The concept of accounting is enough to scare off many individuals, with its perceived involvement of advanced calculations using complex numbers and formulas. Some wish to leave math behind as early in life as possible and the thought of being obligated to maintain accounts for court approval can be daunting.
Individuals appointed pursuant to a power of attorney or will may be surprised that one of their key obligations is that an accounting of all transactions be maintained throughout the course of acting within their appointed role. The majority of individuals appointed as attorneys for property and estate trustees, however, do not have experience with accounting.
When an individual begins acting in his or her capacity as an estate trustee, a lawyer is frequently consulted. However, where an individual is instead acting as an attorney for an incapable person, legal advice is less frequently obtained. Much of the population remains unaware that as an attorney for property and/or for personal care, you have legal obligations that include maintaining a full accounting of all decisions or transactions completed on the incapable person's behalf.
When appointing an attorney for property or personal care, it may be wise to request that they obtain legal advice with respect to its use to the grantor's benefit, when effective. Legal advice may come at a cost, but that expense is relatively miniscule in comparison to litigation that may be caused by the misuse or abuse of a power of attorney, including a contested application to pass accounts. Fiduciaries owe a duty of utmost good faith to the incapable person or estate. All actions must be in accordance with a duty of loyalty and records must be maintained.
The law requires that accounts resemble a general ledger, in which every single transaction is tracked. All money being accepted or paid on behalf of the incapable person or estate must be accounted for, or the attorney or trustee may incur personal liability. An accounting should be in a format such that, in the case of an application to pass accounts, a judge can assess or, where an informal accounting has been requested, beneficiaries can assess the transactions made on behalf of an incapable person or estate to ensure that the authorized individuals are acting faithfully and properly.
The primary difference between estate or attorney accounting and traditional accounting is that the money that is being spent does not belong to the person who is authorized to manage it. Estate trustees and attorneys owe a fiduciary duty to the estate or the incapable person to make transactions only in their best interests. For that reason, more detail is required than with respect to the preparation of a personal accounting. Hiring an accountant to assist with this time-intensive task may add unnecessary expense, and bring with it the issue of whether the attorney or the incapable person should be the one to cover the cost of preparing accounts.
In a litigious environment, an application to pass accounts is likely to be followed by litigation challenging the completeness and/or appropriateness of the accounts. The first step is typically a Notice of Objection by a person objecting to the accounting produced, and may be followed by all aspects common to litigation in other contexts, with the potential of becoming extremely costly and time-consuming. The court may exercise its authority to punish maladministration of the estate of an incapable or deceased person by awarding damages or issuing a falsification order. However, when there has been no improper behaviour by the attorney or trustee, the maintenance of proper accounts can prevent or simplify any proceedings with respect to accounting.
The transactions completed pursuant to a power of attorney are often unchallenged until after the death of the incapable person. When issues arise with respect to the administration of that person's estate, its depletion through the actions of an attorney for property may be questioned.
Regardless of whether an individual is properly informed, as an attorney for property or estate trustee, obligations with respect to the attorneyship or trusteeship will be imposed. The primary objective of lawyers assisting attorneys or estate trustees should be to equip clients with the tools that they require to fulfill all duties in respect of the incapable person or estate, including satisfying accounting requirements.
*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.