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Fiduciary Accounting – Hull on Estates #129

 

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:

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 23rd, 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 23rd, 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.

 

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