4 min Read

Your Loved Ones Estate – What You Should Know

During regular practice, our team encounters all kinds of situations that few professionals know how to solve unless they work with the disability community on a regular basis. Closing up a loved one’s estate is an example where, beyond the common issues of inheritances, probate and taxes, there are certain rights that are available to those who had a permanent disability prior to passing.

When a loved one dies, their estate is going to go through a probate and taxation process just like everyone else and having to file tax returns and pay tax liabilities for a loved one with a disability often feels like a final punch in the face. However, there is always a silver lining in every difficult situation. One thing we have found on a disturbingly regular basis is that executors are often paying more tax than they need to because the deceased never had a disability tax credit approved while alive.

Tax law allows us to elect for a variety of tax saving procedures, apply for credits and fix past tax returns for between 1 to 10 years after death. The disability tax credit is no different. Many of our clients are surprised to find out we can apply for the credit after they have passed because, if the deceased was entitled to this disability benefit, this can successfully be applied for and applied to past tax returns from the year of death up to 10 years back (as long as the individual had this condition 10 or more years ago).

That said, time is of the essence because professionals that will have to sign off on the application may be in the process of retiring, making the process more difficult if say the deceased’s physician or specialist has retired by the time the executor gets around to completing the application. Another concern is that the longer it takes to apply for the disability tax credit after death, the longer it takes to file the final tax returns and retroactively fix past tax returns, the longer it will take the executor to keep the estate open thereby irritating heirs waiting for their inheritance (RDSP’s have to be closed and inherited in the estate process) and resulting in more obligations to file estate trust tax returns in the future. Also the longer this is deferred, the less likely the regular caregiver will have receipts or other documentation to prove their support in the event of the application being red flagged for further scrutiny prior to its approval.

Of important note in this process is that the disability tax credit can also be transferred from the deceased to the regular caregiver who provided significant, regular support for the deceased’s regular

activities of living, but be prepared for two levels of extra scrutiny including providing dates and descriptions of the regular support and amounts of money spent on supporting the loved one. The second level of scrutiny is to provide proof of support in terms of receipts.

While this looks like an onerous process, this can result in some cases of more than $15,000 in tax refunds to the estate or to the regular caregiver if the disability tax credit is transferred to them retroactively.

Why I also bring up this process is because eligibility for the disability tax credit is often also applicable to the primary caregiver after they have passed. Frequently, parents or siblings continue to support the loved one with a disability until the day they themselves have passed. Often, the caregiver’s health has degraded along the way to the point that they would have been entitled to the disability tax credit but they never applied for it. Such a caregiver’s estate is also entitled to go through this post mortem process of applying for unclaimed past tax benefits.

So, even though your family may have suffered the loss of a loved one with a disability or the caregiver of that loved one, please consult a trusted financial planner and explore post mortem tax relief rights as soon as possible.

 

By David Chen, BSc, BA, CPCA, CF P, Lead Advisor – DC Complete Financial