What is estate liquidity?

• The liability arises at death; the assets may take months or years to sell.
• Registered plans and capital property can create tax without generating cash.
• Probate fees and executor costs also require cash up front.
• Life insurance, a cash reserve, or pre-arranged financing are the common solutions.
• Liquidity needs change as asset values and tax rules change.

Project the deemed disposition tax on capital property, the tax on remaining registered plans, outstanding debts, funeral and final expenses, probate fees in the relevant province, and executor and professional fees. Compare that total against cash and readily marketable assets.

The final tax return is due within a defined period after death, and executors can be personally liable for distributing assets before obtaining clearance. Meanwhile, selling a cottage or private company shares under time pressure typically produces a lower price.

Life insurance is often used because it delivers cash quickly and can be sized to the projected liability. Other approaches include maintaining a dedicated reserve, arranging a line of credit secured by estate assets, or restructuring ownership during life to reduce the liability.

• Projections use today's values and rules, both of which change.
• Insurance requires medical underwriting; waiting until health declines can remove the option.
• Coordinate with an estate lawyer so designations and the will work together.

• Doing taxes for someone who died — Canada Revenue Agency
• Income tax information for individuals — Canada Revenue Agency
• Insurance and financial basics for consumers — Financial Consumer Agency of Canada