When a Sole Trader Dies: A Guide for the Family

When a self-employed tradesperson who ran their business as a sole proprietor dies, the legal reality is blunt but important to understand: the business has no separate life of its own, so it ends with them. Unlike a corporation, a sole proprietorship is not a separate legal person; it is just the individual trading under their own name or a business name. That means the tools, the van, the bank balance, the unpaid invoices and the debts all become part of the person's personal estate, to be dealt with through the will or, if there is none, the provincial intestacy rules. This guide is for the family and the executor, in plain terms, written with care.‍‌‌‌​​​​​​​‌​‌​​‌‌​​‌‌​‌​​‌​​​‌‌‍

What happens to the business at death

Because the business and the person were one and the same in law, several things follow at once.

• The business simply stops. There is no entity to keep trading. Any work in progress has to be wound up, handed on or cancelled.
• The assets join the estate. Tools, vehicles, equipment, stock and money in the business accounts all become estate assets, distributed under the will or, with no will, under the province's intestacy rules.
• The debts join the estate too. Business debts become debts of the estate. Creditors can claim against the estate, and they are generally paid before beneficiaries receive anything.
• Accounts can freeze until probate. Business bank accounts may be frozen until the court grants probate (or its provincial equivalent), which can hold up paying suppliers, any employees and ongoing costs. In Quebec, the civil-law process differs; the principle of accounts being tied up pending the estate's administration still applies.

The practical first steps for the family

In the early days, alongside grieving, a few practical things protect the estate.

• Find the will and the executor. The named executor (called a liquidator in Quebec) has the authority to act. If there is no will, the family will need to apply to administer the estate.
• Secure the assets. Lock up the tools, the van and the workshop. Tools are valuable and theft from a known-empty premises is a real risk.
• Gather the paperwork. Active contracts, supplier accounts, customer deposits taken, outstanding invoices, insurance policies, bank statements and any business loans or leases.
• Do not rush to pay or collect. Let the executor work out what is owed and what is owing before money moves, because the order creditors are paid in matters.

The tax and CRA steps

There is a tax side that the executor and the family's accountant handle together.

• A final personal tax return is required, covering the period up to the date of death. There can be additional returns the estate may file; an accountant will advise which apply.
• The Business Number and GST/HST account are closed once the final returns are filed and any balances are settled. Closing a GST/HST account can involve a deemed disposal of business assets, so this is done with the accountant, not in a hurry.
• Watch the deadlines. Final-return filing has its own timing rules depending on the date of death. The accountant will keep these straight.

A clearance certificate from the CRA, which an executor can request, confirms the estate's taxes are settled before assets are distributed, and it protects the executor personally. It is worth asking the accountant about.

Employees, contracts and customers

• Employees, if any, are owed their final pay and any statutory entitlements; the executor settles these as estate obligations.
• Active jobs may need to be handed to another tradesperson to finish, refunded where deposits were taken, or formally cancelled. Communicate with customers early and honestly.
• Customer deposits taken for work not done are usually a debt the estate owes back. Flag these to the executor.

Why planning ahead matters so much

This guide is partly a quiet argument for planning while you can. A sole proprietor can spare their family a great deal by doing a few things in advance: writing a will that says what happens to the tools, equipment and customer relationships; considering incorporation, because a corporation survives the owner and its shares can be inherited or sold without the business closing; taking out key-person or life insurance to fund a wind-down or a handover; and writing down the things only they know, the suppliers, the active jobs, the pricing, the passwords, so an executor is not working blind. None of this is morbid; it is the same care you put into a job done right.

Common mistakes

• Trading on after the death. With no entity and no authority, family members continuing the business can expose themselves personally. Wind it up properly instead.
• Paying creditors out of order. The estate has a payment priority. Settling the loudest creditor first can leave the executor personally exposed. Take advice.
• Skipping the CRA clearance certificate. Distributing the estate before taxes are confirmed settled can leave the executor on the hook. Ask the accountant.
• Assuming a sole proprietorship can be inherited like a company. It cannot. Only the assets pass, and the business itself ends.

Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.

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