0118 lawyer line (toll free to 877-402-4277) to make virtual or in person appointments at Axess Law locations near you. 

We have onsite parking and easy transit access.