Powers of attorney and conflicts of interest

Advice to seniors about appointing someone to act under a Power of Attorney often includes a recommendation that the senior not appoint someone who is in, or could be in, a conflict of interest position. I believe that the concept of conflict of interest is not well understood by people trying to make good choices, and is worth looking at a little more closely.

A conflict of interest arises when the person acting as Attorney might have to choose between what is best for the senior he represents and what is best for himself.  The Attorney is bound by law to what is best for the senior, while human nature will tempt him to do what is in his own best interests.

The fact that a person is the senior's spouse or child does not in itself create a conflict of interest, but potential conflicts can arise in families. Seniors should not automatically choose their children to appoint as Attorney.

For example, David appoints his son Roger under his Power of Attorney. Roger has always wanted to buy David's lakeside cottage, though David has repeatedly turned down the offers because he loves the cottage. Once Roger starts acting under David's Power of Attorney, he knows he has the legal authority to sell David's property and could sell it to himself. It's best for David if Roger doesn't buy the cottage because David wants to keep it, but Roger is tempted to do what is best for himself.

It's always considered to be a potential conflict when a senior wants to appoint a paid caregiver or a business partner. Both of these people have a financial connection to the senior which creates the conflict. The caregiver would be responsible both for setting the price of care and paying the care bills. The business partner might be tempted to make a sale or transaction that suited himself better than it suits the senior.

Financial abuse of seniors by those holding Powers of Attorney is widespread. Too many seniors have seen their life savings stolen, lost or mishandled by someone they trusted to look after the funds. Some of these cases could have been avoided by the appointment of a different Attorney.

Secrecy not a good idea

Recently I had an issue with a client. This person had approached me for an opinion and assistance with an estate. He was a beneficiary of an estate and didn't really understand the documentation that had been sent by the executor. The problem was that the client wouldn't tell me anything.

I could have saved us both an hour had the client been willing to tell me why he wanted to see me. I'm an in-house lawyer. I can't work on files that are not going to involve the company I work for, so I would have declined to see this particular client. This is why I ask people why they want to see me; if it's something I'm not in a position to handle, I help the client find someone who is. This client was coy right from the starting gate, so I knew that secrecy was going to be an issue.

My meeting with the client was very frustrating. He wouldn't let me see any documentation, even though he expected me to give an opinion on their effect and meaning. Even though he had the documents in his briefcase, he preferred to try to describe them to me. Not an easy job when you're not a lawyer! Especially when you're not prepared to even use anyone's name. He showed me a letter from someone, but folded down the top and folded up the bottom so that I couldn't see who it was from.  Did he really think I was going to give a legal opinion on something I couldn't even see? Our conversation sounded like something from Abbott and Costello (think "who's on first").

In any event, the meeting was a complete waste of time. The client got nothing out of the meeting. All I got was a slight headache.

I've never understood the need to hold back important information from the very person you are hoping will protect you. Over the years I've met one or two clients who make a point of hiding facts from the lawyer. If the client is lucky, we quickly realize things are being held back. If the client is sadly unlucky, we don't realize it, and make documents or court appearances based on only part of the information needed. It never goes well for the client, as we haven't brought the right ammo for the battle.

Nobody can do their job with only half the information. If you ask a mechanic to fix your car's engine, do you hide the car and refuse to tell the mechanic what kind of car it is, even when he says he needs to order parts? Do you only expose the few inches of engine metal that you think is causing the trouble? Do you tell the mechanic he can only work with half the tools he needs? I doubt you'll drive away with your automotive problems sorted out, just as you won't leave the lawyer's office with your legal problems sorted out.

Why do people hide what's really going on? Is it to make themselves look better? Is it because they don't really want to admit to doing things that are petty or vindictive or idiotic? Come on, I've been in this business for so many years now, there is no way that your situation is the worst I've ever seen. And even if it were that bad, I'm not judging. Just be honest so I know what we're up against.

I know that clients sometimes have trouble believing that the information they tell the lawyer won't be told to anyone else. The lawyer's assistant will know some of it, if he or she has to prepare documents. Other than that, the lawyer doesn't tell anyone else. Not even his or her spouse. Clients find that hard to believe, but that's how we operate. Everything you say in your lawyer's office is confidential.

When the family needs an umpire

This article from the New York Times tells the story of conflict between an elderly person and her caregiver, and how a mediator worked out the conflict with them. It gives other ideas about how an elder mediator can help a family. I wish more families were open to the idea of mediation, or at least more committed to communicating with each other before small irritants become enormous! Click here to read the story.

Can my spouse be my executor?

I'm often asked whether having your spouse act as the executor of your Will as well as being the beneficiary of your Will is a conflict. Just the fact that someone is your spouse is not a conflict. In fact, it's very common that husbands and wives appoint each other as their executors.

It works because the finances of the husband and wife are already intertwined, such as when they take out life insurance policies that name each other, or open RRSPs and designate each other as beneficiaries. In most cases, they leave their estates to each other. In addition, it is usually safe to say that they have similar plans when it comes to looking after their children once both of them are gone.

This is not to say that it can't get complicated. For example, where there is a trust set up for a spouse, it might not be ideal for that spouse to be the trustee in charge of deciding whether they want to pay money to themselves. A trust for a spouse might be set up if, for example, a man and woman get married, and it's a second marriage for one of them. Let's say it's the husband who is marrying for the second time. He sets up his Will so that his second spouse can live comfortably for the rest of her life, but when she passes away, the remainder of the estate goes to the man's children from the first marriage.

Maybe it wouldn't make sense for the second wife to be in charge of her own trust. Even if she were completely honest, there is always the appearance of conflict of interest that might cause the children of the first marriage to speculate about how much she is taking for herself and how much she is leaving for them.

Even this doesn't mean that the spouse can't be the executor. A man like the one in our example can say that his spouse is to be his executor, but if there is a trust set up for his spouse, it is to be managed by another trustee. We do this a lot in the trust company where I work. We either act alone as the trustee, or we handle it together with the wife. This doesn't mean that the man doesn't trust his wife. It just means that he is aware of the optics of the situation and wants to avoid problems with the children if possible.

When it comes to choosing an executor, I often advise clients to decide first what they want to have happen with their estates. Once they know what the job is going to involve, they can think about who is best suited to do it. The spouse may or may not be the best choice.

As with all legal issues, the question is not whether you can do something; it is whether you should do it.

What does it mean if a Guardian or Trustee for a parent is in a conflict of interest?

The laws governing guardianship and trusteeship of aging parents are provincially made, and vary across the country. Many of them state that a person who wants to be a guardian and/or trustee for another person must not be in a position of conflict with that person. Even where this is not specifically stated in the law, conflict situations can create legal issues and should be avoided.

Being in a position of conflict means that there is something about you or your relationship to the assisted person that could mean that now or at some time in the future, you might have to choose between your duty to the assisted person and your own best interests.

A person in a conflict position is not a good choice as guardian or trustee because it is only human nature to look out for your own interests, whereas the assisted adult needs and deserves someone who will wholeheartedly look out for him or her.

It's important to understand that being in a conflict of interest doesn't necessarily mean that there is a problem existing right now. A person could have no issues at all with the assisted adult right now, but still be in a conflict position if there is potential for conflict in the future. For example: A man owns a farm which he intends to leave equally to all three of his children when he dies. The man has a son who wants to own the farm himself, and who has asked his father a number of times to sell the farm to him. Even though the father and son may get along well otherwise, the son could be in a conflict position in the future if he is made his father's trustee and has to decide whether or not to sell the farm. The conflict arises because the son will have to decide between what his father wants and what he wants.

Some relationships, by their very nature, may put the person in a conflict of interest. For example, a person whose livelihood is earned by providing personal care for a fee should probably not be the one who decides whether the assisted adult should have that kind of personal care. A business partner of the assisted adult may also be in a conflict of interest because if he or she has to choose what is best for the assisted adult, this may not be what is good for the business.

Some relationships are specifically mentioned in the law as NOT automatically giving rise to a conflict of interest. For example, simply being a family member of the assisted adult does not automatically mean that you are in a conflict position. It is possible, of course, for a family member to be in a conflict position but the family relationship alone is not enough to cause it.  For example, a woman might have lent her son $50,000 expecting him to pay it back when he is able to. Just the fact that he is her son doesn't put him in a conflict position should he become trustee. However, the fact that he owes her a significant amount of money is a potential conflict. His best interest (not repaying the money) would be in direct conflict with her best interest (repaying the money).

If your family is thinking about who would be a good guardian or trustee for your parent, you should think carefully about how your life and that of your siblings interconnects with your parent's life to determine whether someone's personal interests could create a conflict.

(This post is excerpted from my book, Protect Your Elderly Parents)

Can a lawyer act for an executor and for the beneficiaries?

When there is a lawyer acting on an estate, he or she has usually been hired by the executor to handle the probate of the Will and sometimes the administration of the estate as well. In a case like this, the lawyer is acting for the executor. The lawyer's loyalty is to the executor, who in turn represents the estate.

A lawyer can act for the executor and the beneficiaries at the same time, but has to be careful about conflicts of interest. For example, a very common situation is one in which a man dies, leaving his wife as the executor of his estate, but he doesn't leave her the entire estate. The wife hires a lawyer to probate the Will. The lawyer knows that the wife can apply to the court to get more of the estate. The lawyer could not act for the wife with respect to the application for more of the estate, but he or she could act for the wife on the probate. Any executor who is making a personal claim against an estate like this is wearing two hats - one executor hat and one personal (beneficiary) hat - and will likely have two lawyers.

The estate lawyer cannot represent anyone whose interest is, or could be, adverse to the well-being of the estate (for those of you who are into research, this is set out in the Alberta Lawyer's Code of Professional Conduct, Chapter 6, Rule 2, Commentary 2.4).

Most of the time, the beneficiaries don't want or need their own lawyers because things go along smoothly. They would probably hire a lawyer if they wanted to dispute what they were getting under the Will, if they needed an answer to a legal question (such as, was the joint property really joint property), or if they need to do something about an executor who is fraudulent, negligent or otherwise acting suspiciously. Other than that, beneficiaries usually have no need for their own legal representation.

But beneficiaries need to realize that the estate lawyer will do, on the instruction of the executor, what he or she thinks is best for the estate, even if that is not necessarily what any individual beneficiary wants. An individual beneficiary cannot instruct the estate lawyer to do what that one beneficiary wants. That would be chaos.

In most estates, there is a lawyer who represents the estate and is frequently the only lawyer involved in it. When beneficiaries receive the final accounting at the end of the estate and are being asked to sign off on it, they sometimes consult an estate lawyer for a couple of hours just to review/interpret the accounting and to ensure that all is in order.

If you're appointed as an executor, should you accept?

One of the things I've heard many times from clients is that they've been named as someone's executor and they are honored to have been chosen. Don't kid yourself. It may be intended as an honour but the reality is that it's detailed, lengthy, thankless work at times. In this post I want to look at a few of the factors you should consider before you agree to accept the job of being executor.

Keep in mind that you can't be forced to be an executor. You can refuse ("renounce") as long as you refuse before you do anything about the estate that makes you look like you're accepting the job. In many cases, people accept the role out of family obligation, but if that is not the case for you, consider the following questions:

1. Are you prepared to accept the fact that being an executor carries personal liability for any losses you cause to the estate due to fraud, negligence or mistakes?

2. Are you in (or likely to be in) a conflict of interest? The most common of these is a person who wants to contest what he or she is getting under the Will but who is also named as executor. It's not a good idea to try to do both.

3. Is a bond required? And if so, are you bondable? If you live outside of the province in which the estate is to be probated, you will likely have to obtain a bond in the full amount of the estate before you are allowed to proceed.

4. How long is the estate likely to take before it is completely wound up? Are there lengthy trusts under the Will, such as for a young child who is not going to inherit until he or she is 21? Are you prepared to be in charge of the trusts for that long?

5. How complex is the estate? Does the testator own a business that you would have to sell, carry on or wind up? Does he or she own a farm that will require management until it is sold? Are there beneficiaries that are going to be next to impossible to track down? Are there problems with the Will itself that are going to need Court interpretation? Is anyone going to contest the Will?

6. Do you have the time and skills to properly look after the estate? Note that executors can delegate administrative tasks, but can't delegate tasks that require him or her to exercise judgment or discretion.

7. If there is a co-executor named, can you two get along well enough to manage an estate?

8. What are the family dynamics like? If you're part of the family, are long-standing rivalries or disputes going to cause a problem for you? Will you be able to resist the temptation to take sides? Will you be able to handle it if people in your family criticize or nag you?

9. How much compensation will you receive when all the work is done? Hopefully the Will will contain some guidance, but in the event it does not, will getting paid from the estate be a problem?

As you can see, this is a more complex decision than you might have thought at first. Try to be practical in deciding whether you're really prepared to take on an executorship. If you really don't want to do it but there simply isn't anyone else, consider accepting the executorship but hiring a trust company to handle most of the work for you.

Can my executor also be a beneficiary?

I am often asked by people planning their Wills whether it is possible for a beneficiary under their Will to also be named as the executor. This is particularly common in family situations when of course people want to name their own spouses and children as both beneficiary and executor.

In Alberta there is no law that excludes someone from being both beneficiary and executor. This is done all the time, for example where a married couple name each other as their executors and also leave their estates to each other. In cases like that, not only is there no prohibition against the arrangement, but it is clearly the best arrangement that could be made for that particular person's Will. When one person is inheriting the whole estate, having that person act as executor can simplify administrative matters.

There are some situations in which it does not always make sense for the beneficiary and the executor to be the same person. For example, if you are setting up a trust for your son that is intended to ensure that the son doesn't blow all of his money, it doesn't really make sense for the son to be the executor (which also makes him the trustee of his own trust). When the executor is also the trustee of a trust, he or she usually has the power to decide how much of the money in trust is paid to the beneficiary at any given time. It isn't much protection to put the son in charge of deciding how much money he is to receive.

Rather than naming the first person who comes to mind as your executor, put some thought into what an executor under your Will is going to have to do once you have passed away. Once you have an idea what the challenges will be, you can better decide who is equipped to handle those challenges. Remember that if you need a neutral third party to handle a trust, though not necessarily the whole executorship, you can always consider naming a trust company.

There is one restriction that can cause a problem. You cannot allow your beneficiaries to also act as witnesses. Should one of your beneficiaries also be a witness, your Will is still valid, but that beneficiary's gift is invalid. I have seen Wills in which the person had his children act as witnesses to his home-made Will, and tried to leave the estate to those same children. The gifts were invalid, which basically left the man with no Will at all. Fortunately the mistake was discovered on a Will review while the man was still alive and able to correct it.