When a person is incapable of managing their property (and does not have a power of attorney) a court may appoint a guardian to make financial decisions on their behalf. An “incapable person” means an individual who cannot understand information relevant to making property-management decisions or cannot appreciate the reasonably foreseeable consequences of such decisions, as determined under the Substitute Decisions Act, 1992 (the “SDA”). Guardianship is a significant responsibility that imposes strict legal duties designed to protect the incapable person and preserve their assets.
1. A Guardian Is a Fiduciary
A guardian of property is a fiduciary. Under the SDA and related fiduciary principles, a guardian must act:
- Only in the incapable person’s best interests
- Honestly and in good faith
- With the care, diligence, and skill that a prudent person would use in managing someone else’s finances
- Without benefiting personally from the role
Courts emphasize that fiduciary obligations are strict, and that breaches can lead to remedies such as repayment, reduction or denial of compensation, or removal.
2. Following the Court-Approved Management Plan
Every guardian of property must prepare a Management Plan, which the court must approve. The plan typically sets out:
- All assets, liabilities, and income sources
- Anticipated monthly expenses
- Investment strategy
- Steps to maintain, protect, or dispose of property
Once approved, the guardian must follow the plan strictly. Significant changes, such as selling real estate, altering investments, or restructuring finances, require court approval. Failure to follow the Management Plan can result in refusal of expenses or removal.
3. Record-Keeping and Passing Accounts
Guardians must keep detailed records of:
- All money received
- All money spent
- Investments and valuations
- Supporting receipts, invoices, and statements
These records must be clear enough to allow the guardian to “pass accounts,” a formal review by the court or the PGT. Poor or incomplete records can lead to adverse inferences, disallowed expenses, surcharge, or denial of compensation.
4. Preserving and Protecting Property
Guardians must actively safeguard the incapable person’s property, including:
- Paying bills and debts on time
- Maintaining insurance
- Protecting physical property from damage or loss
- Collecting income and receivables
- Ensuring tax compliance
Failure to preserve property, such as allowing insurance to lapse or neglecting tax filings, can expose the guardian to personal liability, repayment orders, or removal.
5. Investment Duties and the Prudent Investor Standard
Guardians managing investments must comply with the Prudent Investor Rule, which requires:
- A well-considered investment strategy aligned with the incapable person’s needs, risk profile, and time horizon
- Diversification, unless inappropriate based on the incapable person’s circumstances
- Ongoing monitoring and rebalancing to respond to market changes and the person’s evolving needs
- Seeking professional advice where necessary, such as engaging qualified investment advisors or tax professionals
Compliance also requires strict avoidance of conflicts and proactive use of the court’s guidance mechanisms where uncertainty arises.
6. Avoiding Conflicts of Interest
A guardian cannot:
- Mix their own funds with the incapable person’s
- Borrow from, lend to, or take gifts from the incapable person
- Place themselves in a position where personal interest conflicts with duty
When faced with a potential conflict or uncertainty, guardians should seek court direction under section 39 of the SDA. Courts view this favourably as demonstrating transparency and good faith.
Questions often arise about payment for the guardian’s work. Any compensation is constrained by fiduciary standards and subject to court oversight.
7. Compensation
Guardians may take reasonable compensation, but it is not automatic and remains within the court’s discretion. In assessing compensation, courts consider:
- Quality of record-keeping
- Complexity of the work
- Time and skill required
- Whether the guardian acted prudently
Compensation may be reduced or denied if the guardian’s performance is inadequate, records are deficient, or duties are breached. Example: A guardian who fails to pass accounts or deviates from the Management Plan may have fees disallowed or be ordered to repay amounts.
Understanding frequent errors helps guardians avoid outcomes that trigger court intervention or personal liability.
Common Pitfalls and Consequences
Guardians commonly encounter difficulties when they:
- Fail to keep complete financial records, leading to disallowed expenses, adverse inferences on a passing of accounts, reduction or denial of compensation, or personal surcharge orders by the court
- Treat the incapable person’s money as their own, risking findings of breach of fiduciary duty, repayment, and potential removal
- Make unauthorized gifts or loans, which can be set aside and result in personal repayment and reduced or denied compensation
- Rely on informal family arrangements instead of the court-approved Management Plan, leading to non-compliance findings and possible removal or refusal of expenses
- Misunderstand investment obligations under the Prudent Investor Rule, exposing them to loss-based surcharges and direction to retain professional advisors
Given the strict scrutiny applied by courts and the PGT, obtaining early legal advice is often essential to avoid these consequences.
Conclusion
Serving as a guardian of property is a demanding fiduciary role requiring diligence, transparency, and ongoing adherence to Ontario’s SDA requirements and court-approved plans. Guardians who maintain strong records, follow the Management Plan, avoid conflicts, invest prudently, and seek court direction or professional advice when needed are best positioned to protect the incapable person and avoid personal liability and adverse court outcomes.
Thank you for reading!
David Morgan Smith and Zahra Panju (student-at-law)