It is well-known that executors and estate trustees have fiduciary obligations. We have discussed some estate trustee liabilities and obligations on this blog before. Although it may seem obvious that estate trustees must act selflessly and in the best interests of the beneficiaries and the estate, a recent decision from the Ontario Superior Court of Justice provides an instance where estate trustees were held liable for failing to carry out the terms of a will and self-dealing, even by passively standing by.
In Cahill v Cahill, 2016 ONSC 2863, the named estate trustees of an estate were held jointly and severally liable for failing to establish a trust pursuant to the Deceased’s will. The relevant facts are as follows: The Deceased left a Last Will and Testament naming two of his adult children, Sheila and Kevin, as Estate Trustees. The terms of the Will provided that Sheila and Kevin were to set aside $100,000.00 in a trust fund for the benefit of another of the Deceased’s adult children, Patrick, and that he would receive $500.00 per month from the trust until his death or until the principal was reduced to nil. The funds to set up the trust came from the sale of the Deceased’s home, and were put into a Non-registered Investment Plan with London Life (the “London Life Plan”), owned by Kevin.
For a period of time, Patrick received the payments of $500.00 per month, until the summer of 2014, when several of his cheques were returned for insufficient funds. He then discovered that in May 2012, Kevin had withdrawn the principal remaining in the London Life Plan, which was approximately $92,000.00 at the time, as a mortgage with respect to some commercial premises purchased by him for his business, and lost the funds when his business failed and the bank realized on the property.
The Court found that both Kevin and Sheila were in breach of their fiduciary obligations to the beneficiaries of the Estate, as they had failed to carry out the instructions set out in the Will. In fact, the Court found that the trust fund provided for by the Will was never actually set up. Even though Kevin opened the London Life Plan with the $100,000.00 amount, and he was noted as the legal owner, his application for the London Life Plan did not mention a trust, Patrick was not disclosed as a beneficiary, and Patrick therefore did not have equitable title to the Plan. The Plan therefore did not meet the requirements for a trust. The court held that Kevin’s self-dealing by using the funds for his personal benefit was a “wrongful and deliberate misappropriation of the funds” and that he had breached his fiduciary obligations by his conduct in this respect.
Throughout these events, Sheila had been quite passive. She claimed that she had relied on Kevin to do most of the work required to administer the Estate, as he had expertise in the field of financial management. However, the court held that the case law is clear that there is no distinction between sophisticated and unsophisticated individuals in fulfilment of the obligations of Estate Trustees. As such, if Sheila was not confident in her knowledge of the role, she should have either obtained the necessary guidance, or renounced as Estate Trustee. Furthermore, she failed to discharge her obligations by failing to ensure that all proper steps were taken to set up the trust fund. If it had been set up, Kevin was to be the sole trustee, but as the court found that it was not, in fact, established, there was never a point at which Sheila was relieved of her obligations as Estate Trustee.
Ultimately, the court held that Kevin and Sheila were jointly and severally liable and were required to fund the trust in accordance with the terms of the will. It is therefore vital to always keep in mind the seriousness of the duties and obligations of estate trustees.
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We blogged about the Ontario Retirement Pension Plan (“ORPP”) some time ago when it was first proposed and introduced. The ORPP will begin on January 1, 2017, and will be fully implemented by January 1, 2020. According to the Ontario government website with respect to the ORPP, studies show that people are not able to save enough money for retirement and that the Canada Pension Plan (“CPP”) is insufficient, stating that the maximum yearly benefit from CPP in 2015 is $12,780 and the average yearly benefit is $7,000.
Both the ORPP itself and the contribution rates for the ORPP will be phased in from 2017 to 2020, as set out in this article from the National Law Review. For instance, the initial implementation of the ORPP in January 2017 will begin with large employers, at a rate of contribution of 0.8 percent by both the employer and employee (for a total of 1.6 percent). This will then be increased to 1.6 percent each the following year and further increased to 1.9 percent each starting in 2019. Similar phasing will take place as medium-sized employers begin the ORPP in January 2018, small employers in January 2019, and employers with registered plans that do not meet the comparability threshold in January 2020. Ontario’s ORPP website also provides a helpful chart describing the phases that can be viewed here.
Last month, Ontario reached an understanding with the federal government that ORPP premiums will be collected through the existing CPP framework. Ontario also delayed the date to begin collecting premiums from large employers who will be included in the first phase of implementation. Although they will be required to register as of January 2017, they will not be required to remit premiums until January 2018.
Once it has been fully phased-in, the contribution rate will be a combined 3.8 percent of pensionable earnings. For an individual earning $50,000.00 per year, for example, who contributed to ORPP for 40 years and retired at age 65, this results in an ORPP payment of $7,138 per year, in addition to CPP, OAS, and other retirement savings.
It is stated that the ORPP is intended to complement existing retirement savings arrangements, not replace them. For many individuals, there will still be a need to make individual plans with respect to retirement saving and planning. As always, it is important to consider you own individual needs during retirement and consult advisors who can help you make and implement a comprehensive plan.
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As a result of the ongoing conflict in Syria, we are currently seeing one of the worst humanitarian crises in the world today. The United Nations has estimated that approximately 13.5 million people need urgent help, including 6.5 million people who have been displaced.
With human rights violations at the heart of the crisis and over 250,000 deaths so far, the Government of Canada has made the decision to implement a plan to work with private sponsors, non-governmental organizations, provincial, territorial, and municipal governments to settle 25,000 Syrian refugees here in Canada. The Government’s plan currently gives priority to vulnerable people who have registered with the United Nations Commissioner for Refugees (“UNHCR”) including women with children, unaccompanied minors, and the elderly.
The United Nations Children’s Fund reported in 2014 that of the displaced persons, approximately 8,000 were children that had fled Syria without their parents. This number has likely only increased since then as the conflict continues to intensify. As a result, it is important to bear in mind that many of the new arrivals may consist of unaccompanied minors and that in some cases, the appointment of a suitable guardian may need to be considered. In the cases where a guardian is required, it should be arranged as soon as possible.
According to the UNHCR, guardianship is a fundamental element in the protection of unaccompanied minors. The guardian’s responsibilities include ensuring that the child’s needs are being met until a more permanent arrangement for the minor can be implemented. This applies to the child’s physical, psychological, social, cultural, legal, medical, and educational needs.
In Canada, each province is primarily responsible for matters related to the reception and integration of unaccompanied minor refugees, including the appointment of a guardian. These practices can vary significantly from one province to another. For instance, in Ontario, it is the Children’s Aid Society and the Catholic Children’s Aid Society that provide child protection services for minors (up to the age of sixteen). However, in order for these agencies to be authorized to act as guardian to a child, a formal wardship order from the Ontario Court is still required.
It is important to note that the appointment of a guardian is not the same as a designated representative under the Immigration and Refugee Act who acts solely for the purpose of representing the unaccompanied minor in proceedings before the Immigration and Refugee Board.
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The Substitute Decisions Act directs that, when a person who does not reside in Ontario is appointed as a guardian of property, that person must provide security, as approved by the Court, for the value of the property to be administered. However, the Court also has discretion to waive the requirement that security be provided by a non-resident guardian of property. Under what circumstances the Court will exercise its discretion to waive the requirement to post security when appointing a non-resident guardian of property is unclear within the legislation and little guidance is provided by the sparse case law that deals with this issue.
In a paper presented by Dermot Moore of the Office of the Public Guardian and Trustee (the “PGT“) at this year’s Six-Minute Estates Lawyer, Mr. Moore outlined the policy of the PGT on recommending security when a non-resident guardian of property is being appointed. The PGT will typically recommend that security be required in the following circumstances:
- If the proposed guardian is not a parent or spouse of the incapable person and the value of property is greater than $100,000.00;
- If the proposed guardian is a parent or spouse, the incapable person does not own real property, and the value of the property is greater than $250,000.00; and
- If the proposed guardian is a parent or spouse, the incapable person owns real property, and the value of the property is greater than $500,000.00.
It may be worth noting that in a jurisdiction such as Toronto, where property values are so high, a guardianship application by a non-resident of Ontario in respect of the average person who own real property will result in a recommendation by the PGT that security be posted.
In his paper, Mr. Moore notes that it is not infrequent for the Court to dispense with the requirement that security be provided if there is some argument in support of waiving the requirement. One of the few decisions in which the issue of security in the appointment of non-resident guardians has been considered is Salzman v. Salzman, 2011 ONSC 3555, 2011 CarswellOnt 15786. In this case, a resident of Quebec was appointed as guardian of property for his mother and was not required to post security upon his appointment. In dispensing with the requirement to post security, Justice Hoy made note of the proposed guardian’s close relationship with his incapable mother, his historical assistance in managing her affairs, and the consent of his siblings, the only other beneficiaries of his mother’s estate, to the non-resident’s appointment and the dispensing of the requirement to post security.
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Last week, news sources reported that a judge of the Los Angeles County Superior Court appointed a conservator over the affairs of former Eagles bassist, Randy Meisner. The conservator was appointed to help make decisions about Mr. Meisner’s medical care, but not about his property. The conservatorship is temporary for now, pending a further hearing this fall which may determine whether or not it should be made permanent.
In Ontario, our closest equivalent to a conservatorship is a guardianship. There are two types of guardianships – one for personal care and another for property. A person may apply to the Court to be appointed as someone’s guardian for property, for personal care, or both. There is an alternative procedure, whereby the Public Guardian and Trustee will become a person’s statutory guardian upon receipt of a certificate of incapacity issued by a capacity assessor.
The tests for each kind of capacity are set out in Ontario’s Substitute Decisions Act, 1992. A person is incapable with respect to making decisions about the management of property if that person is unable to understand information that is relevant to making a decision in the management of his or her property, or if the person is unable to appreciate the reasonably foreseeable consequences of a decision (or lack thereof).
On the personal care side, a guardian may be appointed if the person is incapable of understanding information relevant to making a decision concerning his or her health care, nutrition, shelter, clothing, hygiene or safety, or is if the person is unable to appreciate the reasonably foreseeable consequences of a decision with respect to any of these.
The California ruling dealt with personal care decisions but did not appoint a conservator for property. Property decisions are sometimes thought of as being more cognitively demanding. However, Mr. Meisner’s story is a good reminder that each kind of capacity is its own creature. One cannot assume that a person who may be found incapable with respect to one function will necessarily be found incapable with respect to another.
Ontario’s Act creates another set of standards for the capacity to grant powers of attorney for property and yet another for granting powers of attorney for personal care. A person may be incapable of managing property or personal care, but may still be capable of appointing another person to make those decisions on his or her behalf. Creating a power of attorney while capable of doing so empowers the person to decide who will be responsible for making decisions and to provide the attorney with instruction or guidance in the event that difficult decisions need to be made. Having powers of attorney in place can sometimes eliminate the need for guardianship proceedings, which can be a difficult and costly process.
An amendment to legislation with respect to the management of affairs on behalf of incapable people is currently being implemented in Oklahoma in an effort to protect the interests of the aging population.
Senate Bill 109 is being introduced on November 1, 2015 to allow a person to be subject to attorneyship and court-ordered guardianship at the same time. As it currently stands, the appointment of a guardian in Oklahoma automatically revokes any powers of attorney executed by that person, meaning that if a guardian is appointed in respect of personal care, no power of attorney (whether in respect of property or personal care) remains valid.
The update was proposed in light of situations in which a person has executed a power of attorney for property, but no such document is executed in respect of personal care. Prior to the amendment, the appointment of a guardian of personal care terminates the appointment of both attorneys for personal care and attorneys for property. Most common in Oklahoma are scenarios in which an attorney for property attempts to sell an incapable person’s property, but runs into problems when no attorney for personal care had been appointed to assist in determining new living arrangements after the sale of the property.
In Ontario, the appointment of a guardian pursuant to the Substitute Decisions Act similarly terminates the appointment of an attorney chosen to act in the same respect. However, in circumstances where an attorney is appointed in one domain only, the Court may appoint without disrupting the management by an attorney of the other aspect of decision making.
Ideally, when planning for one’s incapacity, both a power of attorney for property and a power of attorney for personal care should be executed. Often, the focus on incapacity planning is on financial matters and risks to leave a person’s personal care in limbo if capacity issues emerge later in life. While a guardianship application may be an option, the delay and expense in securing an appointment as guardian may not be in the best interests of the person.
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I recently came across an advertisement for a Pet Guardian Agreement offered by FormalWill. For $29 (a savings of $30 on what is a $59 value), pet owners can ensure that, in the event of the owner’s incapacity or death, their pets are looked after by the appropriate people, funds can be set aside for the future care of their pets, instructions can be left with their pet’s veterinarians, groomers or pet walkers, and arrangements can be made to compensate the Pet Caregiver appointed.
The Humane Society of South Central Michigan has their version of a Pet Guardianship Agreement where the Humane Society will agree to provide emergency care for an animal in circumstances such as when the pet owner enters a full time care facility and can no longer care for the animal or where the pet owner predeceases the animal (although there is a caveat that all animals will be spayed or neutered upon entrance to the program unless it is contrary to the health of the animal). In such a circumstance, the animal will be given a full medical examination and be assessed by a behavioral team for “re-homing” suitability. If the animal is not suitable for “re-homing”, directions will be sought from the pet owner’s friends and families. Prior to the Pet Guardianship Agreement becoming valid, the pet owner must advise in writing that provision has been made for a bequest to the Humane Society in the pet owner’s Last Will and Testament.
In the alternative to a Pet Guardianship Agreement, Natalia Angelini has relayed some extreme examples of pet owners leaving money to their pets in her blog entitled From Rags to Riches. My favourite is the story of a German Sheppard, Gunther IV, who reportedly inherited $372 million from his father, Gunther III, the beloved companion of an eccentric German countess. This seems the easiest way to ensure your pet’s financial independence after you are gone.
Have a good weekend.
Today on Hull on Estates, David Morgan Smith and Nadia Harasymowycz discuss guardianship and capacity issues in circumstances where incapacity is a distinct possibility, but not currently the case.
If you have any questions, please e-mail us at email@example.com or leave a comment on our blog page.
Click here for more information on Nadia Harasymowycz.
On Tuesday, I blogged on the recent Ontario Court of Appeal decision of Aragona v. Aragona, 2012 ONCA 639.
There, the application judge denied the guardian compensation. In so doing, the application judge noted the guardian’s failure to keep proper accounts. The Court of Appeal stated that a guardian has, by statute, a fiduciary obligation to carry out his or her obligations with honesty and due care and attention. “The core of these obligations includes the duty to be in a position at all times to prove the legitimacy of disbursements made on behalf of the estate.”
Further, the application judge went on to find that “the conduct [of the guardian] has been shocking. He has literally helped himself to many thousands of dollars from his mother’s estate, at a time when his mother had Alzheimer’s and was unable to look after her own affairs.”
Together, these two factors led to a denial of compensation: a conclusion that was said to be clearly in the discretion of the application judge.
In denying compensation, both the Court of Appeal and the court below relied on the decision of Zimmerman v. McMichael Estate, 2010 ONSC 2947. This decision clearly sets out the obligations of a trustee, including the obligation to account. The application judge found that because significant funds disappeared from the estate without adequate explanation, it was appropriate to award no compensation. The application judge contrasted this with the situation in Re Assaf Estate, 2009 CanLII 11210. There, there was wrongdoing found, but no harm was said to have resulted to the estate. In that situation, compensation was reduced by 50%, but not disallowed completely.
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Paul Trudelle – Click here for more information on Paul Trudelle.
In Ontario (as in most jurisdictions), a person entitled to custody of a child may appoint by will one or more persons to have custody of the child after the death of the appointer: see s. 61 of the Children’s Law Reform Act.
The appointment is only effective if there is no one surviving who is entitled to custody. In Ontario, the appointment is only effective for 90 days, during which time an application for guardianship is usually brought.
Choosing a guardian can be a difficult task. Where there are two parents, a consensus should be reached. (Under the Ontario legislation, where there is more than one appointment, the appointment is only effective with respect to the guardian(s) named in both appointments.)
The Will of the recently deceased Beastie Boy, Adam Yauch, contains an unusual clause that may be the result of the difficulty of resolving the question of who to appoint, and the compromises that are sometimes made.
In his Will, according to an article on the Forbes website by Deborah L. Jacobs, if Yauch died in an even-numbered year, his parents are to be appointed as guardians of his daughter, with his wife’s parents as backup. If Yauch died in an odd-numbered year, the situation was reversed, and his wife’s parents were appointed guardians, with Yauch’s parents as backup.
Such a clause would only be effective if his wife predeceased him, or died at the same time as Yauch.
Presumably, the terms of Yauch’s wife’s Will mirrored these provisions.
An interesting solution to a common issue.
Thank you for reading,
Paul Trudelle – Click here for more information on Paul Trudelle.