The Civil Code of Quebec requires the appointment of at least one trustee, who is not a beneficiary and is independent.
The testamentary trust is a vehicle that allows a person to leave their assets to a first beneficiary (usually their spouse), while ensuring that upon the death of the first beneficiary, the residue is transferred to designated beneficiary(-ies) (usually their children).
A testator, after drafting their will according to the legal scheme described above, appoints as trustees (the persons who administer the trust) their spouse and two children, contrary to the rules set out in the Quebec Civil Code which require the appointment of at least one trustee who is not a beneficiary and independent.
One of the children, facing financial difficulties, obtains the consensus of the other trustees for the testamentary trust, created upon their father's death, to mortgage their portfolio of securities to secure one of their loans. One year passes and, failing to be repaid, the creditor turns to the Court* to demand that the testamentary trust liquidate its portfolio and reimburse the amounts owed. The court, despite "the sympathy that the creditor may elicit," declares the mortgage deed, signed by the trustees who are all beneficiaries of the testamentary trust, null and void, stating that this deed cannot even be ratified by the two new trustees, who were appointed in the meantime, because it is "tainted with absolute nullity."
The court concludes that the only solution available is the signing of a new mortgage deed, while suggesting considering possible recourse against the professionals involved in the preparation of the deeds.
Thus, the testamentary trust, which is intended to be a utility vehicle, is not an all-terrain vehicle.
*C.S. 200-17-015821-127
