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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.

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: So, bottom line, really there’s three things the executor has to know, and this is based on the Zimmerman case and also a case called Assaf. Number one, as an executor, you need to produce your accounts at any time, you have to be ready to produce your accounts. There’s a fundamental duty to account. Number two, you have to have your receipts for each expenditure ready. If you don’t, there may be an adverse inference found against you by the court. And number three, you may actually be dis-entitled to compensation if you don’t act honestly, so you have to act honestly. Those are really the three main duties of an executor.

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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