A tax clearance certificate is a notice from Canada Revenue Agency stating that all taxes have been paid. It is not the law that every estate trustee must get one, but it is highly recommended. If the estate trustee goes ahead and distributes the estate to the beneficiaries and later finds out that there are taxes owing, then the estate trustee may be personally liable to pay the outstanding taxes out of their own money.
You can obtain two different types of tax clearance certificates. There is a tax clearance certificate up to the date of death, and a tax clearance certificate up to the date the estate trustee will be distributing the estate assets. To obtain either certificate, you have to file all of the necessary tax returns for both the deceased and for the estate. Upon receipt of the Notice of Assessment for the return that you filed, you will then have to fill out Form TX19, Asking for a Clearance Certificate. This form is sent to your local tax office along with a copy of the Will, a copy of the Certificate of Appointment of Estate Trustee, and a statement of proposed distribution. Then you wait for the tax clearance certificate to be issued; note that this can often take several months.
The tax clearance certificate does not warrant that all debts of the estate have been paid. It only means that the estate does not owe any taxes.
As an estate trustee, if you have distributed funds to the beneficiaries when there is an outstanding debt, then you may be responsible for the payment of the debt yourself.
To protect yourself, you should advertise in the local newspaper asking that any potential creditors of the estate should notify the estate trustee within a specific time period of any potential debt. The purpose of the advertisement is to limit the claims of a creditor to a reasonable period, so that the estate can be wrapped up efficiently and the estate trustee can be confident that all debts of the estate have been paid before distributing to the beneficiaries.