Tax advice
When a Trust Return Is Required for a Deceased Person’s Estate ?
When a person passes away, the estate effectively becomes a trust—either a testamentary trust created by a will or an intestate estate when there is no will.
A T3 Trust Income Tax and Information Return (federal) and a TP-646 Trust Income Tax Return (Québec) are required only when certain conditions are met. Below are the situations in which a trust return must be filed.
- The estate earns income after the date of death
A trust return is required if the estate generates income after the deceased’s date of death. This includes items such as:
– bank interest
– dividends
– capital gains
– rental income
– investment income
– or any other income generated by estate assets
This is the most common reason for filing a trust return.
Examples:
– A bank account continues to accrue interest after the date of death.
– An investment (such as a Tax-Free Savings Account without a successor holder, a non-registered account, or an RRSP not yet collapsed) generates income after the death.
– A property owned by the deceased continues to generate rental income.
- The estate remains open for more than one year
If the estate administration extends beyond December 31 of the year following the death, a T3 return may be required even if the income is minimal.
Examples:
– The notary or liquidator is waiting for legal documentation.
– A house takes several months to sell.
– There are disputes or delays among heirs.
- A capital gain is realized after death
Certain gains are not reported on the final T1 return but must instead be reported in the T3 return.
Examples:
– The estate sells the principal residence or a cottage (rather than the sale being deemed on the deceased’s final return).
– The estate disposes of investments after the date of death.
- RRSP or RRIF amounts are paid to the estate
When post‑death RRSP or RRIF payments are issued to the estate (instead of directly to a spouse or designated beneficiary), these amounts generally constitute trust income and must be reported in a T3 return.
- The will creates a testamentary trust
A trust return is required each year for as long as the trust exists.
Examples:
– A spousal trust
– A trust for minor children
– A trust for a disabled beneficiary
When a trust return is not required
A T3 or TP‑646 return is not required when:
– the estate does not generate income after death,
– all assets are distributed quickly to beneficiaries,
– bank accounts do not produce interest after the date of death,
– investments are liquidated before generating post‑death income.
Small, straightforward estates with no post‑death income typically do not require a trust return.
Summary
A T3 return is required only when the estate earns income after the date of death or when the will creates a continuing trust.
Without Prejudice.