[Updated On October 29, 2019]
Very often a parent appoints the favourite child to manage the parent’s property (“attorney for property”) or be the executor under the parent’s will. Perhaps the child is honest but has no idea what obligations are involved with being an attorney for property or as an executor and fails to keep proper records. Perhaps that child is very dishonest and the lack of records is simply his way to hide the improper use of his parent’s money. So what typically happens?
The attorney for property or executor may put his money together with his parent’s money (intermingling). Caregivers may be paid cash and there are no receipts. Expenses (both appropriate and inappropriate) may be incurred and no records are kept. All of the above scenarios, which may be very innocent, are problematic.
There is both a common law and legislative duty to keep accounts of all transactions involving the parent’s property by the attorney for property1 and the executor2 if called upon by those with a financial interest to pass those accounts. What this means is that the executor/attorney for property prepares his/her records in a form acceptable to the court and a judge approves of the accounts.
Based on my experience in this area it seems as if the strict obligation to keep proper records is often “more honor’d in the breach than the observance”.3 People sometimes just do not keep proper records. So in the scenario I raised above let’s assume this favourite son is unfamiliar with the fiduciary duty4 to keep proper records and to show his records, if asked, to people with a financial interest in his mother’s affairs. So what happens if – like in many cases – the son has no records and cannot show where he spent mom’s money? The court’s often will draw on adverse inference and assume the son has used the money for his own purposes and not for his mother’s benefit. Will the executor or attorney for property be called upon to pay that money? How does the failure to keep vouchers or provide an accounting impact on the compensation paid to an executor or attorney for property?
In Zimmerman v. McMichael Estate 5 Justice Strathy provides a wonderful summary of the obligations to account and the risks for not doing so. It is worthwhile for anyone interested in this area of law to review this case. In part, His Honour explains,
1. A trustee has an obligation to keep proper accounts. A trustee must keep a complete record of his/her activities and be in a position at all times to prove that he/she administered the trust prudently and honestly. He/she must have the accounts ready and give full information whenever required:6 His Honour compares the obligation of a trustee to that of an attorney under the Substitute Decisions Act and its regulations. He notes,
“Section 6(1) of that regulation provides that an attorney shall retain the accounts and records required by the regulation until he/she ceases to have authority and the attorney is discharged by the court on a passing of accounts under s. 42 of the SDA”7
From the decision I might infer that this obligation applies equally to trustees in the context of an estate. However, I refer the reader to Hipel Estate, Re 2011 CarswellOnt 9000, 2011 ONSC 5259, 70 E.T.R. (3d) 149 at paragraph 38 the court accepted the proposition that while there is a common law obligation to keep records for some period of time, the common law does not impose that obligation in perpetuity. In this case the estate trustee could not be faulted for not having kept records for 27 years. The open question is how long is too long?8
2. A trustee must make a proper accounting as a condition precedent to being awarded compensation. Without a proper accounting, the court is unable to assess the conduct of the fiduciary and to determine the compensation to which he or she is entitled. Where a trustee is found to have failed to keep proper accounts and to have been grossly indifferent to his/her fiduciary obligations, he/she may be disentitled to compensation.9 When I first read this portion of the judgment I thought of all the less than “proper accountings” I have had the pleasure to review where the trustees ended up still receiving compensation. In my view, this stems for a recognition by the courts that short of being a thief an executor or attorney for property still deserves something for their work. In Zimmerman, the court balanced it’s comments of disentitlement to compensation by citing the text Macdonell, Sheard and Hull which says,
“… only exceptional misconduct should deprive him or her of the right to remuneration. In general although an executor may be guilty of neglect or defaults these, if not dishonest, and capable of being made good in money, do not deprive the executor of the right to compensation although they may influence the amount allowed”.
3. An adverse inference10 may be drawn if the trustee fails to retain receipts supporting substantial cash withdrawals or expenses charged against the incapable person’s property and that attorney will be held personally liable for the unsubstantiated withdrawals. 11. I also refer the reader to Sitko v. Gauthier (Estate), 2014 ONSC 5671 (CanLII) http://canlii.ca/t/gdrjr . In this case the attorney for property failed to keep proper accounts, he mishandled the financial relationship with the Hospital, messed up on the sale of the incapable person’s home and used some of the incapable person’s money for himself. The judge found that the incapable person’s financial situation was not impacted negatively by anything the attorney for property did because, in part, the incapable person did not have a lot of money to start with. Notwithstanding the idea that failure to keep accounts results in a disentitlement to compensation the court decided that the attorney for property was entitled to some compensation for his efforts.]
The bottom line is that those people who take on the responsibility of being an attorney for property and or an executor should familiarize themselves with the obligations flowing from that position. Some good sites to look at to start your research are listed below in the footnotes. As well, I suggest you see the following:
- Executorship: A Guide for Those Called Upon to Act as an Estate Trustee published by the Certified General Accounts of Ontario
- Objections to Accounts
- Elder Abuse in Ontario
- Put Your Own Interests Aside – POA
- Someone who is appointed as an attorney for property has a duty to keep proper records which includes a duty to obtain and keep receipts. In Ontario that common law duty has been codified under the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (see sections 32(6) Duties of guardian, Accounts; 33(1) Liability of guardian and 42; Passing of Accounts) as well as Accounts and Records of Attorneys and Guardians, O. Reg. 100/96. In paragraph 31 & 32 of his Zimmerman Justice Strathy stated,
A trustee has an obligation to keep proper accounts. A trustee must keep a complete record of his/her activities and be in a position at all times to prove that he/she administered the trust prudently and honestly. He/she must have the accounts ready and give full information whenever required: Carmen S. Thériault, Widdifield on Executors and Trustees, 6th ed. (Scarborough, Ont.: Carswell, 2002) at p. 13-1; Waters’ Law of Trusts in Canada, above, at p. 1063; Sandford v. Porter, (1889) O.J. No. 43, 16 O.A.R. 565 (C.A.).
(32) An attorney for property has the same obligations. An attorney must, in accordance with the regulations established pursuant to the SDA, keep accounts of all transactions involving the grantor’s property: s. 32(6). Section 2(1) of O. Reg. 100/96 relating to the SDA provides that the accounts maintained by an attorney shall include, among other things:
2(1) . . . (a) a list of the incapable person’s assets as of the date of the first transaction by the attorney or guardian on the incapable person’s behalf . . .;
(b) an ongoing list of assets acquired and disposed of on behalf of the incapable person, including the date of and reason for the acquisition or disposition and from or to whom the asset is acquired or disposed;
(c) an ongoing list of all money received on behalf of the incapable person, including the amount, date, from whom it was received, the reason for the payment and the particulars of the accounts into which it was deposited;
(d) an ongoing list of all money paid out on behalf of the incapable person, including the amount, date purpose of the payment and to whom it was paid; (and) (page36)
. . . . .
(h) an ongoing list of all compensation taken by the attorney or guardian, if any, including the amount, date and method of calculation. ↵
- The RULES OF CIVIL PROCEDURE – R.R.O. 1990, Reg. 194 outlines how the accounts should be prepared. Please see Rules 74.15 and 74.16. Also see section 39 of the Estates Act and section 23(1) of the Trustee Act, R.S.O. 1990, c. T.23. As well the LSUC has a very useful site indicating steps to be taken to pass accounts at http://rc.lsuc.on.ca/jsp/ht/passingAccounts.jsp#s9 ↵
- Hamlet Act 1, scene 4, 7–16. ↵
- A fiduciary duty describes a special obligation of a person placed in a position of responsibility or trust in which that person manages the assets or property of another person. For example, an attorney for property and executor are both at common law and by statute viewed as fiduciaries. So a person who is appointed an attorney for property has an obligation to act honestly, in good faith and strictly in the best interests of the person who granted that power of attorney. The same is true for an executor who must act strictly in the best interests of the estate. Please see 32(1) of the Substitute Decisions Act, 1992, S.O. 1992, c. 30. ↵
- Zimmerman v. McMichael Estate, 2010 ONSC 2947 (CanLII), which is available on line at http://canlii.ca/t/29vpj . ↵
- See paragraph 31 of Zimmerman. In that paragraph he bases his conclusion on Carmen S. Thériault, Widdifield on Executors and Trustees, 6th ed. (Scarborough, Ont.: Carswell, 2002) at p. 13-1; Waters’ Law of Trusts in Canada, above, at p. 1063 and Sandford v. Porter, (1889) O.J. No. 43, 16 O.A.R. 565 (C.A.). ↵
- See paragraph 33 of Zimmerman. ↵
- For some more detailed dealings with this issue I refer the reader to Kimberly Whaley’s article, “Fiduciary Accounts And Court Passings” which can be accessed on line at http://whaleyestatelitigation.com/resources/WEL_Passing_of_Fiduciary_Accounts_Revised_Feb_2012.pdf and Justin De Vries’ blog at http://www.devrieslitigation.com/resources/passing_of_accounts.html. ↵
- See paragraph 34 of Zimmerman. To support his conclusion Justice Strathy refers to Widdifield on Executors and Trustees, above, at p. 13-7; Gibson (Re), (1930) M.J. No. 34, (1931) 1 D.L.R. 159 (C.A.); Picov Estate (Re), (2000) O.J. No. 682 (S.C.J.). I also refer the reader to Re Assaf estate where the court cited the text Macdonell, Sheard and Hull which says, “… only exceptional misconduct should deprive him or her of the right to remuneration. In general although an executor may be guilty of neglect or defaults these, if not dishonest, and capable of being made good in money, do not deprive the executor of the right to compensation although they may influence the amount allowed”. ↵
- Justice Strathy did not use the words “adverse inference”. This phrase is my own based on his comments in paragraph 36 of the case. ↵
- See paragraph 36 of Zimmerman. His Honour refers to the following to support his conclusion; O.J. No 3397, (2002) O.T.C. 671 (S.C.J.) at paras. 52-57; Re Ronson, (2000) O.J. No 1294 (S.C.J.) at paras. 15-20. ↵