In Ontario, many families are shocked by what happens in the first few days after a loved one passes away. Bank accounts can be frozen almost immediately, and pre-authorized payments (PAPs), such as mortgage withdrawals, may stop without warning. If the estate does not have enough available cash, you may end up with missed payments, late fees, or even pressure from the bank to start the power of sale. In this post, I will explain why accounts are frozen, what it means for PAPs, and the practical steps an executor (estate trustee) and family can take to protect the home and keep essential bills paid during probate.
When a loved one passes, the first financial decision most people make is going to the bank to try to get their inheritance. For many, this makes sense, especially if they are the named beneficiaries in a Will or if there is no Will but they are the deceased’s spouse or child. However, for most bank accounts, you need more than a death certificate to receive the inheritance. In fact, the only bank accounts that can be transferred directly and immediately to beneficiaries are joint bank accounts and registered accounts (e.g., TFSA, RRSP) in which the deceased had designated beneficiaries before they passed away.
For all other bank accounts, the bank would tell you to first apply for probate. This means that an application must be made to the Court before you can get your inheritance. This application must be made whether or not there is a Will. It’s just that with a valid Will, it would be much easier, cheaper, and faster.
Because probate applications require many lawyer notarizations, as well as estate law knowledge and experience, it is best to hire an experienced probate lawyer to handle this process. Otherwise, every single mistake would cause the Court to reject the application, only to have it be resubmitted, causing significant delay.
Moreover, when the Court considers the application to be high risk, they may ask the applicant to purchase bond insurance (typically costing 5% of the entire estate value) before they are willing to approve the probate.
Going back to the bank part. When you go to the bank to receive your inheritance, you would have notified the bank that the deceased had passed away. Immediately after, the bank would freeze all accounts in the deceased’s name (except joint accounts). This means no further withdrawals will be allowed, including pre-authorized payments (PAPs) set up during the deceased’s lifetime. Unfortunately, this also means PAPs like monthly mortgage payments won’t be allowed anymore, which raises the question of who pays the mortgage after death.
Legally, when a deceased person passes, their mortgage with the bank is “cancelled,” meaning it must be paid off immediately. Otherwise, within 15 days, the bank can initiate a power of sale to sell the estate property, but most banks will wait 6 months to a year before doing so. So when the PAP for the mortgage is cancelled because the account is frozen, the clock starts ticking.
Thus, it’s best to immediately start the probate application process by hiring an experienced probate lawyer. Throughout this process, maintain close communication with the bank so they know probate is well underway and that the power of sale should be held off.
As well, before the probate application can be submitted, the executor or their probate lawyer must get 2 things from the bank: (1) the date of death balance for all of the deceased’s accounts, and (2) the 1.5% estate administration tax payment, which can be paid from the deceased’s existing account. Unfortunately, because banks are typically unmotivated when dealing with estate matters, they move slowly to provide those two things.
However, because there are immediate costs associated with death, such as funeral expenses, probate legal fees, and maintenance fees for the estate property (e.g., property taxes and common expenses), most families cannot afford to let the bank drag its feet. Again, this is where an experienced probate lawyer comes in.
Also, which branch you first contacted the bank to get the inheritance is important. If they started an estate case for you, most likely you will be stuck dealing with that branch in the next year as you settle the estate. If you don’t like that branch, it will make that year very difficult. Switching to a new branch could be hard as no other branch wants to take a case that another branch has already started.
In summary, it’s best to pick a branch that you or your probate lawyer likes and is located close to you or the lawyer. That way, when the inevitable multiple in-person follow-ups are required, it won’t be nearly as bad.
If you have any questions about Wills, Trusts, Probate, or Estate Administration, please click HERE to book a call with us.
