Financial Planning -> Wills and Estates -> What happens to the debts of a deceased person?
Debts are normally paid out of theassets of the estate of the deceased, before distributionsare made to heirs. If the estate is insolvent (theassets of the estate are not sufficient to pay the debts),then the order of payment is prescribed by provinciallegislation.
If any unpaid loans to the deceasedwere cosigned by another person, that person will likely beliable for any balance unpaid after repayments are made fromthe estate.
If the deceased has a tax liability and hastransferred property to:
 | their spouse or common-law partner, |
| a person under theage of 18, or |
| a person with whom they were not dealing at arm's length, |
then as per s. 160 of the Income Tax Act, therecipient of the property transfer can be held liable for the tax liability, tothe extent that the market value of the property transferred exceeds the amountof consideration given by the recipient for the property. The above applies if assets of the deceased have namedbeneficiaries, such as a registered retirement savings plan or other registeredplans, and the deceased owes money to Canada Revenue Agency (CRA).CRA can recover the money owed by the deceased, up to the amount that thebeneficiary received from the deceased. For an example of this see TaxCourt Case Dregerv. The Queen, 2020 TCC 25. The same does not apply when thebeneficiary of the RRSP is a former spouse, because they do not fit the abovecriteria of s. 160. For an example of this see Tax Court Case Kiperchukv. The Queen, 2013 TCC 60. Some debts may be extinguished uponthe death of the debtor - for instance, in the case ofinsured loans or mortgages. See the MNP Ltd. article DealingWith Debts Of A Deceased Bankrupt. The CanadaStudent Financial Assistance Act provides for somestudent loans to be repaid by the federal government in theevent of the student's death or permanent disability. For information regarding what happens in each province, see What to do when someone dies, which has links to wills and estate information on provincial/territorial websites. Revised: October 26, 2023
