Conflict of Interest
If the power of attorney is also the executor/executrix an interesting conflict of interest arises upon the death of the testator especially if the power of attorney engaged in questionable conduct during their reign. This can manifest itself if the executor engaged in undue influence as a means to receive gifts during the lifetime of the deceased, or took money from the deceased in the guise of representing their interests. The problem is that historically only the executor has the power to investigate the power of attorney and if they are the same person this holding to account is unlikely to happen.
Section 151 of the Wills, Estates and Succession Act (“WESA”) allows for a beneficiary to apply to bring a claim on behalf of the estate against the attorney / executor to compel them to account to the estate of the donor.
Huntsman Law were the first to bring a claim pursuant to section 151 of the WESA and that decision in Werner v. MacLean 2016 BCSC 1510, with specific attention to paragraph 15 can be found here: http://canlii.ca/t/gt1lb . More recently this provision was acted upon in Terezakis v. Ekins, 2018 BCSC 249 http://canlii.ca/t/hqk06 , a decision that followed Werner.
Removal of Executors and Trustees
When there is a problem with an executor / trustee the ability to take action and force their removal is largely derived from the legislation as well as the inherent jurisdiction of the Supreme Court of British Columbia. This person may have misappropriated money, refused to act in the interests of the estate or put their own interests before those of the estate.
Sections 30 – 33 of the Trustee Act, RSBC provide the mechanism where a trustee can be removed, assets taken from them, and those assets then placed in the hands of a new trustee. http://www.bclaws.ca/civix/document/id/complete/statreg/96464_01
Section 158 and 159 of the Wills, Estates and Succession Act provides the mechanism for the removal and replacement of an executor or administrator.
Although the discretion of a will – maker to appoint an executor will not be interfered with lightly it is the welfare of the beneficiaries that will compel the Courts to remove an executor or trustee. Simple animosity is not enough to compel a removal, however a failure to act or settle the affairs of an estate can be grounds for removal. In the 2016 case of Dirnberger Estate (Re) http://canlii.ca/t/gnqv1 Mr. Justice Kelleher set out that the four categories of conduct on an executor / trustee’s part that will warrant removal are: endangerment of the trust property; want of honesty; want of proper capacity to perform the executors’ duties; and want of reasonable fidelity.
The most recent decision with respect to the removal of a trustee is that of the 2019 decision of Mr. Justice Myers in Nieweler Estate (Re) http://canlii.ca/t/hz7qq
An interesting read on just how bad the behaviour of a trustee can be is found in the decision of Loftus v. Farrell https://www.canlii.org/en/bc/bcsc/doc/2001/2001bcsc1136/2001bcsc1136.html . But none more so than the Estate of Forbes McTavish Campbell, 2015 BCSC 774 http://canlii.ca/t/ghkjd
With authority, comes accountability
Power of Attorney
A donor gives power to an attorney pursuant to a Power of Attorney. When the attorney exercises the power that they hold under the Power of Attorney they are acting on behalf of the donor and they owe that donor a duty of good faith and undivided loyalty. Fraud, misappropriation, profiteering, and breaches of trust are not acceptable.
The Power of Attorney is regulated by the Power of Attorney Act http://www.bclaws.ca/civix/document/id/complete/statreg/96370_01 . The duties of the attorney are set out in section 19 of the Act and are not limited to acting honestly and in good faith; exercising the care, diligence and skill of a reasonably prudent person; acting within their authority; keeping records; investing in accordance with the Trustee Act; keeping the donors property separate from his/her own; actin in a manner that is without question for the benefit of the donor.
During the life of the donor an abuse of the power by the attorney donor is reportable to the Office of the Public Guardian and Trustee for British Columbia who are mandated to act, but their office despite being well intentioned is underfunded and overstretched and hence can be slow to address issues.
Upon the death of the donor the executor of the donor’s estate can compel the attorney to prepare their accounts and if they fail to account for the assets of the deceased they can be liable in damages to the extent that they cannot account to the estate of the donor.
The duty of an attorney to account is derived from Section 99 of the Trustee Act, RSBC http://www.bclaws.ca/civix/document/id/complete/statreg/96464_01
Trustees
Since the term “Trustee” is an encompassing term that applies to the following non exhaustive list of persons: Attorneys (Power of Attorney); Executors of Last Will and Testaments; Administrators of Estates; Trustees appointed in Formal Trust Deeds (Express Trusts); Trustees from Constructive Trusts (benefit given with a corresponding deprivation); and Trustees from Resulting Trusts (I give you $20.00 to buy a litre of milk – you hold the change in a resulting trust for me).
Accountability for the Attorney is derived from the Power of Attorney Act and the breaches of that duty of trust are compensable in financial damages to the donor of the Attorney or to donor’s estate. See above.
Executors of Wills and Administrators of Estates are held accountable by a combination of the Division 7 and Division 8 of the Wills, Estates and Succession Act (the “WESA”) http://www.bclaws.ca/civix/document/id/complete/statreg/09013_01#division_d2e10030 , the Trustee Act http://www.bclaws.ca/civix/document/id/complete/statreg/96464_01 , and the inherent jurisdiction of the Supreme Court of British Columbia. The route that may apply to your situation will depend on the facts and there is little point in getting into specifics. We would be happy to discuss your case with you. The Law of Trusts in Canada by Donovan Waters is an excellent resource for diving into detailed examples of breaches of trusts and the remedies available. It is a thick book and not a particularly light read, although absolutely fascinating.
We would be happy to discuss the details of any resulting trust, constructive trust or express trust the breach and the availability of a remedy with you.
On a related topic the very recent decision of our Court of Appeal with respect to secret trusts is an insightful read into many of these issues. http://canlii.ca/t/j8cvb
Fiduciaries
A fiduciary is a person in a position of power or authority over the affairs of another person. There are countless different ways in which a person can become a fiduciary. Many fiduciary relationships do not materialise as a result of a relationship that is defined on paper. However some do, such as the Attorney or Trustee who are also fiduciaries.
In a general sense the law with respect to fiduciaries is usefully summarized in the Mr. Justice Punnets Supreme Court of British Columbia decision in Stewart v. McLean 2010 BCSC 64. http://canlii.ca/t/27k3x as follows:
Fiduciary Relationship
[79] The plaintiff submits that the defendant Donald was in a fiduciary relationship with his mother because of his appointment as her attorney and, further, because of their relationship as mother and son. The plaintiff says that as a result Donald could not legally accept benefits from his mother except in limited circumstances.
[80] The onus is on the plaintiff to establish the duty, the breach and the resulting damages: Mark Vincent Ellis, Fiduciary Duties in Canada, looseleaf, vol. 1 (Toronto: Thomson Reuters Canada, 2004) at 1-25.
[81] The plaintiff relies on Fraser (Guardian ad litem of) v. Fraser, 2000 BCSC 211, 31 E.T.R. (2d) 52, for the proposition that a fiduciary relationship is created by the existence of an Enduring Power of Attorney whether or not it is used in a transaction.
[82] While typically a fiduciary relationship exists between an attorney and a donor, the mere existence of an Enduring Power of Attorney does not always establish the existence of a fiduciary relationship. As explained by Justice Sopinka, writing for the majority on the fiduciary issue, in Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 CanLII 34 (SCC), [1989] 2 S.C.R. 574 at 598, 61 D.L.R. (4th) 14:
When the Court is dealing with one of the traditional relationships, the characteristics or criteria for a fiduciary relationship are assumed to exist. In special circumstances, if they are shown to be absent, the relationship itself will not suffice….
[83] Justice Sopinka accepted the criteria set forth in Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99 at 135-36:
Relationships in which a fiduciary obligation have [sic] been imposed seem to possess three general characteristics:
(1) The fiduciary has scope for the exercise of some discretion or power.
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
[84] The Enduring Power of Attorney was never delivered by the Deceased to Donald; the Deceased chose to retain it. She did not intend the Enduring Power of Attorney to be used by her son until either she chose to allow him to use it or, presumably, she became incapacitated. Donald was never in a position to use the Enduring Power of Attorney. The second criterion above was therefore not met. In my view, an Enduring Power of Attorney does not bring into existence a fiduciary relationship until delivered. In Fraser, the power of attorney had been perfected by delivery.
[85] The plaintiff alleges as well that the Deceased and Donald were generally in a fiduciary relationship as mother and son. Once again, the three factors noted above need to be considered.
[86] The plaintiff asserts that Donald dominated their mother, implying that she was vulnerable. Justice Wedge in Mordo v. Nitting, 2006 BCSC 1761 at paras. 438-41, reviewed the concept of vulnerability in relation to fiduciary relationships:
[438] …With respect to the issue of vulnerability, in Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377 [Hodgkinson], McLachlin J. (as she then was), dissenting (writing for herself, Sopinka and Major JJ.), said:
Vulnerability is the one feature which is considered to be indispensable to the existence of [a fiduciary] relationship (McLachlin J. at para. 119 citing Sopinka J. dissenting in Lac Minerals Ltd. v. International Corona Resources Ltd., [citation omitted].
[439] In Hodgkinson, LaForest J., writing for the majority, did not agree that vulnerability was an essential feature of fiduciary relationships.
[440] In Hodgkinson, McLachlin J. said the following about vulnerability:
[Vulnerability] comports the notion, not only of weakness in the dependent party, but of a relationship in which one party is in the power of the other. To use the phrase of Professor Weinrib, “The Fiduciary Obligation” (1975), 25 U.T.L.J. 1, at p. 7, quoted in Guerin at p. 384 and in Lac Minerals at p. 600, “. . . the hallmark of a fiduciary relation is that the relative legal positions are such that one party is at the mercy of the other’s discretion” (Hodgkinson at para. 129).
Vulnerability does not mean merely “weak” or “weaker”. It connotes a relationship of dependency, an “implicit dependency” by the beneficiary on the fiduciary (D. S. K. Ong, “Fiduciaries: Identification and Remedies” (1984), 8 U. of Tasm. L. Rev. 311, at p. 315); a relationship where one party has ceded power to the other and is, hence, literally “at the mercy” of the other (Hodgkinson at para. 129).
[441] Whether vulnerability is an essential feature of fiduciary relationships, or is merely an important one,…
[87] I find that the deceased, up until her death, was mentally acute, independent, and strong-willed. There is no evidence that she was vulnerable in her relationship with her son nor that he controlled her in any way. She was not dependent on him. While she relied upon him to take her to appointments and stores and to assist around her home, had he been unable to do so, she was capable of making alternate arrangements as evidenced by the various third parties she hired to attend to matters that were beyond her abilities.
[88] Because of the Deceased’s independence and strong-will, Donald would have been unable to exercise any power over his mother. Even if he had some discretion or power, he would not have been able to unilaterally exercise it. I find that the relationship between Donald and his mother was not a fiduciary relationship.