Yes. Tax obligations must be taken into account before concluding that an estate has sufficient assets to pay off all of its debts and make distributions to the heirs.
At the time of death, certain sums may already be owed to the tax authorities. Other tax obligations may also arise from the deceased's income, assets they owned, or the tax consequences of their death.
It is also necessary to take into account that the estate itself may generate income during its liquidation and be subject to its own tax obligations.
To properly assess the solvency of the estate, the liquidator must therefore take into account, depending on the circumstances:
The final amount of taxes is not always known at the start of the liquidation process. The liquidator must therefore exercise caution and, where necessary, set aside sufficient funds to cover known or reasonably foreseeable tax obligations before distributing the assets to the heirs.
Before distributing the estate's assets, the liquidator must also consider the requirements of Revenu Québec and the Canada Revenue Agency (CRA) regarding tax certificates authorizing the distribution or allowing the holder to obtain a discharge of liability.
Failure to comply with these requirements may, in certain circumstances, give rise to the liquidator's personal liability for unpaid tax amounts, up to the value of the distributed assets.
An estate that appears solvent when comparing only the value of its assets to immediately known debts may therefore turn out to be in deficit when all the tax obligations of the deceased and the estate are taken into consideration.