One of the most common questions executors hear from beneficiaries is, “When will I receive my inheritance?” While beneficiaries are often eager to receive their share of an estate, the estate administration process can take many months to complete. In some cases, it may even take a year or longer before the executor is in a position to make a final distribution.
To address this issue, an executor may consider making an interim distribution. However, executors must proceed carefully, as distributing estate assets too early can expose them to personal liability.
Understanding when an interim distribution may be appropriate is an important part of administering an estate in British Columbia.
What Is an Interim Distribution?
An interim distribution is a partial distribution of a beneficiary’s inheritance before the estate administration has been fully completed.
Rather than waiting until every aspect of the estate has been finalized, an executor may choose to distribute a portion of the estate assets while retaining sufficient funds to cover outstanding obligations and expenses.
Interim distributions can provide beneficiaries with access to funds while allowing the executor to continue administering the estate.
Does Probate Need to Be Granted First?
In most estates, probate will generally be obtained before an interim distribution is considered.
Although an executor’s authority begins upon the death of the will-maker, many estate assets cannot be accessed until the Grant of Probate has been issued. Financial institutions, investment firms, and the Land Title Office often require probate before releasing or transferring assets held in the deceased’s name.
As a result, executors typically wait until probate has been granted and estate assets have been collected before considering whether an interim distribution is appropriate.
Why Would an Executor Make an Interim Distribution?
Estate administration can be a lengthy process. Even after probate has been granted, the executor may still need to sell property, complete tax filings, resolve administrative matters, or wait for information from financial institutions.
During this time, beneficiaries may have legitimate financial needs. For example, a beneficiary may be relying on their inheritance to help cover living expenses, housing costs, educational expenses, or other financial obligations.
Where the executor has a reasonable understanding of the estate’s assets and liabilities, an interim distribution may allow beneficiaries to receive a portion of their inheritance without waiting for the entire estate administration process to be completed.
What Is a Holdback and Why Is It Important?
Before making an interim distribution, an executor must ensure that sufficient funds remain available within the estate to cover outstanding obligations.
This reserve is often referred to as a holdback.
One of the executor’s most important responsibilities is to ensure that all debts, taxes, and administration expenses are paid before distributing the estate. If too much money is distributed too soon and additional liabilities arise, the executor may be personally responsible for the shortfall.
The amount of the holdback will depend on the circumstances of the estate. Executors commonly retain funds to cover legal fees, accounting fees, probate fees, income taxes, estate administration expenses, and other anticipated liabilities.
Maintaining an appropriate holdback is one of the most important considerations when determining whether an interim distribution can be made safely.
Are Executors Required to Make an Interim Distribution?
Generally no.
Interim distributions are generally made at the discretion of the executor. While beneficiaries may request an early distribution, executors in most cases are not typically obligated to make one.
Instead, the executor must exercise reasonable judgment and consider the interests of the estate as a whole. The executor’s primary duty is to properly administer the estate and protect estate assets, not to satisfy requests for immediate payment.
If there is uncertainty regarding the estate’s liabilities, taxes, or potential legal claims, an executor may reasonably decide that an interim distribution is not appropriate at that time.
How Can Wills Variation Claims Affect Interim Distributions?
Executors should also consider whether there is a possibility of a legal challenge before making an interim distribution.
In British Columbia, certain spouses and children may have the right to challenge a will under the Wills, Estates and Succession Act (WESA) if they believe adequate provision has not been made for them. If an estate is distributed too quickly and a successful claim is later brought against the estate, recovering funds from beneficiaries can be difficult and costly.
For this reason, executors should carefully consider any applicable limitation periods and obtain legal advice where appropriate before making significant distributions.
Should Beneficiaries Sign a Release?
Before making an interim distribution, executors will often prepare an accounting showing the estate’s assets, liabilities, expenses, and proposed distribution amounts.
Beneficiaries may also be asked to sign a release acknowledging receipt of the interim distribution and approving the executor’s actions to date.
Although a release may not eliminate all potential liability, it can provide important protection for the executor and help reduce the likelihood of future disputes regarding the funds that have been distributed.
Why Should Executors Consider Obtaining a Clearance Certificate?
Although executors are not always required to obtain a Clearance Certificate, many choose to do so before making a final distribution.
A Clearance Certificate from the Canada Revenue Agency confirms that the estate has satisfied its tax obligations up to a specified date. Obtaining a Clearance Certificate can provide important protection for executors and greater certainty regarding the estate’s final tax liabilities.
Without a Clearance Certificate, an executor who distributes estate assets may become personally liable if additional taxes are later assessed against the estate. For this reason, many executors choose to retain a substantial holdback until the Clearance Certificate has been received.
When Is an Interim Distribution Appropriate?
Every estate is unique, and there is no single answer that applies in every situation.
Generally speaking, an interim distribution may be appropriate when probate has been granted, estate assets have been collected, the executor has a reasonable understanding of the estate’s liabilities, sufficient funds are being retained as a holdback, and there are no significant concerns regarding potential legal claims. In BC, section 155 of WESA prohibits interim distributions, except in certain circumstances such as with the consent of all the beneficiaries or after 210 days following the grant of probate.
Before making any distribution, executors should carefully assess the risks and ensure they understand their legal obligations. Obtaining legal advice can help executors determine whether an interim distribution is appropriate in the circumstances.
Speak With a BC Probate Lawyer About Interim Distributions
Making an interim distribution can be an effective way to provide beneficiaries with access to funds while the estate administration process continues. However, executors must balance the interests of beneficiaries with their responsibility to protect the estate and ensure that all debts, taxes, and expenses are paid.
At Westcoast Wills & Estates, our probate lawyers assist executors across North Vancouver, Vancouver, Burnaby, Surrey, Richmond and surrounding communities with probate applications, estate administration, interim distributions and executor responsibilities. We can help you determine whether an interim distribution is appropriate and ensure that estate assets are distributed in a way that protects both the beneficiaries and the executor.
If you need assistance administering an estate, contact our team today to schedule a consultation with an experienced BC probate lawyer.
