4.2 Immediate Cash Needs: Final Expenses, Taxes, Debt, Emergency Fund

Quick Answer: Immediate cash needs are lump sums due in the first days and weeks after death: funeral and final expenses, probate or administration cash, income and capital-gains tax liquidity, consumer and demand debt, and an emergency reserve. Education funds and charitable bequests stay in section 4.3. The Edmonton mortgage is debt repayment on CISRO's list, but it is a planning choice, not a funeral invoice.

Chapter 2 inventoried CISRO's five capital expenses arising upon death: funeral expenses, income taxes, debt repayment, setting up education or legacy funds, and charitable donations. That 1.1 list for Tomasz, using a $42,000 incomplete-rollover tax figure and including education and charity, totalled $674,400 before any income-replacement fund. This section does not rerun that whole list. It asks a narrower 1.3 question: what cheque has to clear before the estate is tidy and before Anika's next pay cycle?

Funeral and other final expenses

The file still uses $15,000 for funeral, burial or cremation, a reception, death certificates, and related final invoices. That is a planning placeholder until a cemetery or funeral home quote exists; Canadian families often spend more or less. It is not optional “if they shop around.” Someone must pay the funeral home long before a house can be sold and long before a life-insurance claim is guaranteed to have been deposited.

Final expenses also include last medical bills not covered by Alberta health care, outstanding utilities, and credit-card charges on the funeral trip. Keep those modest items in the same bucket rather than inventing a second science. Do not treat the CPP death benefit as if it were the funeral budget: the basic amount is $2,500, it is taxable to whoever receives it, and it may be paid to the estate, the funeral payer, or a survivor depending on who applies. It is a resource in 4.3, not a substitute for the $15,000 invoice.

Probate, administration, and two-province friction

“Probate” on this exam is shorthand for cash the estate needs in order to collect and transfer property. Named-beneficiary life insurance generally bypasses the estate. Joint property with right of survivorship generally passes outside a will. Everything that still sits in Tomasz's name alone can need a court grant, a lawyer, and an accountant.

The couple lives in Alberta. Alberta grant (surrogate) fees follow a provincial court tariff — confirm the current schedule in the exam e-book; do not import Ontario's formula onto the Edmonton house. Executor legal and accounting fees still exist even when the statutory fee is modest. Budget professional time, not only a court stamp.

The Mississauga condo is Ontario real property in Tomasz's name, with FMV $520,000, ACB $310,000, and a $180,000 mortgage. If that condo must be dealt with through an Ontario estate certificate, Ontario Estate Administration Tax can apply. Ontario currently charges $0 on the first $50,000 of estate value and $15 per $1,000 (1.5%) on the excess; encumbrances on real property are deducted, but funeral expenses are not. On $340,000 of Ontario equity, that tax is about $4,350, before lawyer's fees. Two-province administration is why this file uses $16,000 as an administration-and-grant cash line, not a made-up “2% of the Edmonton house.”

If Anika is on title as a joint tenant of the Edmonton principal residence, survivorship can keep that house out of the Alberta grant. Confirm title. “We both live here” is not a title search.

Income-tax and capital-gains liquidity

Life insurance proceeds paid to a named beneficiary on a personally owned exempt policy are generally received tax-free. That does not mean death is a tax-free event for the rest of the balance sheet. The terminal T1 can still need cash.

Rollover path (the intended design). Anika is Tomasz's common-law partner. Capital property transferred to a spouse or common-law partner can generally roll at cost under the Income Tax Act, so the $210,000 accrued gain on the condo is deferred, not erased. An RRSP paid as a refund of premiums to a qualifying survivor can be rolled into Anika's RRSP. The Edmonton principal residence may qualify for the principal-residence exemption. On that path, this file still schedules $12,000 of tax liquidity: the final return, instalments, the taxable half of the $18,000 unrealized gain on Tomasz's $55,000 non-registered account (50% × $18,000 = $9,000 taxable × a working 40% rate ≈ $3,600), and a buffer. Personally owned life premiums were not deductible; that does not create a refund at death.

Failed-designation path (Chapter 2's $42,000). If the condo falls to the estate, to Marek, or to anyone who is not a qualifying spouse or partner, deemed disposition at FMV can include half of $210,000 as a taxable capital gain. Chapter 2 identified about $42,000 of tax in that case. If the $94,000 RRSP is paid to the estate or to Nadia rather than to Anika, it is generally income on the terminal return — a six-figure problem that no $12,000 buffer covers. Tax liquidity is therefore a beneficiary-designation fact, which section 4.4 will use, not a flat percentage of face amount.

Using life insurance proceeds to defray tax on capital gains triggered at death is on the 1.3 contents list. In this personal file that means: keep enough death benefit outside the estate, in cash, so Anika is not forced to sell the condo in a hurry to pay CRA. Full deemed-disposition estate design sits with Chapter 5; here you only size the liquidity.

Consumer and demand debt versus the mortgage

CISRO lists debt repayment as a capital expense at death. Not every debt is due on the same morning.

Consumer and demand debt in this section is $15,000 + $12,400 = $27,400. Pay it from insurance or from cash so a surviving engineer is not negotiating a demand loan the week of the funeral.

The $485,000 Edmonton mortgage remains Anika's 1.1 working assumption: clear it so one municipal salary is not carrying a 23-year closed loan through a 2028 reset. That lump sum belongs in the capital-needs total; it is not “funeral cash.” If a different client would rather keep the mortgage and fund the $2,850 payment inside the income-replacement budget, the immediate-cash line shrinks and the 4.3 income fund grows. Write the assumption. Do not do both (pay off the mortgage and capitalize 23 years of payments).

Emergency reserve

An emergency fund is cash that lets survivors miss a beat: delayed group-life claims, a conversion window, a landlord on the condo, Irena's PSW, Sofia's childcare. Chapter 2 already said joint chequing and savings of $28,000 are funeral and 90-day cash, not a mortgage payoff.

After Tomasz dies, if support outflows stop and the car and HELOC are cleared, a working survivor burn is about $13,200 a month before extra paid care. Three months is about $40,000. That is the gross emergency target on the worksheet.

Do not double-count. The same $28,000 cannot be “assets available” in 4.3 and also left sitting in the emergency line as if it were still unused after the funeral. Presentation that stays honest:

Add the $485,000 mortgage payoff when you are using Anika's debt-clearing assumption, and the lump-sum capital before income, education, Nadia, and charity is $82,400 + $485,000 = $567,400 (the $27,400 consumer debts are inside the original $512,400 with the mortgage, so do not add the car and HELOC a second time when you roll up). Sections 4.1 and 4.3 use that consistent roll-up: funeral/admin/tax/emergency $83,000 plus debts to clear $512,400.

The 4.2 exam skill is classification under time pressure: what is due now, what is a mortgage decision, and what is a multi-year income or gift problem. Mixing those clocks is how a candidate either underinsures the funeral or treats a 23-year amortization as a same-week cash crisis.