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Listen to Fiduciary Accounting

This week on Hull on Estates, Ian Hull and Suzana Popovic-Montag discuss fiduciary accounting. Who is a fiduciary and what is a fiduciary's duty to account? They cite several cases that illustrate  fiduciary accounting rules:

• Re Taerk, [1975] O.R. 482 (C.A.).
• Re Silver Estate, (1999) 31 E.T.R. (2nd) 256.
• Roger Estate v. Leung, [2001] O.J. No. 2171.
• Fair v. Campbell Estate, 2002 3 E.T.R. 3rd 67, Langdon J.
• Fareed v. Wood, 2005 WL 1460361 (Ont. S.C.J.).
• McAllister Estate v. Hudgin, 2008 CanLII 42213 (ON S.C.)

Comments? Send us an email at hull.lawyers@gmail.com, call us on the comment line at 206-350-6636, or leave us a comment on the Hull on Estates blog.

Fiduciary Accounting - Hull on Estates Podcast #129

Posted on September 23^rd, 2008 by Hull & Hull LLP

Ian Hull: Hi and welcome to Hull on Estates. You’re listening to Episode #129 of our podcast on Tuesday, September 23^rd, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.  Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.

Suzana Popovic-Montag: Hello there and welcome to Hull on Estates. I’m Suzana Popovic-Montag.

Ian Hull: And I’m Ian Hull.

Suzana Popovic-Montag: And we’re very happy to be back here on Hull on Estates.

Ian Hull: We sure are. We’re reminding our listeners, of course, as always, please give us feedback, and call in at 206-350-6636.

Suzana Popovic-Montag: And, of course, if you prefer, you can send us an e-mail at hull.lawyers@gmail.com, and I do refer you also to our blog which is estatelaw.hullandhull.com.

Ian Hull: So, Suzana, we are having the pleasure of doing a second take on this Hull on Estates because of technical difficulties, so this one will be absolutely perfect.

Suzana Popovic-Montag: Here’s hoping, that’s for sure.

Ian Hull: The joys of recording in the new age of technology.

Suzana Popovic-Montag: Now if only we could do that on our companion podcast, Hull on Estates and Succession Planning with the video component, Ian.

Ian Hull: No retakes. That’s right, don’t forget please to flip over to our other podcast which we do weekly, Suzana and I do it weekly, and it’s Hull on Estate and Succession Planning. We’re doing it with video streaming and YouTube streaming, as well, so you’ve got an audio or video component of that.  So we recommend that you and welcome you to take a look at that. Right now we’re in the depths of a discussion over Will challenges and what it means to the lay person and what’s involved. But today we wanted to talk about a different issue, and that issue is one of fiduciary accounting. One is, how far is the Court going to impose fiduciary accounting on us and who is the us?

Suzana Popovic-Montag: And I think this topic is actually quite a nice extension from the last Hull on Estate podcast that was done by Natalia Angelini and Chris Graham where they talked a little bit about a solicitor’s liability when dealing with Powers of Attorney and they sort of gave us a little bit of a segway into the whole attorney’s duty to account. 

Ian Hull: And really, it comes down to the question of, first of all, who is a fiduciary and we, as lawyers, are lumped into the fiduciary category easily, but there’s a broader group of fiduciaries that the Courts will impose an accounting obligation on, and that’s what we call the allied professionals.

Suzana Popovic-Montag: And when we talk about allied professionals, we’re speaking about individuals like the accountants who work with us with these financial planning situations, like the tax advisors, the insurance individuals and the financial planners who give advice and work with us and our clients in situations where we’re planning estates for our clients.

Ian Hull: So the question we wanted to raise today is the recent case law development, and talk a little bit about the history that has brought expanded, we think, the concept of the duty to account.  And first of all, let’s spend a minute on what the duty to account is. We’re talking about fiduciary accounting and it is an audit by the Court, much like an audit by CRA, the same kind of extensive review of your conduct. Now the CRA is a little different, obviously, but it is akin to it and it’s a formal audit before the Court.

Suzana Popovic-Montag: And that might be a little bit different than what people would normally be used to providing to their clients when they’re dealing with different industries other than necessarily ours. 

Ian Hull: So, let’s take the example of a dutiful family solicitor. She has looked after the Jones family for 20 years. Now the Jones family has transitioned over those years and the husband has passed away at the ripe old age of 92, and the surviving spouse at 88 is sort of left holding the bag financially. That surviving spouse then turns to her solicitor, her long-time solicitor, one whom she’s trusted for many years, and says to her, will you look after things; I don’t want to worry about paying hydro bills, I don’t want to worry about paying when my kids need money, I want you to deal with it, I want you essentially to be the one who looks after my money, because from an administrative standpoint, it’s too much of a headache. Not that I, I’m capable of doing it mentally, but I’m just administratively, I never did it before, my husband always did it and I’d just like you to look after it. That lawyer, whether he or she is acting under a fiduciary environment, may well be required to pass their accounts in a formal Court audit.

Now let’s take a few minutes and talk about why I have come to that conclusion. The first thing is this, there are sort of three components. One is the recent, relatively recent, but the developments that have arisen out of the statute law; the second is a discussion of the case law developments that I’m talking about; and the third is the reality of the social and legal trends that our society faces when they’re talking about imposing obligations on lawyers and fiduciaries.

Suzana Popovic-Montag: And if we turn to the first one of those, Ian, the statutes, we can start with Section 42 of the Substitute Decisions Act which is here in Ontario and I know the provinces across Canada have similar legislation as do other jurisdictions as well. And what this section specifically provides for is the fact that a Court may order, either an attorney and/or a Power of Attorney or a guardian, to pass their accounts, to prepare accounts either for the entire tenure or for a certain portion of the tenure time during which that individual was acting as a fiduciary. And the language in the statute is very discretionary and broad in that it can provide for the requirement that these accounts be prepared and timing and other limitations can be imposed on a fiduciary for that as well. 

Ian Hull: Okay. There are two other statutory considerations; that’s Section 49(3) of the Estates Act and the Rules of Civil Procedure, both of which tie into our general theme that the Courts have an expansive role, from a statutory standpoint, to impose a duty to account on almost just about everyone before you go into this. 

Now let’s just talk about, go through the case law review. We start with the case of Re Taerk. All of the cases we’re going to refer to will be in the show notes with the sites. But the Re Taerk decision, is a Court of Appeal decision in Ontario of 1975. And that decision starts us off on the basic proposition that as we understood the law and relatively recently understood the law, that a duty to account in a fiduciary accounting environment only arises as a result or consequence of that particular fiduciary, the recipient of this Power of Attorney actually signing a cheque or actually doing active duty, so to speak.

Suzana Popovic-Montag: And then one of the next cases that we sort of tend to turn to is the Re Silver decision which said, you know, yes you do have this duty to account, and the fact that probate hasn’t necessarily been obtained, doesn’t preclude you from being required to do so.

Ian Hull: The next case, the Leung Estate, is really a reiteration of the basic principles of fiduciary accounting and worth mentioning today, just so that we continue to emphasize the importance of what the different kind of accounting that’s going to be required of a fiduciary. 

Suzana Popovic-Montag: And just in terms of a quick recap, the requirements are, of course, that the attorney has to be prepared to prepare the accounts, they have to be kept distinct from their own individual accounts and separate accounts, they’ve got to maintain vouchers, prepare their accounts in actual Court format and disclose all transactions that have happened and particularly, transactions that may eventually somehow amount to perhaps a breach of trust as well.

Ian Hull: So the next case is the Fair and Campbell. And we’re doing this in a chronological order to come to the crescendo of the last two cases that I think really, Suzana and I are of the view that have really expanded this duty to account. Fair and Campbell essentially said that you’ve got to write the cheque before you have the duty to account. You have to actually be an attorney, do something. 

Now, the Fareed decision, it is a decision of the Ontario Court and it talks about the obligation, in this case a solicitor, who acted much like my earlier example, as the family solicitor, touched the financial affairs of the particular individual at a fairly high and intense level, i.e., paying the bills and things like that.  And the Court talks about the obligation on that solicitor that he had a duty to account for all transactions, once he assumes the duties. And this was all transactions, this wasn’t, it was a big departure from the test that you have to cut the cheque to be expected to have to account.

Suzana Popovic-Montag: And then that leads us, of course, to the McAllister decision, which is a recent decision from August of this year, where the Court said that a grantee did not have to keep accounts in this situation because the mom was, in fact, capable. 

Ian Hull: But what the Court said, and again, the Court seems to be flip-flopping on whether you have to sign the cheque or not sign the cheque.  But what the Court said was they will be expansive. In Fareed it was a different fact situation than in McAllister obviously. McAllister was between daughter and mother. But the Court said this, they will expand the obligation to account to a fiduciary, i.e., lawyers, allied professionals, financial advisors, under a two-prong test.

Suzana Popovic-Montag: And the first prong there being that the Court is going to look at the extent of the attorney’s involvement in dealing with the grantor’s money and their finances.

Ian Hull: So that comes back to how active are you paying the hydro bills, are you really involved with the finances, whether you are an attorney, per se or not, but are you actively involved?

Suzana Popovic-Montag: And the second is, has the applicant raised sufficient concern to the Court so that the grantor’s affairs would warrant an accounting? 

Ian Hull: So I call this the “smell test”. Does the conduct of, in that case the mother and daughter, pass the smell test? Is the Court going to look at this situation and say, you know what, this is a little fishy. I do want to have the chance to look at the books at a level that you may be surprised that I’m allowed to ask in that you thought you were acting on the old Re Taerk basis that, hey, if I don’t sign the cheque I don’t have to account.  Well the Court is saying you impose this and they will expand it, looking at this two-prong test.

Suzana Popovic-Montag: And so we do see, Ian, based both on the statute and the case law, the fact that in certain circumstances, the Court will impose these obligations even if we wouldn’t necessarily expect them and that’s by virtue of the broad language and I think, in many cases, the actual facts at issue.

Ian Hull: So we just want to keep our heads up and watch out so we don’t get faced with another possibility of another audit, and almost as painful an audit as a CRA audit would be, and that is an audit in the fiduciary environment.

Suzana Popovic-Montag: Well I think that brings us to the end of this podcast, Ian. I do remind our listeners to feel free to leave us a comment at 206-350-6636. 

Ian Hull: Or e-mail us at hull.lawyers@gmail.com. Thanks for listening.

This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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Accounting Procedure Available Under the Substitute Decisions Act - Hull on Estates Podcast #98

Posted on February 19^th, 2008 by Hull & Hull LLP

David Smith: Hello, welcome to Hull on Estates. You’re listening to Episode #98 in our continuing podcast series on Tuesday, February 19^th, 2008.

Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada.   Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and Wills.  Now, here are today’s hosts.

David Smith: Hello Rick.

Rick Bickhram: Hi Dave. How are you doing today?

David Smith: You know, I’m doing well, Rick. And, you know, today we’ve decided… its David Smith here and I’m with Rick Bickhram of my office.  And we’ve decided today, Rick, that what we’re going to podcast on is a bit of a potpourri but the focus is really going to be on the accounting procedure available under the Substitute Decisions Act. And in particular, how the obligation to account as an attorney is the same as or is different from the obligation to account as an executor, for instance. And then we thought we’d talk about the specific procedures under the Substitute Decisions Act that permit someone to compel an accounting. So Rick, let’s talk about this whole idea of accounting generally. What is it about an attorney that opens them up to the whole concept of a duty to account?

Rick Bickhram: That’s a good question, Dave. My understanding is that an attorney, by virtue of the fact that you’re an attorney, there’s a fiduciary relationship. And that fiduciary relationship is established by the fact that the attorney has the power to do what the incapable person or on behalf of the incapable person, anything that the incapable person would have been able to do had he or she been capable.

David Smith: You know, and that’s right, Rick. And certainly, when we’re talking about the Substitute Decisions Act, intuitively we’re thinking about someone substituting their decision-making role for that of someone who can’t otherwise exercise it. Of course, the Substitute Decisions Act also applies to people who are perfectly capable, but who voluntarily surrender their decision-making ability to someone in more of a principal/ agent relationship. But you’re quite right, it’s a fiduciary relationship and it’s clearly a fiduciary relationship when the grantor of the Power of Attorney is incapable, isn’t it?

Rick Bickhram: Absolutely. And I think it’s also important to note that the fiduciary in the fiduciary relationship, whether it be voluntary or involuntary, the attorney or a guardian in the situation would have the ability to manage the grantor’s or incapable person’s finances.

David Smith: And that’s where the duty to account comes in, isn’t it, Rick?

Rick Bickhram: Absolutely, Dave.

David Smith: Rick, when we talk about the form of accounts, obviously it’s beyond the ambit of our discussion today to talk about the form of accounts and the whole process of a passing of accounts which is clearly a subject matter for another podcast. But I think continuing on with this idea of the concept of a duty to account, what ties into that and what we really want to explore to some extent today is, how do we compel an accounting? And what does the Substitute Decisions Act say to the duty of an attorney to account, and what remedies are available to someone who wants to compel an accounting?

Rick Bickhram: Well Dave, the authority to obtain an Order to compel an attorney to account can be found under Section 42 of the Substitute Decisions Act. Now under Section 42 of the Substitute Decisions Act, specifically sub-section 1, it states that the Court may, on an application, order that all or a specific part of the accounts of an attorney or guardian be passed. Going through this section, it lists the types of individuals who can bring this application to obtain this unique remedy.

David Smith: And who are those people, Rick?

Rick Bickhram: Under sub-section 4-- well, first of all, let me take a step back. Looking at sub-section 2, it states an attorney, the grantor or any of the persons listed in sub-section 4, may apply to pass the attorney’s accounts. From this, I gather that it means the attorney or the grantor of the Power of Attorney. Sub-section 4 states the grantor or incapable person’s guardian of the person or attorney for personal care. As we all know, a Power of Attorney can be given with respect to property and personal care. Section 42, sub-section 4, sub 1 states that it’s the guardian or attorney for the personal care that can proceed with the Court application to compel a passing of accounts.

David Smith: Okay, and that’s an interesting safeguard, isn’t it? Because, I mean, there’s a fair bit of case law dealing with situations where somebody appoints different people to be their attorneys for property and attorneys for personal care respectively. And quite often, there’s conflict between those two and the attorney for personal care who, for example, chooses a care facility for a senior grantor, may run into conflict with the person who’s paying the bills, namely the attorney for property. So intuitively, it makes some sense actually to give that attorney for personal care the power to say to the attorney for property, “Hey, attorney for property, I’m not satisfied that you’re doing everything you should or I want to see what you’re doing and make sure that the books are in order”. What about… what other people have the ability there?

Rick Bickhram: Under Section 42, sub-section 4, sub 2, a dependant of the grantor or incapable person. So the individual who grants the Power of Attorney or has been declared incapable, may move by way of a Court application to obtain a passing of accounts from the attorney or guardian. The third, I guess this is an entity, the Public Guardian and Trustee may move by way of an application to obtain a passing of accounts.

David Smith: Right and then the remaining 3, Rick, are the Children’s Lawyer, in the case of a minor who’s got an interest.  There’s obviously some standing there for them to do it. I think the next two are the most interesting. A judgment creditor of the grantor or incapable person. That’s a rarely used remedy in my experience, but it’s certainly interesting to think that somebody who is owed money by the grantor of the Power of Attorney or the incapable person can seek to compel an accounting, presumably as a way of seeking to recover monies to which they’re owed. So it’s very interesting that that person is given that remedy. And then, of course, the last one is any other person with leave of the Court. And I guess, you know, the interesting question there is, what is the test that the Court’s going to require before granting leave to someone? And certainly, in my experience, the Court is going to say to an applicant seeking leave, what is your reason for doing this? What is your standing before the Court to seek an accounting? Do you have any relationship to the person? Be you a blood relative or someone else with good cause to be concerned about the management of the person’s finances? And Rick, what do you think we’d need to do in terms of Affidavit evidence on that application, to convince a judge that our client should get leave?

Rick Bickhram: The person who is trying to obtain leave would have to demonstrate in his Affidavit that there was a relationship between himself and the incapable person or the grantor who’s granted the Power of Attorney in the situation. Also I would like to believe that the individual, the deponent here, who’s making this Affidavit, would probably want to establish some type of financial interest. Why is it that he’s seeking and why is that he is seeking a compelling of the accounts? What is his interest in this individual or this individual’s estate?

David Smith: Yeah, and you know, that’s a really interesting point, Rick, and something I wrestle with, with clients quite often in the sense that look, quite often, you’ll be dealing with a situation where you’ll have persons who have a financial interest on the death of the grantor. And the problem is this; if they go in front of the Court seeking leave to compel an accounting and say “My interest in this matter is that I have a financial interest on the death of the grantor, therefore in order to make sure that the amount I eventually inherit has not been improperly squandered before the death of the grantor, I want to monitor what’s being done with the money.” Of course, the problem with making that pitch is that the judge hearing this will be inclined to say, “Well, hold on a second. My job is not to protect the inheritance of the grantor for the benefit of the person who benefits under the estate. It’s to make sure the grantor is well looked after”. And the way I approach that is to say, “Certainly it’s relevant to say that you’ve got an expectation of an inheritance and that does give you some financial standing.” On the other hand, I think the Affidavit has to be crafted in such a way as to make it clear to the judge that the overriding, compelling basis by which the person is seeking leave to compel an accounting is to look out for the best interests of the grantor because the Court is not going to care one iota about preserving the inheritance of the grantor for the benefit of the person seeking leave, is it?

Rick Bickhram: And that makes complete sense, Dave. And if you think about it, I guess as an attorney or as a solicitor, I would be a little reluctant to go in front of the judge and explain to the judge that my client is, you know, pretty much monitoring his financial interest in the estate, especially being that the individual, the individual being the grantor or the incapable person, is still alive, it’s his money. And right now, the first concern should be his well-being.

David Smith: Right.  So fine line there. But, you know, something that needs to be mentioned because it does, as you stated at the outset there Rick, tie into what is the interest of the person seeking leave. And a complete stranger seeking to compel an accounting isn’t going to get anywhere if they can’t show a compelling relationship with the grantor. Now Rick, looking at the time, you know, we’re getting close to the end of the podcast.  Did, before we finish, want to touch on Section 39 of the Substitute Decisions Act. And this is a really interesting Section in my mind. It’s probably an underused Section for anyone engaged in capacity litigation. And what it is, is it’s a Section of the Act which provides directions from the Court and I’ll read it. It says, “If an incapable person has a guardian or an attorney under a continuing Power of Attorney, the Court may give directions on any question arising in the management of the property”. And that’s pretty broad language, isn’t it, Rick?

Rick Bickhram: Absolutely. And as I was reading through this section earlier today, I was thinking to myself, “What is the prospects or how likely is it that the individual would bring or ask for a remedy seeking the passing of accounts under this Section, you know, versus 42.” I understand that 42 specifically sets out a passing of accounts. But let’s say there are other Orders that they’re seeking. You would very well stick in Section 39 in there.

David Smith: That’s absolutely right, Rick. I think these two Sections can quite often be used together. And it’s an important tool for the litigator to keep in mind. If you look at the people who are eligible to apply under Section 39. Section 39, sub 3, similarly provides the Court with the power to grant leave to anyone to apply for directions. And the nice thing about Section 39 is you might have a situation where you don’t have a guardianship application; that’s to say that your client isn’t seeking guardianship of the incapable person, but is seeking more than merely an accounting. And Section 39 is this nice… it gives you this nice, intermediary approach between a full blown guardianship application on the one hand and an application for directions or to compel a passing of accounts rather. And it gives you that much more room and it’s nice, broad language. You know, you can be creative, you do some lateral thinking and really, you know, use that Section to your advantage. And remember, the Court is under a duty here to supervise the role of the attorney, the role of the guardian. It’s a powerful Section and the Court has a great deal of power under this Section and it should always be considered when looking at remedies available to the client who is seeking to look out for the concerns of an incapable grantor of a Power of Attorney.

Rick Bickhram: Great point, Dave. Well looking at the time, it looks like we are just about at the end of our podcast. It was great talking with you today, Dave.

David Smith: You know Rick, I enjoyed it too and we’ll look forward to the next opportunity to podcast. Take care.

This has been Hull on Estates with the lawyers of Hull & Hull.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other podcasts, or to leave a question or comment, please visit our website at www.hullandhull.com.

Our theme music is Upper Structure by DJ AKid  and is courtesy of the Podsafe Music Network.

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