What Happens to Debts After Death? Probate Explained – Canada Guide (2025)

What Happens to Debts After Death? Probate Explained – Canada Guide (2025)

When a person dies in Canada, their financial obligations don’t simply disappear. While it’s a common belief that family members automatically inherit the debts of a deceased loved one, this is usually not the case. Instead, the responsibility to settle debts lies with the deceased’s estate, and this process is managed through probate.

1. What is Probate in Canada?

Probate is a legal process where the court confirms the validity of the deceased person’s will (if there is one) and appoints an executor (estate trustee) to administer the estate. In the absence of a will, the court appoints an administrator. During probate, the estate’s debts are identified and settled before any distribution to beneficiaries.

2. Who Is Responsible for the Debts?

The executor or estate trustee is responsible for managing the estate’s debts—not the family members personally. The debts are paid out only from the assets of the deceased, such as bank accounts, investments, real estate, or other property.

3. What Types of Debts Are Involved?

Common debts that must be addressed during probate include:

• Credit card debts
• Personal loans
• Outstanding taxes
• Mortgages
• Car loans
• Lines of credit
• Medical bills

4. What Happens If the Estate Cannot Cover the Debts?

If the value of the estate is insufficient to pay all debts, it is considered insolvent. In that case, debts are paid in a particular legal priority, starting with secured creditors, funeral expenses, taxes, and so on. Unsecured creditors may only receive a partial payment or none at all. Family members are not liable for any unpaid debt unless they co-signed or guaranteed it.

5. What Assets Are Protected from Creditors?

Some assets may be protected from creditors depending on how they are structured:

• Jointly held property with right of survivorship may pass directly to the surviving co-owner.
• Life insurance proceeds and RRSPs with named beneficiaries typically bypass the estate and go directly to the named person.
• TFSA accounts with a successor holder may also avoid probate.

However, each province has its own rules, and creditors may still make claims in specific situations, especially if beneficiaries received assets that should have gone to pay debts.

6. Time Limits for Creditors to Make Claims

There are statutory time limits in each province for creditors to make claims against the estate. For example, in Ontario, creditors generally have two years from the date the debt became known.

7. Tips for Executors and Families

• Always inventory all assets and liabilities.
• Do not distribute assets until debts and taxes are settled.
• Consider seeking legal or financial advice when dealing with complex estates.
• Be transparent with beneficiaries about the probate timeline and financial situation.

---

Final Thoughts

Dealing with the death of a loved one is difficult, and managing financial obligations can add to the stress. The key takeaway is that debts are paid from the estate, not from the personal pockets of family members. Understanding how probate works and how debts are handled can help you navigate this process with more confidence and fewer surprises.