The most common question from civil law jurisdictions: avoiding responsibility for debts

In a civil law succession, the beneficiaries become the legal owners of the assets at the moment of death. In addition, they may also be responsible, in some circumstances, for all the liabilities. The details may vary between specific civil law jurisdictions. In some, a formal inventory of the assets and liabilities of the succession is conducted, usually by a notary. If the succession is insolvent, they will then sign a formal renunciation of any interest. In the Province of Quebec, full responsibility for debts will be triggered if the heirs liquidate the estate without respecting the rules (article 779 C.c.Q.) or co-mingle the estate assets with their own prior to the inventory (article 801 C.c.Q.)
In my experience, there is a universally automatic reluctance of heirs in a civil law jurisdiction to show any sign of interest in an estate until they are certain that the estate is solvent. The heirs also tend to expect to receive a formal and detailed inventory from an Ontario Estate Trustee, but we here are not accustomed to providing such detail to persons who may or may not be beneficiaries, especially at the early stage of an administration.

Let me explain.

In Ontario, as in most common law jurisdictions, the ‘estate’ is a separate legal entity and it is managed by a person or trust company on behalf of the eventual beneficiaries. This person or trust company is called the Estate Trustee.
It is the Estate Trustee’s duty to search for the deceased’s debts, through advertisements and document review, and to pay them in accordance with the law. The net value of the estate is then transferred to the beneficiaries. In addition, simply providing documentation to an Estate Trustee to confirm their identity and connection to the deceased is not equivalent to a formal ‘acceptance of the succession’ and does not in any way make the beneficiaries responsible for the debts of an Ontario estate.

If the debts (including expenses of administration) are larger than the assets, then the assets are paid either by order of legal priority or if of equal rank, then on a ‘pro rata’ basis. If any debts become known after all proper and prudent steps have been taken by the Estate Trustee and money has been paid to the beneficiaries, it is the creditor’s responsibility to chase after the money. Under Ontario law, the beneficiaries are not responsible for unpaid debts unless they received estate assets before the debts were properly handled and paid. In addition, the beneficiaries are only responsible up to the amount that they received from the estate.

If the Ontario Estate Trustee acts prudently and competently (especially if a bond of administration has been obtained), the risk of creditors’ claims against heirs in a foreign jurisdiction is very low. In my experience, Canadian creditors will be reluctant to chase after debts when they have been late in making their claim known, the Estate Trustee acted properly, the value of the assets (or the debt) is relatively low, and especially when estate assets have been paid to beneficiaries outside Canada or the USA. The debt simply becomes a loss to the creditor, often tax deductible.