POA Self-Dealing Transaction was Set Aside: the Reasonably Necessary Test

May 10, 2018 Doreen So Capacity, Continuing Legal Education, Elder Law, Estate & Trust, Ethical Issues, Executors and Trustees, General Interest, Guardianship, Litigation, Power of Attorney Tags: , , , 0 Comments

Previously on our blog and podcast, we discussed Tarantino v. Galvano, 2017 ONSC 3535 (S.C.J.)  in the context of the counterclaim for quantum meruit and the costs decision of the Hon. Justice Kristjanson.

Tarantino v. Galvano arose from a lawsuit that was commenced by two out of three Estate Trustees against the third Estate Trustee, Nellie, with respect to her actions as attorney for property for the Deceased, Rosa (i.e. Nellie’s actions while the Deceased was still alive but incapable of managing her own property).

Rosa had two daughters, Nellie and Giuseppina.  Giuseppina died before Rosa.  Guiseppina’s daughters were the other two Estate Trustees and they are beneficiaries of the Rosa’s Estate along with Nellie.  For the better part of her life, Nellie lived with Rosa.  She took care of her mother after her father’s death.  Nellie and her son were also Rosa’s caregivers as Rosa’s health declined until Rosa’s death in 2012.

Rosa and Nellie owned the home that they lived in together.  Rosa held an 80.3% interest and Nellie held an 19.62% interest.  Pursuant to Rosa’s 2005 Will, Nellie had a right of first refusal to purchase the home from Rosa’s Estate.  In 2008, on the advice of counsel while Rosa was incapable, Nellie entered into an agreement between herself and Rosa.  The agreement provided for a transfer of Rosa’s interest in the home and 75% of Rosa’s pension income to Nellie in exchange for Nellie’s caregiving services.  The agreement was in writing and it was signed by Nellie.  Nellie signed for herself and for Rosa, in her capacity as Rosa’s attorney for property.

Even though the Court found that Nellie was a good daughter who held up her end of the bargain by caring for Rosa, the agreement was set aside because it was a self-dealing transaction that did not meet the requirements of the Substitute Decisions Act, 1992:

“[46]    Under the Substitute Decisions Act, Nellie could only enter into the agreement to transfer the house and pension income if it was “reasonably necessary” to provide for Rosa’s care, which I find it was not. As a fiduciary, an attorney for property is “obliged to act only for the benefit of [the donor], putting her own interests aside”: Richardson Estate v. Mew, 2009 ONCA 403 (CanLII), 96 O.R. (3d) 65, at para. 49. An attorney is prohibited from using the power for their own benefit unless “it is done with the full knowledge and consent of the donor”: Richardson Estate, at paras. 49-50. Rosa lacked capacity at the time of the Agreement, and the transfer of the house and pension income therefore were not done with Rosa’s full knowledge and consent.”

The “reasonably necessary” test was assessed, as of the time of the transfer, rather than from hindsight and it was determined that the decision to transfer 80.3% of a home and 80% of Rosa’s pension income at the outset of care was “an imprudent agreement which benefitted Nellie beyond that ‘reasonably necessary’ to provide adequately for Rosa’s care” (see paragraphs 34-49 for the Court’s analysis of this issue).

As a set off, Nellie’s quantum meruit claim was successful and you can click here for Ian Hull and Noah Weisberg’s podcast on this particular issue.  While there was blended success to all parties involved, none of the three Estate Trustees were entitled to indemnification.  Our discussion of the denial of costs can be found here and the Endorsement can be found here.

Thanks for reading!

Doreen So 

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