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Duty to Account, adverse inference, and disentitlement to compensation

A case review of Zimmerman v. McMichael Estate

In this very short video lawyers discuss the executor’s duty to account and a seminal case where a judge refused to award any compensation and drew an adverse inference because the executor failed to provide an honest accounting.

This video depicts actual Lawyers from Wagner Sidlofsky LLP discussing legal principles, statutes and case law in an educational presentation.  The story used as a platform for the discussion and persons portrayed as potential or actual clients are fictitious. Other than our firm’s lawyers, any resemblance to real persons or real client stories is coincidental and is not intended and should not be inferred.

Transcript

Mady: Good morning Charles.

Charles: Good morning Mady Kinnear.

Mady: I’m just letting you know that I have booked an appointment with a potential client, she’s the executor of a large estate and she has advised me that the beneficiaries have started an application to compel her to pass account. She’s really nervous because she has not kept records of all the accounting. Is there anything we can do for her?

Charles: Absolutely. Let’s gather the guys together, let’s talk to them about the case and then we’ll prepare for tomorrow’s meeting. Good morning guys, Mady came in with an issue regarding an accounting and I thought it would be a good idea to review Zimmerman v. McMichael Estate, which is a seminal case in the area. Can anybody go through the facts?

James: Sure I can jump in.

Charles: Go ahead.

James: The McMichael case is about Robert and Signe McMichael, they were two wealthy Canadians who founded the McMichael Canadian Art Collection and it’s based in Kleinburg, Ontario. Now Robert and Signe made mirror wills, in which, upon their deaths, they left everything to each other, and upon the last survivor dying, everything to the McMichael Art Collection. Now when Robert passed, Signe inherited approximately $5 million, but unfortunately her health began to decline shortly afterwards. She appointed Mr. Zimmerman as her attorney for her property.

Charles: He was a lawyer, right?

James: He was also a lawyer, correct. Now, things began to go a bit downhill from here. Mr. Zimmerman set up a trust and he transferred almost all of Signe’s assets into that trust using his power of attorney. He also kept terrible records and pre-took a lot of compensation, over $400,000 in fact.

Charles: Well that was his characterization, but there was basically $400,000 missing with no vouchers, right?

James: That’s how he categorized it, yeah.

Charles: Okay so bottom line, what did the judge say?

Peter: Well the judge, Justice Strathy, ultimately ordered Zimmerman to pay over $400,000 back, it was found that he pre-took compensation, he took personal loans, his conduct was egregious, he took everything from, you know, small withdrawals from an ATM machine to paying for limousines, hotels, he bought his wife a sailboat and went to the Caribbean and took $150,000 from the trust during that time.

Charles: So for the executor, who we’re advising, what are the legal takeaways, what are the conclusions?

Peter: Okay, so there is really three main lessons to take away from the Zimmerman case as well as a case called Assaf when we are talking about the duties of a trustee with respect to accounting. Number one, there’s a fundamental duty to accounts. This means that as a trustee or other fiduciary you have to keep your accounts you have to keep them ready on demand. Number two, keep your receipts. You have to have your receipts especially for any substantial withdrawals. If you don’t, the court may actually make an adverse inference against you and hold you personally liable. And number three, a proper accounting is actually a precondition to getting compensation. So you have to do a proper accounting, keeping in mind however that it is going to be a high level of dishonesty for you to actually be disentitled to compensation. This is what happened with Mr. Zimmerman. The fact of this case were particularly egregious and that is why the court decided to precluded him from getting any compensation at all. So those are really the three main takeaways when it comes to fiduciaries and their duties with respect to an accounting.

Charles: Excellent. The one caveat I want to tell everybody is that a three minute review of a case is no replacement for a thorough review and analysis of the law when the time comes.

 

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This blog is not intended to serve as a comprehensive treatment of the topic. It is not meant to be legal advice. Every case turns on its specific facts and it would be a mistake for the reader of this blog to conclude how it might impact on the reader’s case. Nothing replaces retaining a qualified, competent lawyer, well versed in this niche area of practice and getting some good legal advice.
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