Role of the liquidator and of the trustee
A liquidator and a trustee are both persons of trust who must ensure that a patrimony is transmitted to its beneficiaries according to best practices. The choice of a liquidator or a trustee, especially when it concerns your patrimony, is essential.
To understand the challenges faced by a succession liquidator or a testamentary trust trustee, we shall first distinguish their roles:
| Succession liquidator | Testamentary trust trustee |
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Tasks of the liquidator and of the trustee
In both cases, they are numerous and involve specific actions which must be performed according to a specific schedule. They require great availability on the part of the designated person and a good capacity to manage the stress that certain situations can cause.
By consulting the list of tasks of the liquidator and that of the trustee, you will be able to assess the level of accountability required in each of these functions.
Obligations related to liquidator and trustee tasks
The powers and obligations of a liquidator or of a trustee must first be examined in light of the provisions of the will and supplemented by the articles of the Civil Code of Québec (C.C.Q.) concerning the administration of the property of others.[1] Consequently, a liquidator and a trustee must comply with these suppletive provisions of the Civil Code, even if they are not mentioned in the will.
The obligations with which a liquidator and a trustee must comply include the following:
[1] Articles 1299 to 1370 C.C.Q.
OBLIGATION TO ACT WITH PRUDENCE
art. 1309 C.C.Q. An administrator shall act with prudence and diligence, and in the best interest of the beneficiary.
Scenario
- A liquidator goes to the bank to close the bank accounts of the deceased person.
- The representative offers to transfer the amounts held by the deceased to the bank account of the surviving heir.
- If the liquidator proceeds with this transfer, this will result in the presumed acceptance of the succession by the heir.
It is important to know that if the final tax returns of the deceased person have not been filed, if the notices of assessment have not been received, and if the inventory of the succession has not been completed, it could be disadvantageous for the heir to have accepted the succession without knowing exactly all the debts of the deceased person and of the succession.
If it turns out that the deceased person had many debts, including unpaid taxes, and if the heir would have preferred to renounce the succession, he will no longer be able to do so because the liquidator mingled the property of the deceased person with the personal property of the heir, which results in the presumed acceptance of the succession. The liquidator could then be blamed for not having acted in the best interest of the heir.
This duty of prudence must also dictate the conduct of the liquidator and of the trustee in the choice of investments which will make up the investment portfolio of the succession or of the trust. Article 1340 of the Civil Code requires that the administrator take into account the yield and the anticipated capital gain. He must work towards a diversified portfolio. A liquidator or a trustee who invests the money of the succession or of the trust in an excessively risky portfolio could be blamed by the beneficiaries and be subject to legal action.
DUTY TO AVOID CONFLICTS OF INTEREST
art. 1310 C.C.Q. A liquidator and a trustee must avoid placing themselves in a position where their personal interest is in conflict with their obligations as administrator.
Article 1314 of the Civil Code adds that an administrator may not use for his benefit the property he administers except with the consent of the beneficiary or if the will allows it.
Scenario
- A liquidator who occupies the home of the deceased person without paying rent breaches this obligation and may be subject to legal action by the heirs.
PROHIBITION FROM DISPOSING GRATUITOUSLY
art. 1315 C.C.Q. A liquidator and a trustee may not dispose of the property of the succession or of the trust without valuable consideration, except property of little value.
Scenario
- A succession liquidator knows that each year, the deceased person would transfer, during his lifetime, amounts to his spouse’s RRSP with a view to income splitting.
- Meaning well, the liquidator decides to do the same thing after the death.
- With this action, he gave property of the succession to the deceased’s spouse.
- If this spouse is not the sole heir, the liquidator could be blamed for this action by the other heirs.
- If this spouse is the sole heir and if the liquidator made this transfer without having first obtained the clearance and distribution certificates from the tax authorities, he will be personally liable to the tax authorities for the unpaid taxes of the succession (including the unpaid taxes of the deceased person) plus the interest on these amounts, if applicable.
No distribution should be made to the heirs by a liquidator without having first obtained these clearance and distribution certificates from the tax authorities (form TX19 to be submitted to the Canada Revenue Agency and form MR-14.A-V to the Minister of Revenue).
In conclusion
As you can see, it is important to surround yourself with seasoned financial advisors when you undertake your succession plan. Before designating the liquidator of your succession or the trustee of one of the trusts which could be created in your will, consider carefully whether this person has all the necessary attributes and, especially, whether he or she is prepared to undertake all these tasks and responsibilities.
Professionals’ Financial offers a variety of services related to your succession needs. Whether it is to be appointed the liquidator of your succession or the trustee of one of the trusts created in your will, the Financial can take care of everything. Talk to your advisor about this: he is your direct link to all our expertise.
Nathalie B. Poisson, LL.B., D.D.N.
Practice Leader, Notarial and Estate Law
