Tag: conflict of interest
It is not uncommon for the lawyer who drafted a testator’s will or codicil to subsequently be retained by the Estate Trustees after the testator’s death to assist with the administration of the estate. The rationale behind the drafting lawyer being retained to assist with the administration of the estate appears fairly self-evident, for as the drafting lawyer likely has an intimate knowledge of the testator’s estate plan and assets they may be in a better position than most to assist with the administration of the estate.
While retaining the drafting lawyer to assist with the administration of the estate is fairly uncontroversial in most situations, circumstances could become more complicated if there has been a challenge to the validity of the testamentary document prepared by the drafting lawyer. If a proceeding has been commenced challenging the validity of the testamentary document, there is an extremely high likelihood that the drafting lawyer’s notes and records will be produced as evidence, and that the drafting lawyer will be called as a non-party witness as part of the discovery process. If the matter should proceed all the way to trial, there is also an extremely high likelihood that the drafting lawyer would be called as a witness at trial. As the drafting lawyer would personally have a role to play in any court process challenging the validity of the will, questions emerge regarding whether it would be proper for the drafting lawyer to continue to represent any party in the will challenge, or would doing so place the drafting lawyer in a conflict of interest?
Rule 3.4-1 of the Law Society of Ontario’s Rules of Professional Conduct provides that a lawyer shall not act or continue to act where there is a conflict of interest. In the case of a drafting lawyer representing a party in a will challenge for a will that they prepared, an argument could be raised that the drafting lawyer is in an inherent position of conflict, as the drafting lawyer may be unable to look out for the best interests of their client while at the same time looking out for their own interests when being called as a witness or producing their file. There is also the potentially awkward situation of the drafting lawyer having to call themselves as a witness, and the associated logistical quagmire of how the lawyer would put questions to themselves.
The issue of whether a drafting lawyer would be in a conflict of interest in representing a party in a will challenge was dealt with in Dale v. Prentice, 2015 ONSC 1611. In such a decision, the party challenging the validity of the will brought a motion to remove the drafting lawyer as the lawyer of record for the propounder of the will, alleging they were in a conflict of interest. The court ultimately agreed that the drafting lawyer was in a conflict of interest, and ordered that the drafting lawyer be removed as the lawyer of record. In coming to such a conclusion, the court states:
“There is a significant likelihood of a real conflict arising. Counsel for the estate is propounding a Will prepared by his office. The preparation and execution of Wills are legal services, reserved to those who are properly licensed to practise law. Counsel’s ability to objectively and independently assess the evidence will necessarily be affected by his interest in having his firm’s legal services found to have been properly provided.” [emphasis added]
Decisions such as Dale v. Prentice suggest that a lawyer may be unable to represent any party in a will challenge for a will that was prepared by their office as they may be in a conflict of interest. Should the circumstance arise where the drafting lawyer is retained to assist with the administration of the estate, and subsequent to being retained someone challenges the validity of the Will, it may be in the best interest of all parties for the drafting lawyer to indicate that they are no longer able to act in the matter due to the potential conflict, and suggest to their clients that they retain a new lawyer to represent them in the will challenge.
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As lawyers, we always have to consider whether we can act for someone before we are retained. Often, the question of whether we are in a conflict is a simple one; however, occasionally, it is more difficult to assess whether we can or more importantly, should, act for someone.
In a recent case, a Plaintiff moved to remove counsel for the Defendant due to a perceived conflict of interest (Gloger v Evans 2018 ONSC 4919).
Otillie and Jochen Gloger, whose children are the parties in this action retained a law firm, to prepare their Wills. Otillie died first and Jochen retained the law firm to prepare a survivorship application with respect to their joint property.
Jochen’s Will named both the Plaintiff and the Defendant in this matter as the Estate Trustees of his Estate and the Estate was divided equally between the Plaintiff and the Defendant.
In this action, following Jochen’s death, the Plaintiff sought to have the Defendant removed as Estate Trustee based on various allegations such as misappropriation of assets and breach of fiduciary duty.
The Defendant retained the law firm to represent her in this action. In turn, the Plaintiff alleged that the firm could not represent the Defendant because there were several conflicts of interest and more importantly, such representation would undermine public confidence in the administration of justice.
The Court considered the test set out in MacDonald Estate v Martin (1990) 3 SCR 1235, which requires that two questions be answered:
- Did the lawyer receive confidential information attributable to a solicitor client relationship relevant to the matter at hand?
- Is there a risk that it will be used to the prejudice of the client?
Because prejudice is difficult to prove, the “test must be such that the public, represented by the reasonably informed person, would be satisfied that no use of confidential information would occur…”.
Analysis and Decision
The Court held that, at its best, the Plaintiff’s evidence was that he and the Defendant initially retained the law firm but that, three days later, he retained his own lawyer. The Plaintiff never met with a lawyer at the law firm but he apparently had a telephone call with someone at the law firm while the Defendant listened in. However, he could not advise whom he spoke with, nor what that person’s occupation was. Furthermore, the Plaintiff did not sign a retainer agreement nor did he provide a retainer.
Given this evidence, the Court held that the Plaintiff did not retain the law firm and was therefore not a former client. Even if he was a former client, however, the Plaintiff stated at his cross-examination that he did not provide any confidential information to the law firm.
The Court did not believe that any confidential information provided by the Deceased, with respect to the Will which named both the Plaintiff and the Defendant as the beneficiaries and Estate Trustees of the Estate, was relevant to this action regarding trustee misconduct, given that the Will was not ambiguous, nor was there a challenge to the Will.
In making this decision, the Court also commented on the importance of the right of the client to be represented by counsel of their choice and that a flexible approach must be taken.
In light of the foregoing, the Court did not consider the second step of the test and dismissed the Plaintiff’s motion for the removal of the law firm, as the Defendant’s counsel.
This case reminds us that it is important to consider whether you should act for someone in the circumstances of each individual case. The above-noted test helps one determine whether a potential conflict of interest may arise.
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The media cannot get enough of President Donald Trump. Regardless of whether you turn on the television, or pick up a newspaper, there seem to be endless articles about the policies and the decisions he has made. As this is an estates blog, I thought it would be interesting to discuss the recent commentary regarding the Donald J. Trump Revocable Trust (the “Trust”).
Before his election, the then President-elect Donald Trump was questioned as to whether he intended to place his assets in a blind trust.
What is a blind trust? In order to answer this, I refer to a prior Hull & Hull blog which states that, “a blind trust can be thought of as an individual relinquishing control over their assets, and providing them to a trustee to manage them on their behalf. The trustee has complete discretion over how to invest the individual’s assets, with the beneficiary being provided with no information regarding how the investments are being held, and the beneficiary having no say in how the funds are managed. As the beneficiary has no idea what their funds are invested in, the theory is that they would not be inclined to enact government policy which would favour their own investments, and that they would be able to avoid a conflict of interest”.
Documents recently made available to the public provide insight into the terms of the Trust. For instance, the assets of the Trust include liquid assets (from the sale of investments), as well as his physical and intellectual properties. The Trustees of the Trust are the President’s eldest son, Donald Trump Jr., and Allen Weisselberg, the Trump Organisation’s chief financial officer. Apparently, the President has the ability to revoke the trustees’ authority (I presume by saying, ‘you’re fired’) at any time. Moreover, according to the New York Times, the President will continue to receive reports on any profits/losses.
Of course, there are two views as to whether these Trust terms constitute a blind trust. While some pundits suggest that the Trust satisfactorily distances the President from his assets, others suggest that the President has not gone far enough to absolve himself of potential conflicts of interest and is therefore not a blind trust.
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Sometimes an executor or trustee is also a director of a company in which the estate or trust has an interest. We have written before about how acting as both a trustee and company director may create a conflict of interest, as each role includes inherent fiduciary duties that may conflict. Another issue that may arise once an individual has decided to act in both roles is whether a trustee may collect director’s fees in addition to the compensation received from the estate or trust for acting as executor or trustee.
The general rule is that a trustee may not put him or herself in a position in which his or her interest and duty conflict. The position of trustee must not be used to obtain a benefit: the trustee that obtains a benefit by virtue of his or her position of trustee will be required to account for the profit.
As explained in chapter 23 of Probate Practice, the heart of the issue is whether the trustee became director as a result of the trusteeship. If the trustee accepted the position of director by virtue of acting as trustee, he or she is not entitled to receive a salary in addition to remuneration received as trustee. If, on the other hand, the trustee’s position with the company is clearly independent from the position of trustee, he or she will likely not be required to account for any directors’ fees obtained.
A trustee/director need not expect to be under-compensated. Pursuant to section 67 of the Trustee Act, a testator or settlor may provide in the will or trust document that the executors or trustees may hold salaried positions in companies controlled by the estate or trust without being required to account.
Each case, of course, will turn on the particular facts. In certain instances, the Court may award a special fee when the duties of director are not otherwise appropriately compensated by the corporation (see: Bellomo Estate, Re, 36 ETR 123 (Ont Dist Ct)).
If the will or trust document does not include a provision as referenced above, the skill and time required to administer a trust that also requires the trustee to act as director of a company may be considered to increase the quantum of compensation the trustee receives. Section 61(1) of the Trustee Act provides that a trustee or executor “is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate.”
We have written before about how the courts determine what is “fair and reasonable.” Generally speaking, the skill and responsibility required by the trustee is directly commensurate with the quantum of compensation.
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A recent decision of the Ontario Superior Court of Justice highlights the real or perceived conflicts of interest that can arise when a guardian for property wears more than one fiduciary hat.
In Taticek v Zeisig, 2016 ONSC 772, Ronald and Peter were appointed as joint guardians for property and personal care for Annemarie in 2012. Annemarie, Ronald and Peter, along with Annemarie’s daughter Sonya, owned a farm property in joint tenancy (the “Farm”). The Honourable Justice Annis had approved the original guardianship order, which included a plan for the management of the Farm.
Ronald and Peter brought an Application to pass their accounts in March 2014, in accordance with Justice Annis’s Order. The Public Guardian and Trustee (“PGT”) objected to the accounts, but subsequently withdrew the objections and initially supported the sale of the Farm.
Ronald passed away on April 23, 2014, with his interest in the Farm passing by right of survivorship to the other joint tenants. The other guardian, Peter, was the sole Estate Trustee for Ronald’s Estate. Peter was also the sole trustee of a family trust (the “Family Trust”), which was settled for the benefit of Ronald’s children.
The Family Trust wanted to purchase Annemarie’s one-third interest in the Farm, and Peter brought an Application to amend the management plan to allow for the joint tenancy in the Farm to be severed. The PGT opposed the Application, and Peter brought a Motion for an Order approving the amended management plan.
On the Motion, Peter argued that he was acting in Annemarie’s best interest, and was not in a conflict of interest because her share of the Farm would be sold at fair market value and the proceeds of sale would be placed in an investment account.
In highlighting deficiencies in the amended management plan, the PGT noted three potential conflicts of interest:
- Peter had to determine whether Annemarie had to reimburse loans from Ronald, and the amended plan lacked details about Peter’s obligations to the Family Trust.
- In determining whether the Farm was to be sold to the Family Trust or to a third party, Peter would potentially continue to personally benefit if the one-third share of the Farm was purchased by the Family Trust.
- Peter’s obligation to maximize the value of Annemarie’s share of the Farm in his capacity as her guardian for property was in conflict with his duty to purchase her share at the lowest possible price on behalf of the Family Trust.
Ultimately, the Honourable Justice Patrick Smith refused to grant Orders dismissing Peter’s Application and appointing the PGT as Annemarie’s guardian for property on the Motion, holding that the PGT’s concerns could be addressed with additional information and an amended management plan. Justice Smith also held that the evidence established that Peter was acting in Annemarie’s best interest.
The Court granted leave for Peter to provide additional details and an amended management plan within 60 days of the judgment, with the matter being returnable before Justice Smith on short notice if the PGT continued to oppose the Application.
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Umair Abdul Qadir
One would be forgiven if at first instance they did not see any connection between Justin Trudeau’s recent selection of his cabinet and trust law. While most of the attention has been placed on the background of the new appointees, and of their immediate tasks at hand, there is a (however small) connection to the trust world, as many of the newly appointed Ministers and their staff are rushing to place their assets into blind trusts.
At its most simple, a blind trust can be thought of an individual relinquishing control over their assets, and providing them to a trustee to manage them on their behalf. The trustee has complete discretion over how to invest the individual’s assets, with the beneficiary being provided with no information regarding how the investments are being held, and the beneficiary having no say in how the funds are managed. As the beneficiary has no idea what their funds are invested in, the theory is that they would not be inclined to enact government policy which would favour their own investments, and that they would be able to avoid a conflict of interest.
In accordance with the federal Conflict of Interest Act, a “reporting public office holder”, which is defined as including a Minister of the Crown, a “ministerial adviser”, as well as a member of the “ministerial staff” who works on average 15 hours or more a week, must within 120 days of their appointment either sell all “controlled assets” in an arm’s length transaction, or place such assets into a blind trust. Any assets which are placed into a blind trust have annual reporting requirements, with the trustee having to file an annual report to the Conflict of Interest and Ethics Commissioner regarding the ongoing management of the blind trust.
In the context of the recent federal election, the most attention was placed on the recently elected Toronto Centre MP, Bill Morneau, who was appointed as Minister of Finance. As Mr. Morneau himself reportedly has a stock portfolio in excess of $30 million, and with his appointment as Minister of Finance would have a significant influence and impact upon the financial sector, some attention was paid to the transition of his investment portfolio likely into a blind trust. Justin Trudeau himself previously moved his own investments into a blind trust following his appointment as leader of the Liberal Party in 2013.
Listen to Passing of Accounts and a Joint Retainer
This week on Hull on Estates, Craig Vander Zee and David Smith discuss conflicts of interest during Passing of Accounts trials and rules of professional conduct.
A person with more than one set of distinct interests or roles in the same estate may have a conflict of interest. This can create all sorts of problems and issues in an estate administration and is a driving concept in much estate litigation.
Say Joe Smith is the executor of an estate but also received gifts from his mother the testator during her lifetime. One of these gifts, say, came in the form of a transfer of a bank account into joint ownership between the two of them.
Wearing his executor’s hat (to use some traditional vernacular), Joe may have a duty to determine whether the bank account transfer was not a gift at all and actually subject to a resulting trust in which case the estate might have a claim to the asset. Joe may need to do so because, as executor, his duty is to identify estate assets and bring them into the estate.
However, wearing his hat as a recipient of the bank account, Joe is unlikely to want to give the bank account back to the estate.
In short, Joe may have a conflict of interest.
In such circumstances, Joe may need two lawyers, one to advise him as estate trustee, the other to protect him personally. Sometimes an executor’s conflict is such that he cannot continue to act as estate trustee.
While this example may be simple enough, there is a tremendous range of conflicts that can creep into estate matters.
Thanks for reading.
Listen to Passing of Accounts
This week on Hull on Estates, Diane Vieira and Craig Vander Zee talk about how to avoid conflict during the passing of accounts.
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This week on Hull on Estates, Craig and Diane continue the discussion regarding experts in the context of estates. The conversation touches primarily on choosing the expert and considerations for the report.