Articles & Presentations

The duties and responsibilities of an executor/estate trustee of an estate are vast. It is not a job to take lightly. One of the duties of an executor is to determine which relatives are to benefit from an estate in situations where the deceased did not do a will (an intestacy), or where the deceased may have done a will, but, in doing so, he or she did not dispose of all of their property, thus giving rise to a partial intestacy.¹ Provincial intestacy rules govern in situations such as these, and set out a hierarchy of which members of the deceased’s family are entitled to receive the intestate assets. If an intestacy exists, it is incumbent upon the executor/estate trustee to locate all of the beneficiaries, even if unknown to the family. Consequently, the executor/estate trustee may need to retain a genealogist firm to conduct an heirs search.

A recent article in the Society of Trust and Estate Practitioners (STEP) Journal, “STEP Briefing Note: Personal Representatives and Trustees – Genealogists fees,” ² dealt with an important issue that arises in situations giving rise to the necessity of obtaining an heirs search: that being, the cost. As we learn from that article, there is not only a cost of obtaining a search, but there is also a legal cost of not performing one as well.

The article provides a summary of the three main fee options available to an executor/estate trustee, those being: the “Fixed Fee” option, the time-based option, or beneficiary contingency fees. The implications of these options are noted. The “Fixed Fee” option and the time-based options are somewhat self-explanatory and, for the most part, are the more conservative routes.

Beneficiary contingency fee arrangements are more controversial. The way they work is that the genealogist firm will undertake the research necessary to locate a missing heir and then enter into an agreement with the newly-located beneficiary whereby the beneficiary will agree to pay the firm a percentage of their entitlement once the estate is distributed. One of the major drawbacks of this type of heirs search is the fact that, in some cases, and particularly in situations where the estate is large, the percentage requested by the firm is not commensurate with the work performed by the firm, thus making the fee less justifiable from a beneficiary’s perspective and, therefore, more susceptible to challenge.

As noted in the STEP article, an executor/estate trustee, “would need to be confident that a contingency fee was likely to be less expensive than a fixed or time-based fee structure” and, generally-speaking, “should not enter into any agreement which deducts fees from one or more beneficiary’s individual share rather than the residue as a whole without careful consideration.”

While an executor/estate trustee may expose themselves to liability by failing to choose the most reasonable and economical route to locate missing heirs, there is also the risk of failing to make the necessary investigations. Should an executor/estate trustee fail to conduct an heirs search and locate all of the beneficiaries, he or she may be liable to them at a later date for incorrectly disposing of the estate assets.

As such, and as noted, executors/estate trustees must carefully consider the fee options available to them in situations where an heirs search is necessary in order to minimize their vulnerability to claims by disgruntled beneficiaries.

For a more in depth analysis of this issue, click here to link to the STEP article online

Therein, readers can also find helpful links to further articles on this topic.

–
1. Notably, pursuant to section 1 of the Crown Administration of Estates Act, R.S.O. 1990, c. C.47, in situations where there is no potential executor of an intestate estate, the Superior Court of Justice, on application by the Public Guardian Trustee (PGT), may grant to the PGT letters probate in accordance with that Act. And, pursuant to section 2.1(2), the PGT is authorized to: (1) identify and locate persons who may have an interest in the estate as well as other persons, but only for the purpose of locating persons who may have an interest in the estate; and (2) identify the estate’s assets.

2. http://whaleyestatelitigation.com/blog/2011/10/heirs-searches-and-genealogist-fees-the-costs-and-risks/

All too often, we are approached by prospective clients shortly after the death of a loved one who are convinced that a family member, friend, or acquaintance took advantage of that deceased person during their lifetime pursuant to a power of attorney for property granted in their favour. Monies were spent, often in significant and uncustomary amounts, and properties, including the life-long home of the deceased, were transferred inter vivos to the attorney often leaving the deceased bereft and alone in a retirement home, or worse.

As disclosure is needed to truly ascertain the extent of spending, clients frequently demand that they be provided with an “accounting” or a “passing of accounts.” Indeed, some clients are even willing to spend every last cent in the estate to uncover the evidence necessary to prove that the attorney abused the deceased grantor who entrusted them with their financial affairs.

There is little doubt that with our growing aging population there comes a correlative increase in cognition issues afflicting the elderly, thus making them more vulnerable to financial predators, with the attorney for property being the prime means of exploitation. And, there is little doubt that in so many such cases, the clients that approach us are right on the money with their suspicions.

The difficulty that arises, however, is the fact that while there is little doubt that the client is correct and that something terribly wrong not long before the death of the deceased, the requirement to account and the standard of the accounting that can be legally requested and expected is, to some extent, dependent upon whether the deceased person lacked capacity. Unfortunately, the state of the law is such that simply because a person was severely physically ill or suffered from certain cognition issues, or fluctuated in and out of capacity, does not mean that that person was incapable of managing their financial affairs during the period when the spending spree took place. This problem is exacerbated by the fact that the key witness—the deceased—is no longer available to provide the evidence necessary to resolve the dispute.

Re Coupland Estate¹ is a case that dealt with the very issue of the accounting standard to be expected of an attorney/fiduciary in situations where a grantor of an attorney does not lack capacity and, therefore, the facts do not invoke the strict and detailed accounting requirements set out in the Substitute Decisions Act (the “SDA”)² and the Rules of Civil Procedure (the “Rules”)³.

Here, Ms. McDonald and the late Mr. Coupland married in or about 1993. They entered into a cohabitation agreement releasing each others’ estates and claims for equalization. They also provided for, among other things, Ms. McDonald to receive a weekly stipened of $125.00 from Mr. Coupland. In 1996, Mr. Coupland gave Ms. McDonald a general power of attorney over his CIBC bank account only. He then gave her a second power to enable her to deposit his pension cheque into her own account without the need for his signature.

The evidence was uncontradicted that the sole reason for these actions was due to Mr. Coupland’s physical problems which caused him to have great difficulty in signing cheques. The evidence of Ms. McDonald was that she acted solely at his discretion and discussion in dealing with the accounts and his money. According to the judge, she even learned to balance his cheque book, for his review. Indeed, the broker used by Mr. Coupland provided in his affidavit that, until his death, Mr. Coupland gave all directions on his investment account, including redemption and transfer and that Ms. McDonald had no authority over that account. The evidence was likewise uncontradicted that Mr. Coupland was mentally incapable prior to his death. Hence, the Court found, he did not fall within the definition of “incapable” pursuant to the SDA.

In light of the foregoing, combined with the specific nature of the attorneys granted by the deceased, the Court found that the provisions of the SDA regarding accounts and accounting standards did not apply. While the Court acknowledged that there is a common law duty “to account for funds dealt with by one person for another, the beneficial owner,”⁴ the attorney in this case met her obligations. The Court stated the following:

In this case accounts have been provided from the reconstructed materials given that no records were kept by the attorney at the time. However the materials comply, I find, with the order in the circumstances. The evidence of Ms. McDonald, again uncontradicted, is that she accounted to him for all dealings with his account, and his money, that he directed the amount of funds to be put into the account, and that he controlled the capital fund from which the monies in the account came from. She also testified that the funds were in part used for household expenses and for their lifestyle. The total expenditure of funds did not exceed the income deposited by the deceased again I find to be a reflection of his capacity and his control of expenditures. Less funds were expended after she had power of attorney than when he had signing authority. Therefore to the extent that at common law she had a duty to account to the beneficial owner, I find that she did so. ⁵

In light of the foregoing, the Court ordered that the estate accounts filed by the applicant were passed. Compensation was denied to the attorney in the circumstances, although the costs incurred only by Ms. McDonald for the passing of accounts were allowed and payable out of the capital of the Estate.

Notably, the decision of the trial judge was appealed by the estate trustees.⁶ However, the Court of Appeal dismissed the appeal, stating:

On the merits of the appeal, the evidence clearly supported the finding of the motion judge that the respondent wife had satisfactorily accounted to the husband during his lifetime for all transactions she executed pursuant to the two specific powers of attorney. Indeed, the appellant fairly concedes that there was evidence to support that finding. In our view, the motion judge was also entitled to her finding that the husband was both entitled to and did bestow gifts on the respondent wife. ⁷

The costs of the appeal were fixed at $6,000 inclusive of GST and disbursements and payable to the respondent from the appellants’ share as beneficiaries of the estate.

The upshot of Re Coupland Estate is this: the common law standard of accounting expected of an attorney in situations where a deceased is not “incapable” is a low one. Even in situations, like this one, where the attorney does not keep a single record from the period for which the accounts were prepared may be considered adequate by our courts. As such, would-be litigants would be well-advised to heed to the lesson learned by the beneficiaries/estate trustees in Re Coupland Estate and accept that they may not get all of the answers they hope for, as difficult and troubling as that may be.

–
Footnotes:
1. Coupland Estate, Re, 2005 CarswellOnt 8868 (Ont. S.C.J.).
2. 1992, S.O. 1992, c. 30.
3. R.R.O. 1990, Reg. 194.
4. Supra note 2 at par. 4.
5. Ibid. at par. 4.
6. 2006 CarswellOnt 3071 (Ont. C.A.).
7. Ibid. at par. 2.
8. Ibid. at par. 4.

This article is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.