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What? I need to keep receipts? The harsh reality that awaits the fiduciary who fails to account.

An attorney for property (“POA”) risks personal liability for failing to keep records.  Given the heightened level of responsibility, judges may draw an adverse inference when the POA does not produce proper records. This video reviews a case where the judge made the attorney give back almost 1/2 Million dollars.

Transcript

A fiduciary relationship occurs where one person exercises significant authority or discretion over another, usually a vulnerable person. In the case of Zimmerman against McMichael estate, Mr. Justice Strathy explained the concept and held that a trustee has four principal fiduciary duties.

  • First to carry out the terms of the trust with honesty and due care and attention.
  • Second to personally carry out the responsibilities entrusted to him or her and not to delegate those responsibilities.
  • Third to ensure that his own interests do not conflict in any way with his duty to the beneficiaries that he serves.
  • And fourth to keep proper records demonstrating that all expenses were properly incurred.

1964 Robert and Signe McMichael donated their art collection, a national treasure, to the Province of Ontario. Mr. McMichael died in 2003 and his assets were inherited by his wife.

After her husband’s death, Mrs. McMichael signed a power of attorney appointing her friend and lawyer as her sole attorney for property.

In early 2004, a trust was prepared appointing that same lawyer as the trustee. He then transferred virtually all of Mrs. McMichael’s assets, including the art collection, into that trust so that there was virtually nothing left in her estate. Mrs. McMichael’s lawyer was now in full control of all of her assets.

Mrs. McMichael later died, and in her will, she left everything to her niece, but there was virtually nothing in her estate.

The niece wanted to know where all her aunt’s money and assets were. She obtained a court order directing the trustee to pass his accounts. When passing his accounts, however, the trustee could not or would not provide proper explanations about how he spent the money in the trust.

In making a decision, the judge made several key points:

Only exceptional misconduct should deprive the trustee of the right to claim remuneration for his services. That is, although a fiduciary may be guilty of neglect or misconducting himself in some way, such acts, if not dishonest, do not deprive the trustee of the right to compensation, although they might influence the amount of compensation allowed.

In the McMichael case, the conduct in question reached that level of exceptional misconduct where the trustee’s right to compensation was in question because he failed to explain how he managed the property and the trust. And it should be noted that the trustee angered the court because he failed to respond adequately to appropriate objections to his accounts.

Accordingly, Justice Strathy drew an adverse inference from his failure to answer legitimate objections and said: “An attorney who fails to retain receipts supporting substantial cash withdrawals or expenses charged against an incapable person’s property has not adequately carried out his or her duties and will be held personally liable for the unsubstantiated withdrawals”.

My name is David Friedman. I’m a professor in the Faculty of Law at Queen’s University and Counsel to the firm of Wagner Sidlofsky. Both in my teaching and in my practice, I often deal with issues relating trustees and their duty to account. This short video doesn’t do this topic or this case justice, but it’s a useful tool to highlight some of the issues. If you have any questions concerning the conduct of fiduciaries like executors, trustees or attorneys, please get in touch and I’d be more than happy to help. For more on this topic, please visit our website https://www.wagnersidlofsky.com/.

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Professor C. David Freedman

David Freedman LLB, MA, PhD, TEP is Counsel to our firm.

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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