The article “Can an executor borrow money to cover probate costs?” was originally published in MoneySense on February 6, 2023 . Photo by Gary Barnes from Pexels.
Executors have a few options when the estate has outstanding bills and no cash to cover probate fees. Find out what they are.
“How does my husband request a loan to begin probate costs? Who and where would he turn to? No money is in the bank account, but the deceased does have a house and property, as well outstanding bills.” —Bonnie
Responsibilities of an executor during probate
I assume that your husband is named as executor of the estate of the deceased, Bonnie. An executor (or estate trustee) is typically named in a will, but it can apply to the court to be appointed if there is no will.
It is the responsibility of the executor to pay all debts (including funeral and testamentary expenses), inheritance (plus succession duties), taxes, as well as other related liabilities of the deceased in Canada and abroad. If the estate has more liabilities than assets, the estate could be considered insolvent.
Creditors are to be paid in a particular order, and the executor can be personally liable for not adhering to the correct sequence. That said, neither the executor nor the beneficiaries needs to personally pay off the debts of the deceased if the estate is insolvent.
I assume the estate in question, Bonnie, has more assets than liabilities, but there is just a bit of a cash crunch, particularly related to costs that need to be paid imminently.
If an estate includes real estate or cash or investments at a financial institution, typically the executor must apply for a grant of probate to prove they have legal authority to deal with these assets. In order to obtain probate, an executor must typically pay the probate fees or estate administration tax as part of the probate application.
Fortunately, an executor can request funds from a bank to pay expenses like probate fees before obtaining probate. The same advances can be made for other bills, like the outstanding debt you’ve mentioned.
When cash is not part of the estate
However, since the estate your husband is handling has no cash and only real estate, Bonnie, it does make things a bit more difficult. He may be able to approach the beneficiaries of the estate to ask them to front the cash required to pay the bills and probate. These funds would be reconciled and paid back to them before determining their share of the estate.
Your husband could also pay the expenses himself and, likewise, could reimburse himself once cash becomes available.
Both the beneficiaries and your husband may feel comfortable doing this given the real estate will eventually be sold. But it does, of course, require up-front cash.
Inheritance loans and probate advances
There are also lenders who provide inheritance loans or probate advances to those in your husband’s position, if the beneficiaries aren’t able to help, and he does not want to provide funds himself. These includes BridgePoint Financial, First Inheritance Financial and Lionsgate Financial Group.
Depending on the deceased’s province of residence, where the property is located, how saleable the real estate is and the complexity of the estate, it may take only a few months to wind up the estate. Or, it could take much longer. Eventually, the real estate’s sale proceeds from can be used to pay off any money advanced or borrowed to pay off the bills and pay the probate fees. But the first step to settling the estate and being able to sell the real estate is to apply for probate. Your husband will not be able to enter into an agreement of purchase and sale for the real estate otherwise.
In summary, Bonnie, your husband has a few options to pay for these costs. The various provincial Ministry of the Attorney General websites have information and forms required to carry out his executor duties. He can also seek out professional support.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.