Very often a parent appoints the favourite child to manage the parent’s property (“power of attorney”) or be the executor under the parent’s will. Perhaps the child is honest but has no idea what obligations are involved with being an attorney for property or as an executor and fails to keep proper records. Perhaps that child is very dishonest and the lack of records is simply his way to hide the improper use of his parent’s money. So what typically happens?
The power of attorney or executor may put his money together with his parent’s money (intermingling). Caregivers may be paid cash and there are no receipts. Expenses (both appropriate and inappropriate) may be incurred and no records are kept. All of the above scenarios, which may be very innocent, are problematic.
There is both a common law and legislative duty to keep accounts of all transactions involving the parent’s property by the attorney for property (FN1) and the executor (FN2) if called upon by those with a financial interest to pass those accounts. What this means is that The Executor/Attorney for Property prepares his records in a form acceptable to the court and a judge approves of the accounts.
Based on my experience in this area it seems as if the strict obligation to keep proper records is often “honoured in the breach”. People sometimes just do not keep proper records. So in the scenario I raised above let’s assume this favourite son is unfamiliar with the fiduciary duty (F3) to keep proper records and to show his records, if asked, to people with a financial interest in his mother’s affairs. So what happens if – like in many cases – the son has no records and cannot show where he spent mom’s money? The court’s often will draw on adverse inference and assume the son has used the money for his own purposes and not for his mother’s benefit.
In Zimmerman v. McMichael Estate (FN4) Justice Strathy provides a wonderful summary of the obligations to account and the risks for not doing so. It is worthwhile for anyone interested in this area of law to review this case. In part, His Honour explains,
- A trustee (FN4) must keep a complete record of his/her activities and be in a position at all times to prove that he/she administered the trust prudently and honestly. He/she must have the accounts ready and give full information.
- A trustee must make a proper accounting as a condition precedent to being awarded compensation.
- An adverse inference (FN5) may be drawn if the trustee fails to retain receipts supporting substantial cash withdrawals or expenses charged against the incapable person’s property and that attorney will be held personally liable for the unsubstantiated withdrawals. (FN 6).
The bottom line is that those people who take on the responsibility of being a power of attorney and or an executor should familiarize themselves with the obligations flowing from that position. Some good sites to look at to start your research are listed below in the footnotes. As well, I suggest you see the following:
- Executorship: A Guide for Those Called Upon to Act as an Estate Trustee published by the Certified General Accounts of Ontario http://www.cga-ontario.org/assets/file/publication_executorship.pdf
- Objections to Accounts http://www.estatelawcanada.ca/category/passing-of-accounts-and-executors-fees/
- Elder Abuse in Ontario http://www.estatelawcanada.ca/category/court-appointed-guardians-of-property-and-of-person/
- Put Your Own Interests Aside – Poa http://www.cbwagnerlaw.com/articles/aside-interests.php
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FN1 Someone who is appointed as an attorney for property has a duty to keep proper records which includes a duty to obtain and keep receipts. In Ontario that common law duty has been codified under the Substitute Decisions Act, 1992, S.O. 1992, c. 30 ( see sections 32(6) Duties of guardian, Accounts; 33(1) Liability of guardian and 42; Passing of Accounts) as well as Accounts and Records of Attorneys and Guardians, O. Reg. 100/96
FN2. The RULES OF CIVIL PROCEDURE – R.R.O. 1990, Reg. 194 outlines how the accounts should be prepared. Please see Rules 74.15 and 74.16. Also see section 39 of the Estates Act and section 23(1) of the Trustee Act, R.S.O. 1990, c. T.23. As well the LSUC has a very useful site indicating steps to be taken to pass accounts at http://rc.lsuc.on.ca/jsp/ht/passingAccounts.jsp#s9
FN3. A fiduciary duty describes a special obligation of a person placed in a position of responsibility or trust in which that person manages the assets or property of another person. For example, a power of attorney and executor are both at common law and by statute viewed as fiduciaries. So a person who is appointed as power of attorney has an obligation to act honestly, in good faith and strictly in the best interests of the person who granted that power of attorney. The same is true for an executor who must act strictly in the best interests of the estate. Please see 32(1) of the Substitute Decisions Act, 1992, S.O. 1992, c. 30
FN4. A Trustee includes an executor under a will and these obligations apply equally to a power of attorney.
FN5 Justice Strathy did not use the words “adverse inference”. This phrase is my own based on his comments in paragraph 35 of the case.
FN6 This can be found on line at http://www.canlii.org/en/on/onsc/doc/2010/2010onsc2947/2010onsc2947.pdf . In paragraph 35 of his endorsement Justice Strathy refers to a number of cases to support his proposition including Lanthier v. Dufresne Estate, [2002] O.J. No 3397, [2002] O.T.C. 671 (S.C.J.) at paras. 52-57; Re Ronson, [2000] O.J. No 1294 (S.C.J.) at paras. 15-20.