When one is approached by a family member or close friend with a request that they act as an attorney for property or estate trustee, the initial reaction is often one of stoic acceptance. Whether as a result of a sense of filial responsibility or a moral obligation more broadly, there is a sense of pride that one feels at being asked to take on such a task.
At the same time, and all too often, nominees agree to act and begin acting without giving such an appointment the second thought that it deserves. In reality, the role of a fiduciary is a rigorous one. In particular, they are generally held to strict standards of competence and are expected to carry out in good faith a series of duties and obligations imposed on them by virtue of their position.
The Duty to Maintain Accounts
These obligations include, most significantly, the duty to maintain proper accounts on behalf of the incapable person or of the Estate, as the case may be. Maintaining accounts refers in the vernacular to the day-to-day tracking of income, expenses, assets, and liabilities of the incapable person, together with statements, receipts, and other documents supporting these items.
At its core, a fiduciary will be expected to explain all transactions entered into in the course of their administration. The inability to produce a meaningful accounting or to explain such transactions may lead to serious financial penalties being imposed by the court and should serve as a cautionary tale to those who would seek appointment as a fiduciary without a second thought.
The Nature and Extent of the Duty to Account
One such tale was recently explored by the court in Iannarelli Estate v Abbruzzese, 2023 ONSC 7262. In that case, the applicant initiated an application to pass her accounts in her capacity as attorney for property for her late mother. The applicant’s sister delivered numerous objections to the applicant’s accounts, which largely related to transactions for which the applicant had not produced supporting statements or vouchers.
The court began by acknowledging that perfection is not the standard to be applied to a fiduciary’s ability to account when the fiduciary is a layperson. They will not be required to prove every individual expense – rather, they will be expected to act with ordinary prudence akin to the manner in which they would manage their own affairs. Moreover, if an individual is acting solely as an agent in assisting a grantor with the management of their affairs, they will equally be held to a lower standard than if they were acting on behalf of an incapable person.
That being said, while the obligation to account may be diminished, that obligation is not nil. The fiduciary will still be expected to maintain a minimum threshold of record-keeping, especially as the financial value of the transactions in question increase. As a general proposition, the higher the dollar value of a given transaction, the greater the expectation that the fiduciary will be expected to substantiate it.
Liability and Penalties
This is the standard that was applied in Iannarelli. The applicant incurred a number of transactions of modest dollar values on behalf of her mother, particularly for day-to-day expenses and her modest spending habits, which the applicant could not fully substantiate. The court generally accepted that it was likely these expenses were incurred for the mother’s benefit despite the shortcomings in accounting.
However, the applicant had also incurred several individual expenses with dollar values as high as $50,000 without being able to substantiate that they had been incurred for the mother’s benefit, and with no supporting vouchers having been provided. The court was not prepared to relieve the applicant of her obligation to account for those items given their value.
Not only was the applicant ordered to reimburse the amounts in question to her mother’s estate, but as a result of her failure to maintain proper accounts in respect of those transactions, the court ordered that her compensation as attorney for property be reduced by more than 40%.
In light of this and other cautionary tales, it is highly advisable to seek the opinion and advice of a lawyer before embarking on the journey of being a fiduciary, as failure to understand or appreciate the extent of the obligations that lie before you may have significant consequences. Please feel free to contact a member of the Estates Group at Mills & Mills LLP to learn more about the duties and obligations of a fiduciary.
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