While it is increasingly common for estate administration to take years, beneficiaries may not have to wait until the administration is complete before receiving at least part of their inheritance. It is accepted practice for estate trustees to make interim distributions to residual beneficiaries, so long as sufficient funds are held back to cover the estate’s liabilities: see Gillis Estate (Re), 2017 NSSC 6, citing Halsbury’s Laws of Canada.
When interim distributions are raised as an issue during estate administration, it is usually because the beneficiaries are seeking an interim distribution. However, the Nova Scotia Supreme Court’s recent decision in Foster Estate v Foster, 2026 NSSC 91, indicates that there is another ground on which the court may be called upon to address such distributions – to determine whether an executor should be penalized for failing to make an interim distribution sooner.
Background
The deceased in this case left the residue of her estate to her three children in equal shares. One child was also appointed to serve as executor, with the will giving him “sole,” “uncontrolled” and “absolute” discretion to make any distributions of the estate assets that he considered appropriate.
After a grant of probate was obtained in January 2021, the administration of the estate was delayed by tax issues for several years. Both the deceased’s terminal tax return and T3 trust tax return were submitted in 2021. However, the executor decided to file both an amended terminal tax return and an amended T3 trust tax return in 2022. Neither amended return could be processed initially because counsel signed both amended returns, rather than the executor of the estate. The estate did not receive the Notices of Re-Assessment for the amended tax returns until January 2023 and March 2024, respectively. Once the Notice of Re-Assessment for the T3 trust tax return was received, the executor obtained a tax Clearance Certificate less than two months later.
The executor subsequently made an interim distribution of the estate in August 2024, distributing $150,000 to each beneficiary. A second interim distribution of $50,000 each was made in June 2025.
When the executor applied to pass his accounts, his siblings raised a number of concerns, including that the executor had “failed to demonstrate the care, responsibility, and skill expected of an executor” by waiting so long before making the first interim distribution to the beneficiaries. They argued that an interim distribution of $250,000 each should have been made in May 2021, once the terminal tax return had been filed, the taxes had been paid, and the first Notice of Assessment had been received. In the alternative, they argued that the interim distribution should have been made in November 2021, once the ttrust T3 tax return had been filed and the Notice of Assessment was in hand.
Executor Penalized for Failing to Make Initial Interim Distribution Sooner
Given that the deceased’s will granted the executor absolute discretion over the distribution of the estate, Justice Gatchalian confirmed that the court could only intervene in one of three scenarios:
- if the executor’s decision was “so unreasonable that no honest or fair-dealing trustee could have come to that decision”;
- if he took irrelevant considerations into account when exercising his discretion; or
- if, in having done nothing, the executor could “not show that he gave proper consideration to whether he ought to exercise the discretion.”
The court ultimately held that it could intervene due to the executor’s failure to consider making an earlier interim distribution. In reaching this conclusion, a significant factor noted by the court was that estate counsel had advised the executor in March 2022 that most of the estate could be distributed without creating additional tax exposure. The court also noted that the estate was not complicated, since it only consisted of cash, and that the funds in the estate account were not invested in order to prevent a further tax liability from arising that would delay the distribution of the estate.
Had the executor kept a reasonable hold-back of $300,000 to cover estate expenses, Justice Gatchalian held that an initial $250,000 distribution could have been made to each beneficiary by April 2022. Noting that there was no valid reason not to make a distribution, the court found that the executor’s failure to do so was “so unreasonable that no fair-minded trustee could have made that decision.”
Although Justice Gatchalian concluded that the executor would be required to compensate the beneficiaries for the delay, the precise amount and nature of that compensation were left to be determined at a future hearing.
The Potential Impact of Section 159 of the Income Tax Act
In concluding that it would have been reasonable for the executor to make an interim distribution before a tax Clearance Certificate had been obtained, it is noteworthy that the court did not consider section 159 of the Income Tax Act. Subsection 159(2) provides that a taxpayer’s representative, including an executor, “shall” obtain a tax Clearance Certificate before distributing the taxpayer’s property that is in their possession.
Had the court considered section 159, it seems feasible that the executor’s decision to refrain from making an interim distribution until after the tax Clearance Certificate had been obtained would not have been deemed unreasonable. As it stands, the court’s conclusion that an interim distribution should have been made in April 2022, before the Clearance Certificate had been obtained, appears to be inconsistent with the language used in subsection 159(2).
Potential Application in Ontario
It appears that the courts in Ontario have not yet considered whether an estate trustee may be penalized for failing to make an interim distribution sooner. While the reasoning in Foster Estate is difficult to reconcile with section 159 of the Income Tax Act, it could prove persuasive where an estate trustee delays making an interim distribution after a tax Clearance Certificate has been obtained. The grounds on which the court determined it could intervene and penalize the executor in Foster Estate are consistent with a number of factors considered in Ontario when a court is asked to interfere with an estate trustee’s discretion and make an interim distribution, including whether the estate trustee failed to exercise their discretion or behaved unreasonably: see Parson v McGovern, 2014 ONSC 1785.
Foster Estate demonstrates that an estate trustee who delays making an interim distribution without a principled basis to do so may be penalized, even where the will grants the estate trustee broad discretion. To avoid such an outcome, it is advisable for estate trustees to meet with counsel to discuss whether and when it would be practicable to make an interim distribution to the estate’s residuary beneficiaries.
Thank you for reading, and have a great rest of your day!
Suzana.