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Estate Accounting Issues

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An Attorney’s Duty to Account

As the median age of Canadians gets older, the appointment of an attorney for property for the purpose of planning for incapacity is becoming increasingly important.  Most people know that it is important to consult a lawyer if they are appointed to be an executor under a will. It is less commonly known that acting as an attorney for property also attracts legal responsibilities and liabilities and that it is often a good idea to obtain legal advice prior to acting as an attorney.

The grantor, (the person who made the power of attorney document) and the attorney (the person named in the power of attorney document) have a fiduciary relationship. The attorney owes the grantor certain duties and responsibilities. At common law, it has been established that the attorney has a duty to account to the grantor. When the grantor becomes incapable, the nature of the relationship and the obligations owed to the grantor change. The attorney must act in the best interests of the incapable person. Ontario’s Substitute Decisions Act (the “SDA”) requires an attorney for property to perform his or her powers and duties diligently, with honesty and integrity (ss. 32-38).

An attorney should keep records of all transactions made with the grantor’s property and may be called on to account for his or her actions to the court.  Depending on whether or not the attorney is compensated for acting, there are two standards of care that might be applied: an attorney who does not claim compensation is held to the standard that a person of ordinary prudence would exercise in conducting his or her own affairs, whereas an attorney who receives compensation is held to a higher standard, being that of someone in the business of managing the property of others.

The attorney, the grantor, the grantor’s dependants, the grantor’s attorney for personal care, the Public Guardian and Trustee, the Children’s Lawyer (in certain circumstances), or anyone else with leave of the court, may seek to compel the attorney to pass accounts. This “passing of accounts” is an audit by the court, similar to an audit by the CRA. The attorney’s records must be sufficient for a judge to assess the work of the attorney on behalf of the incapable person, to ensure that he or she is fulfilling the duties of an attorney properly and faithfully.

A passing of accounts is a court proceeding. Accordingly, when applying to pass accounts,  it is advisable that an attorney obtain assistance from a lawyer in preparing accounts in the proper format, responding to any objections that may be raised, and representing the attorney in court.

If no objections are raised by anyone served with the application to pass accounts, judgment approving the accounts may be obtained without the need for a hearing.

The next step is otherwise typically to seek an Order Giving Directions, which sets out the relevant legal issues and sets out the timing of the next steps of the litigation, which will often include replies to objections, examinations, mediation, and failing settlement at an earlier stage, a trial.

The obligation of maintaining fiduciary accounts places an added burden on attorneys for property, in recognition that the fiduciary is managing property belonging to an incapable person who may be vulnerable and be in need of this extra layer of protection. A court can and will exercise its discretion to punish an attorney for mishandling the money in a way that is inconsistent with the incapable’s best interests.

As greater numbers of individuals become authorized to act as attorneys for property, it is important that both the grantors and the attorneys understand what is expected and what may be legally required of the fiduciary. Attorneys are entrusted with a great deal of authority with regard to the affairs of the vulnerable, and will be held to a high standard, even if unaware of their corresponding duties and responsibilities. They should consider consulting a lawyer for a complete explanation of their obligations prior to taking on the role of attorney for property.

 

Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.

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