Peace of mind: the importance of preparing a good will, and the role of the liquidator for an orderly administration of your estate and the distribution of your testamentary gifts.
Our population is aging. That is a demographic fact. It should then be apparent that writing a will is extremely important. It allows you to decide to whom your money and other assets will be distributed after your death. Without a will, the law will decide which of your family members will inherit your property and assets. The Civil Code of Quebec lays out a series of rules for the distribution of assets where there is no will, according to whether or not you had a spouse, or children, or siblings, or other relatives. You can have a will prepared by a notary, or by a lawyer, or you can write a holograph will.
In general, the estate of the deceased will be administered after his or her death by the liquidator of the estate. The liquidator is either designated by the will, or the role is conferred by law upon the heirs, or a liquidator is designated by a judge following the application to the courts by an interested person. A liquidator is needed whether there is a will, or if we are dealing with an intestate succession (meaning a succession without a will).
The liquidator of the estate (whoever he or she is and whether or not he or she is an heir) must act prudently and exclusively in the best interests of the estate. The liquidator must prepare an inventory of the assets and debts, as well as all sources of revenues and expenses. The liquidator is obliged as well to prepare the final tax returns necessary to close the estate.
Amongst the liquidator’s other duties, he or she must see to the payment of the debts of the estate from the assets, and if there is a surplus of assets, then must proceed to distribute the estate according to the terms of the will or the rules set out by law.
An accurate inventory is particularly important for the heirs because it will allow the heirs to make important decisions. If an accurate inventory is presented that shows that the estate has more debts than assets, the heirs may then choose to refuse to accept their inheritance or their percentage of the inheritance. If an heir were to accept an inheritance which had insufficient assets to pay the debts of the estate, then the heir would become personally liable to pay any debts that existed which exceeded the available assets. In other words, the heirs will become personally liable to pay such debts out of their own pocket. Having an accurate inventory therefore allows the heirs to know if the assets are not enough to pay all the debts and, therefore, refuse the inheritance. The creditors will then be paid only out of the available assets and will, unfortunately for them, lose the balance unpaid as there will be no heir willing to personally guaranty the payment of the debts.
On the other hand, an accurate inventory which shows that the assets greatly exceed the debts permits the heirs to accept their inheritance knowing that there are assets to be distributed and their wealth will be increased by accepting the surplus assets. But this can only be accomplished by a diligent liquidator who prepares a complete and accurate inventory of all assets and debts of the estate.
The liquidator is entitled to reimbursement for all expenses incurred in the fulfilment of the office of liquidator. In certain cases he may also be entitled to payment for services rendered, if the law so allows or if there is an agreement to that effect, or is so stipulated by the will.
In all cases, however, the liquidator must always act for the benefit of the estate and never for his own benefit. He is there to represent the wishes of the deceased and to promote the patrimony for which he has responsibility. He must continue to fulfill this duty until such time as the debts are paid and the assets are distributed, and that he has been lawfully relieved of his responsibilities by having completed his duties.
He must never act other than for the benefit of the estate, even if he is entitled to and receives payment for services rendered.
Ordinarily, the liquidator will be the only person entitled to deal with the assets and money belonging to the estate. Typically, an estate account will be opened and the liquidator will be the sole person authorized to make withdrawals and sign cheques. He will also have to receive money and assets on behalf of the estate, all of which must be deposited to the estate accounts.
The liquidator should never, under any circumstances, make cheques payable to his own name, unless he can demonstrate that he has provided useful and/or necessary services to the estate or he has provided goods to the estate at their fair market value. He should not, as a rule of common sense, be making cash withdrawals, whether at the bank counter or an automated teller, because cash withdrawals become much more difficult to track as to their use and purpose.
The liquidator has the obligation to keep detailed accounts of all expenditures and revenues of the estate, and to keep receipts. Detailed accounts allow the heirs and other interested persons to verify the incomes, expenses, assets and debts of the estate and to assure themselves that the liquidator has been acting in the best interest of the estate.
The duty to act in the best interest of the estate also includes the duty to invest the estate funds in safe, revenue-generating investments so that they will be preserved and increased until such time as they will be distributed to the heirs.
The liquidator does not have the right to take money from the estate for his own benefit, even if he is an heir, until such time as the distribution is made to the heirs.
Should the liquidator proceed contrary to the law or to the best interest of the estate and the heirs, or if his administration is deficient or his accounts are not sufficiently detailed to allow proper verification of the administration and, in particular, to verify that the debts have been paid and that the heirs have received what they are entitled to have received, then the liquidator runs the very real risk that he will be personally liable to reimburse the estate for any deficit that it will have incurred due to his faulty administration of the estate.
In simple terms, any liquidator who deals with the estate’s money or property as if it belongs to him runs the risk of being sued for hundreds of thousands or millions dollars to be paid to the heirs to make sure they get what they are entitled to have.
It is therefore crucial that anyone named as the liquidator to an estate always act according to the terms of the will and the law, in the best interest of the estate, as a prudent administrator to make sure that the heirs are paid what the deceased wished them to be paid. While the liquidator has the obligation to look after the assets as if they were his own, he must never act as if the money belongs to him or can be used for his own benefit. The liquidator has the absolute obligation to act only and always to benefit the estate and the heirs of the deceased. He is put in a position of trust and he has a fiduciary relationship to the heirs and the estate, which requires that he observe the highest standard of conduct.
Franco Tamburro, Attorney-at-Law
Alepin Gauthier Avocats Inc.