When handling an estate in Ontario, unvested RSUs may automatically vest upon death, or they might be completely forfeited. You must carefully review the employer’s stock plan documents and report any realized value as income on the deceased’s final CRA tax return.
Many tech hubs in Ontario, such as Toronto, Kitchener-Waterloo, and Ottawa, are home to corporate employees whose compensation heavily relies on Restricted Stock Units (RSUs). When a professional passes away, their executor faces the complex task of determining what happens to shares that have not yet vested. 📈
Unlike standard investments in a TFSA or RRSP, RSUs are governed by strict corporate contracts. Understanding how to handle these unique assets is critical to maximizing the estate’s value and avoiding severe tax penalties with the Canada Revenue Agency (CRA). 💵
Step-by-Step Process for Handling RSUs in Ontario
As an estate trustee in Ontario, your primary duty is to gather the deceased’s assets and settle their debts. Dealing with RSUs requires coordination between the employer, the brokerage holding the shares, and the Superior Court of Justice. ⚠️
Step 1: Locate the Grant Agreement and Plan Documents
The very first step is to find the official RSU Grant Agreement. This document outlines exactly what happens upon the employee’s death. Some plans offer “accelerated vesting,” meaning all unvested shares immediately become the property of the estate. 📑
Step 2: Notify the Employer and Brokerage
You must formally notify the employer’s HR department and the brokerage managing the stock plan. You will need to provide a notarized copy of the death certificate and a copy of the will. 📧
Step 3: Apply for a Certificate of Appointment (Probate)
Most corporate brokerages will not release the value of vested RSUs to the estate without a probate certificate. You must file an application at the local Superior Court of Justice to obtain the official legal authority to transfer the shares. 📝
Step 4: Settle the Tax Obligations with the CRA
In Canada, RSUs are generally taxed as employment income, not capital gains, when they vest. If shares vest upon death, their market value must be included on the deceased’s final tax return (the Terminal Return), which can result in a hefty tax bill. 💲
How Much Does it Cost to Process RSUs?
Administering an estate with complex corporate shares involves several fees. It is important to account for these costs before distributing funds to the beneficiaries. 💰
| Type of Expense | Estimated Cost (CAD) |
|---|---|
| Estate Administration Tax (Probate Fee) | Roughly $15 per $1,000 of estate value over $50,000 in Ontario. RSUs are included in this calculation. |
| Accounting Fees (Terminal Return) | $1,000 – $3,500 depending on the complexity of the final tax return. |
| Lawyer Fees (Probate Application) | $2,500 – $5,000+ for drafting and filing the court documents. |
How Long Does the Process Take?
Resolving RSU payouts is rarely a fast process. Gathering the documents from the employer and getting the brokerage to freeze the account usually takes 3 to 6 weeks. ⌛
However, obtaining the probate certificate from the Ontario courts can take anywhere from 3 to 8 months. The final distribution to beneficiaries cannot safely happen until the CRA issues a Clearance Certificate, which can add another 6 to 12 months to the total timeline. 📅
Frequently Asked Questions (FAQ)
What happens if the RSU agreement says shares are forfeited upon death?
If the strict language of the contract dictates that all unvested RSUs are cancelled upon death, the estate unfortunately loses that value. Only the shares that vested prior to the date of death will be paid out.
Can the beneficiaries just inherit the shares directly?
Typically, no. The employer’s brokerage will usually liquidate the RSUs (sell them for cash) or transfer the vested shares into a designated Estate Account. From there, the executor can distribute the cash or transfer shares according to the will.
Are RSUs subject to Ontario probate tax?
Yes. The total value of any RSUs that vested before or upon death must be included in the estate’s overall valuation when calculating the Estate Administration Tax in Ontario.
Do I need an accountant to handle this?
It is highly recommended. Because RSUs trigger massive income inclusions on the CRA Terminal Return, a professional accountant is crucial to ensure the estate does not underpay taxes, which could make the executor personally liable.
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