Ontario court: trustees can't just act in any manner they want

The Ontario Supreme Court of Justice recently handed down an interesting judgment that affects all trustees (which includes executors). It was a case involving a contested passing of accounts on a family trust. The case is Steven Thompson Family Trust v. Thompson.

The trustees wanted to pass their accounts. The beneficiaries objected to several expenditures, including fees paid to the trustees and fees paid to lawyers and accountants. To defend themselves, the trustees relied on two clauses that are very commonly found in wills and trust documents.

The first clause in question was one that allowed the trustees to hire lawyers, accountants and others to help them with the trust administration, and to pay them from the trust. The second clause, known as an exculpatory clause, was one that indemnified the trustees from any liability arising from errors that were made even though the trustees acted in good faith. As I said, these clauses are often included in trust documents to show that the settlor of the trust (or the testator of a will) intend for the trustees not to face legal trouble or financial loss due to errors.

The court looked at these clauses in the context of the facts of the case. The judge said that "an exculpatory clause cannot be a license to a trustee to act in any manner he wants." The judge refused to accept that an exculpatory clause means that no matter what a trustee does, the court can't blame them. As the judge said, for the beneficiaries of a trust, there is usually no way to fix trustees' mistakes without going to court, so it would be very unfair to cut off access to the courts.

Of the 23 disbursements to which the beneficiaries objected, 20 were disallowed by the court. Legal and accounting fees paid out that were considered to be no real benefit to the trust were disallowed, meaning that the trustees could not be reimbursed for them from the trust. This included $14,000 to a lawyer, $31,000 to accountants and an overpayment of $22,000 in trustee fees.

Those are pretty hefty bills to be paid out personally by trustees, but as the judge said, if the actions being taken are not really to the benefit of the trust, they shouldn't be paid out of the trust, even if the trust contains a clause saying that trustees are not to be blamed for mistakes.

An estate plan for Cinderella's parents

I've always thought that fairy tales in general are more suited to adults than the children to whom we recite them. The young and the vulnerable don't do well in fairy tales, being exposed to and abused by everything from man-eating giants to wolves in sheep's clothing to wicked step-mothers. I wouldn't think they'd be very comforting stories for kids, though I have to admit my own daughter loved Cinderella when she was young.

In an entertaining article, American lawyer Ahmed Shaikh describes how many of these alarming fairy tales, particularly the story of Cinderella, were rooted in real life situations such as a parent passing away. Click here to read this very enjoyable article, and think about what you should do to prevent your own children from living Cinderella's nightmare.

Is an inheritance held in trust for a child paid to the parent?

This reader's note contains two of the questions I hear more often than almost any others. The reader's children have been left money in a trust and she is wondering about some of the logistics. Here is the question:

"My aunt left a will and probate has been done, and distribution of funds has been received. My question is about residue which is left to my twins, both 16 yr old children. The trustee is the executor. How long do they take to settle or close the case and distribute whatever is left over? And do trustees pass over the funds to the guardian, which is the mother?"

I'll tackle the questions one at a time. The first question is about how long it takes for an executor to wind up and estate and pay out the residue of the estate. The answer will depend on a couple of things.

The residue of the estate is not paid out until all of the bills and liabilities of the estate have been paid. Bills themselves are not usually a problem, but it can take a while to have tax returns done, pay the taxes, and receive a Clearance Certificate from Canada Revenue Agency. Because of this, the time it takes to wrap up an estate varies widely.

On a related note, the time that elapses before pay-out also depends on whether or not the executor is willing to make an interim distribution before the Clearance Certificate is received. Most executors by far do this, but they are not required to do so.

As a general rule, you should expect an estate to be wound up and paid out within a year of the death of the testator unless there are complications such as a lawsuit, or complex assets to deal with.

Your second question asks whether the trustee will pay the children's funds over to the guardian. Generally, no they don't. They have been given the job to look after the money for a certain amount of time in a certain way, and they can't make sure that 's done if they give the money to someone else to look after. Being someone's mother doesn't entitle you to receive money in a trust for them, though most parents are pretty annoyed when they hear this.

Also keep in mind that often trusts are written so that if a child should pass away before the end of the trust, the money left over is to be paid to someone else. Obviously this is unlikely to happen if the money has all been paid out to the guardian.

The most important factor in determining whether the children's funds may be paid to their parent is the wording in the will itself. Specific wording in a will always over-rides the general rule.

Who is the trustee of the trust for a minor child?

The following question from a reader asks about the logistics of administering a trust for a minor child. As you will see, a properly drafted will is the key to this arrangement running smoothly. Here's the question:

My aunt left a will for me and my children, both minors, 15/13 yr old. If their funds are held under a trust, who will be their trustee? Is it their mother or anyone that is appointed by the executor? If funds are held until minors are 18 years old, can the parent use the funds before they turn 18? Can my aunt or friends be the trustee if the parents of minor are still alive?When funds are left to a minor in a will, the will itself is the guide to how the trust is going to be set up and administered. The trustee of all trusts in a will is the executor and trustee of the estate, unless the will specifically says something different. For example, some people who are leaving large trusts behind will name a trust company to manage the trust to ensure that it's done properly and honestly. This can happen even when the trust company is not an executor.

In your question, you ask whether the trustee is someone appointed by the executor. You'll note that the trustee is not appointed by the executor, it IS the executor, unless as I said, the will specifies someone else. In some circumstances, it could be the Public Trustee for the province.

It's interesting that you ask whether someone else can be the trustee if the minor's parents are still alive. This has nothing at all to do with the parents. It's all about a gift coming from an estate and that gift isn't given to the parent. It's going to a child, by way of a trustee. And yes, that trustee can be anyone who is named in the will. In your case, it can't be the aunt because you said it's her will, so presumably the trust isn't created until she has passed away. It could, however, be friends or siblings. The parents do not have the right to be a trustee just because the beneficiary is their child. It isn't their money so they have no right to it. In fact, plenty of trusts are set up with specific instructions that the child's parents never, under any circumstances, be made the trustee.

The will should also state the age at which the minor is supposed to inherit the money. While the child can't inherit while he or she is under the age of majority, the will can specify a later age. Don't assume the minor will inherit on his or her 18th birthday; the will might say age 21 or even older. The age set out in the will is the age the child will inherit. I've seen people set up trusts for individuals who won't inherit until they are 65!

Whether or not some of the money can be used before the child turns 18 also depends on the will. If the will simply says the child inherits at age 18, then that's what happens. No advances would be allowed. It would take a court order to change that, and such orders are not always granted. In the will that sets up the trust, look for a specific clause that allows the trustee to use the funds, and for what purposes. This type of clause should also specifically say whether the capital of the trust can be used, or only the interest earned on it can be used.

Sometimes funds set aside for a child are restricted so that they can only be used (before age of inheritance) for specific things such as education. In most cases though, a will says that the funds can be used for the child's general benefit. Keep in mind though, this is at the discretion of the trustee. You or the child may ask for funds but the trustee can say yes or no.

Hopefully this answers a few questions about trusts for minors. I hope it also points out to the many parents reading this post just how important it is to have a trust for children properly drafted in your will. Simple isn't always better if it leaves out these essential details.

Can a house be sold when one joint owner has lost capacity?

What happens when a husband and wife own a house jointly and one of them has lost mental and physical capacity? Can the house be sold? I'd like to share this reader's question with all of you because it asks about a very common situation that many of you will recognize.

"My dad was diagnosed with Alzheimer's disease and recently suffered a stroke.  He does not have a POA set up.  My parents have joint tenancy of their house in Ontario.  Is it true that we cannot sell the house to fund his nursing home expenses?"

 

The fact that you're asking whether "it's true" tells me that someone has already advised you that the house can't be sold. I have no idea whether that information came from a lawyer, realtor or just a friend, but I agree with them. The house can't be sold based on today's facts, but this can be fixed.

 

The fact that the house is held in joint tenancy by your father and mother means that the house can't be sold without signatures by both of them. It sounds as if your mother is capable of signing documents and is willing to do so, but she is only one half of the owners.

 

The question is what to do about getting your father's signature. From what you've said, he is not capable of understanding legal documents. This is not surprising given that he has Alzheimer's disease as well as the after-effects of a stroke. He cannot and should not be asked to sign anything. If he isn't capable himself, we have to look at whether anyone has the legal right to sign on his behalf.

 

Many people seem to think that a spouse can automatically sign things on behalf of the other spouse in difficult situations like this, but they are completely wrong.

 

The best solution at this point would be to use a Power of Attorney. If properly drafted, your father's chosen representative could use that document to give your father's consent for him, and to sign for him. However, you've already said that your father didn't set up a Power of Attorney, so that option is out.

 

There is another option. Someone can apply to the court to be appointed as your father's trustee. This would give someone the right to act on behalf of your father, with similar rights and responsibilities as that person would have under a Power of Attorney. Obviously going through this procedure is going to take longer and be more costly than simply using a Power of Attorney but in the absence of your father's planning, it's likely the best option.

 

It's essential that when you or your mother make this application to the court that you ensure that the power to sell real estate is included. It's not automatic in all jurisdictions.

 

If you need help getting started, any lawyer who does estate planning should be able to work with you. If you want to look into doing it yourself, you could always check out my book called Protect Your Elderly Parents: Become Your Parent's Guardian or Trustee.

 

 

 

 

 

 

 

 

 

My parent can't manage alone anymore. What are my options?

Your parent is getting older, and it has become obvious that he or she simply can't manage alone without significant help from you or your siblings. Do you know what your options are? Many people assume that they will have to apply to the court to become a guardian and/or trustee for their parents, but will they?

Before deciding to make that application to the court, it's worthwhile to consider whether there are any alternatives available. Each elderly person's situation and needs are unique, and it may be the case that those needs can be met by measures that are less expensive and less intrusive than having a guardian or trustee appointed.

For example, a senior living alone might have no trouble understanding his or her banking and looking after investment transactions but might have physical limitations. It might be possible to avoid the expense and trouble of having a guardian appointed for this person if someone could accompany him or her to the bank on a regular basis. Being appointed as a trustee who controls this person's money should be a last resort.

Alternatives should be explored for two reasons. The first reason is that guardianship and trusteeship can be invasive to an individual. How would you like it if someone took over control of your whole life? The second reason is that court applications can be expensive and may deplete a modest estate unneccessarily.

In many jurisdictions in Canada, the law expressly says that no guardian or trustee can be appointed if there are effective alternatives available. In Saskatchewan, for example, if you are applying to be a guardian or trustee of an older adult, you will be required to first show the court that other, less intrusive, methods have been tried or at least seriously considered. In the Northwest Territories, the court won't make a trusteeship order unless you can satisfy the court that there is no alternative available that is less restrictive of the older adult's decision-making rights.

Not all jurisdictions have this kind of requirement stated right in the law itself, but the concept of using the courts only as a last resort is well established.

Some of the alternatives you might consider are listed  below. Some address guardianship issues and some address trusteeship issues, and perhaps your solution will be a combination of them:

1.  Informal trusteeship - if your elderly relative is receiving benefits from the federal government (OAS, CPP, GIS, spouse's allowance, survivor's allowance), Veteran's Affairs or the provincial government, it may be possible for a family member to apply directly to the government to become an informal trustee for those benefits alone.

2.  In-home support - if the issues facing your relatives are largely due to physical limitations and not loss of mental capacity, you might consider assisting your relative to continue to live in his or her own home, if that is their wish. This is often possible if you arrange suitable in-home helpers to assist with nursing needs, housekeeping, nutrition, or transportation.

3.  Move in with relatives or into a supported living facility - sometimes the move to an environment where the older relative has access to the amount of help needed when it's needed can avoid the need for formal legal arrangements.

4.  Health care directive - this document may be signed by the older relative to appoint someone of their choice to make medical, health and personal decisions for them when they are unable to do so alone.

5.  Representation agreements - in British Columbia, Saskatchewan and the Yukon, an older person can make a written agreement with a trusted friend or relative who is willing to assist the older person with decision-making. This is only for personal decisions and not for financial decisions. Alberta and the Yukon also have supported decision-making arrangements as well.  Unlike health care directives which allow someone to act for an older relative, representation and supported decision-making agreements allow someone to act with the older relative.

6.  Enduring Power of Attorney - this document may be signed by the older relative to appoint someone of their choice to take over management of financial matters. The document can either take effect immediately, if that's what the older person wants, or it can come into effect at a later date when the older person begins to lose mental capacity.

7.  Bank power of attorney - unlike the Enduring Power of Attorney mentioned above, which would cover all of a person's assets, a bank power of attorney is signed only for a specific bank account or investment. It's a perfect solution when the older person really only needs help with banking or bill-paying.

I've talked about many of these alternatives in greater detail in previous blog posts, and I'll continue to develop others. It's essential that when we set out to help our older parents and relatives, we take the time to understand what they need, and offer only as much help as it takes to fill those needs.

Memo to Trustees supplements your will with personal instructions

After you pass away, your will is going to be read by your family members, and possibly by others such as a lawyer, judge, probate clerk, land registry clerk and accountant. There really isn't much privacy for such a private document. But what if there are words you want to leave behind that you don't want exposed to all those sets of eyes?

For example, say you've used your will to set up a trust for one of your children to age 30 but not for the other children. The will doesn't say why you've done that, nor should it. There is no need to embarrass or upset the child by laying out for all to see what you perceive to be his failings or weaknesses.Is there a way of explaining things just to those who need to know?

As another example, what if you are leaving your young or teenaged children a large legacy but are concerned that they won't know how to handle the money once they get it? Wouldn't it be great if you could give some detailed, private instructions and instructions to the trustees of the money about what you think your kids need?

There's nothing stopping anyone from writing a personal letter to a family member to be read once the writer has passed away. In this case though, I'm talking about instructions or explanations for your executor or trustee that are specifically focused on looking after your family and your estate.

Most wills contain the bare bones of the testator's wishes. I have always liked to put a little more information in wills to explain anything unusual, but not all lawyers do that by any means. This results in executors and trustees being asked to set up and administer trusts without much guidance. The legalities are simple enough: set up a trust with a certain amount of money for a certain person and pay it out at a pre-determined time. I'm suggesting that you can provide much more detailed guidance that would be helpful on a day-to-day basis.

This is done in the form of a document called a Memorandum to Trustees. This document is sometimes done at the same time as your will, and sometimes later, but in either event is kept with your will. It doesn't form part of your will, so when you pass away, even if the will is sent to the court for probate, the Memorandum is not. It is seen only by the executor or trustee.

The document is not legally binding. Think of this as a letter to the person you've named as your executor or trustee giving the background for the decisions you made in your wil, and giving suggestions on how you think things should be done.

Most trusts for children or spouses give the trustee a discretion as to how much money the children or spouse should receive. That is important from a legal point of view, but think about what that's actually like for the trustee on a day-to-day basis. Which requests for money does he grant and which does he turn down? What are the long-term goals he is trying to achieve, beyond safeguarding the money?

One of the topics I've seen covered in this type of Memorandum is a parent's wish that the children be educated as to how to handle money.  In other words, a parent who lived would have made this a priority for his children, and if he passes away, he wants his representative to make it a priority too. The Memorandum can express a general wish or instruction, or it can be as detailed as giving the name of a financial advisor the parents like.

Many parents use the Memorandum to reinforce their desire that their estates be used to fund their children's education. They talk about everything right down to whether or not the trustee should buy the children a car to travel to school.

In another Memorandum I dealt with not long ago, a husband explained that he had not named his wife as executor because she had asked him not to, and that his decision to appoint someone else had nothing to do with not trusting her or thinking her incapable of handling it. His Memorandum to the executor directed the executor to let his wife do as she pleased with the money.

There is no required form for a Memorandum like this. They may be typed or handwritten. They don't need witnesses, as they are not legal documents. They can be one paragraph or several pages. Their importance lies in the fact that you as a parent or spouse get to supplement your will in a personal way.

Adult trusteeship: what is a passing of accounts all about?

"Passing of accounts" involves a trustee showing the courts what he or she has done with the money and property he or she handles for an incapacitated adult. If the judge is satisfied with the transactions ("accounts") for a set period of time, then they are said to have been "passed" by the judge. In some jurisdictions the process takes place in an open courtroom, and in others it is all dealt with by way of paperwork.

A passing of accounts may take place for various reasons. In some places, the law states that a trustee will automatically have the responsibility of passing his or her accounts on a regular basis. In all parts of Canada, a trustee must pass his accounts if he no longer wants to be the trustee and wants to hand matters over to another person. In fact a trustee is not permitted to quit until he has passed them.

A judge can order at any time that a trustee bring his accounts to court for passing. The judge might do this, for example, if a concerned relative of the incapacited person has asked the court for help. While most passing of accounts applications go through smoothly and without problems, others are hotly contested.

When looking at a trustee's accounts, the judge is looking for several items of information, including:

• the over-all financial situation of the incapacitated person, particularly in relation to the financial situation when the trustee first took over
• whether the incapacitated adult is being properly provided for
• whether money is missing, or everything is accounted for
• whether the trustee is maximizing the incapacitated adult's finances, for example by applying for all pensions and benefits available and by investing wisely
• how the incapacitated adult's property is being held, for example, whether the trustee has wrongly put the property in someone else's name
• whether the trustee has stayed within his authority, which means not doing things like giving away the incapacitated adult's money or making loans with that money to family members

The court wants to know that the trustee is managing the money properly. Knowing that one day he or she might be called upon to pass accounts, trustees should keep very good records.

Mom makes one child beneficiary, hoping he'll share, but...

A mother made a will, leaving her estate to her oldest child. She tells her children that she has done this with the intention that the oldest child will pay the bills then share the estate with his siblings. But what if he doesn't share? This is the situation one of my readers is dealing with right now.

Now, I don't know why the mother in this case made such a disastrous will. Perhaps she was ill and in a hurry to get something - anything - onto paper. Perhaps she was trying to save a few dollars on the cost of a professionally prepared will, not realizing she was putting her children into a situation where they might have to endure costly estate litigation. Perhaps she was just overly trusting of her oldest son. Very few parents are able to admit that one of their children would ever behave badly to his siblings.

I also don't know why the oldest child is refusing to share. Maybe the mother told him something about the distribution that she didn't tell the others and he feels he really is carrying out her wishes. Maybe he feels that since he's looked after her during her lifetime he's entitled to more. He certainly wouldn't be the first executor to start legal fireworks by re-writing the will he was supposed to be following. Or maybe he just feels that he is going to rely on the letter of the law that says the inheritance is his.

There are both legal responsibilities and moral responsibilities in play here.

The siblings say that their mother intended the estate to be shared among them. Let's take a purely legal look at this. What record exists of her intention? Her will actually says the opposite - that she is leaving the entire estate to one child. A will is supposed to record the last wishes of the testator, isn't it? So on the face of it, the will should stand as an accurate record of what she wanted. She didn't set up a trust and put the oldest child in charge. She didn't divide up the estate among the children herself. She simply left it all to one child. The only proof of her intention of splitting the estate comes from those people who would benefit financially from the split.

The other side of the equation is the moral obligation of the oldest child to carry out the mother's intention, if she did in fact tell him that she expected him to divide the estate. This is an area that is changing thanks to recent cases, many from British Columbia, in which a moral obligation is relied upon to change the division of the estate. The likelihood of success will rely in large part on the provincial or territorial laws of estates that are in place.

But if the other children take the oldest child to court to force him to divide the estate, haven't all of them  - the oldest child included - already lost? Just the fact that they are spending money of their own and are partially depleting the estate reduces the value of the prize they are fighting over. And this doesn't even take into account the damage to the family relationships that will likely never recover from a lengthy, costly, nasty court battle.

The initial mistake was made by the mother, who left a will that any lawyer worth his or her salt would have told her straight up was a disaster in the making. Your will should reflect your actual intentions. No parent should leave everything to one child, assuming or intending for the child to decide what is right. That's the job of the testator, not the executor. Why pit one of your children against the others?

When attorney under PofA becomes a co-executor

Recently a reader asked me a question that I think would be of interest to many of you, so I'm posting it, and my reply, here:

Q: "My father passed away recently and I am one of three executors in his will. However, a few weeks prior to his death, I became the attorney (is this now called trustee?)when my father's enduring power of attorney was put into effect due to mental incapacity. I realize the EPOA ceases to exist upon death, however, I am wondering if I have "special" responsibilities because of the "attorney role"? "

A: "I'm sorry to hear about your dad. The three executors have equal responsibility and decision-making duties, but you are right that you are in a slightly different situation because you acted as attorney. An attorney's responsibility to the executors is to account for what he did while he was the attorney. So in your case, you must show your fellow executors the bank statements etc that show what you did. There doesn't necessarily have to be a formal set of financial reporting documents if you only acted for a few weeks and basically kept things running as your dad had run them. If you made any purchases with your dad's money or changed any banking arrangements, you have to show this to the other executors.

Other than the reporting requirement, there really isn't any other difference between the roles of the three executors.

As for the question about the wording - a trustee is anyone who is looking after money or property for someone else, so both executors and attorneys are types of trustees. Attorneys are sort of a blend of agents and trustees, but because they look after someone elses's money when there is incapacity, they are considered trustees. However, you're correct to refer to yourself (before your dad's passing) as an attorney because that specifically identifies you as someone acting under a Power of Attorney, as opposed to someone acting under a will or trust deed.

It sounds like you're on top of things and I hope it goes as smoothly as possible."

Duties of court-appointed trustee for an incapacitated adult

If you're considering becoming a trustee for an aging parent who is losing capacity or for another adult who is mentally challenged, you maybe wondering what you're getting into. In this post, I'm referring to an adult who has not prepared a Power of Attorney but has lost capacity and must have someone appointed by the court to look after their affairs.

A trustee is put in charge of money or property, or both. You are not in charge of personal decisions such health, medical or living arrangements unless you are appointed as a guardian. These roles are known by different names across the country (wouldn't it be convenient if we all called things the same?), but every province and territory has a process for appointing someone for an incapacitated adult. In some provinces, trusteeship and guardianship are rolled into one.

The role of trustee is often defined by what you can't do, but what is it that you are supposed to do? Here are the basics:

1.  You must act on behalf of the incapacitated adult at all times, even if it means going against your own interests. Be realistic - can you do that? If it's in the adult's best interest to sell the lake cottage but you've always had your heart set on inheriting it, can you still do what's best for them?

2. You must become familiar with all of the adult's assets and organize them in a way that maximizes and protects them. For example, would all of that cash lying around in a bank account be better off in an investment account? Should that vacant house be rented out, sold, renovated? Are assets properly insured? Are credit cards and debit cards secure?

3.  You must maximize sources of income, such as public and private pensions, investments, interest, GST rebates, and rental income.

4.  You must pay the adult's bills. This includes daily living expenses such as accommodation, transportation, medicine, food, clothing, insurance, cable, telephone, heat etc. It also includes occasional expenses such as furniture, vacations, home renovations, in-home care, or medical supplies such as a wheelchair. While you want to ensure that an adult is living within his or her means, you also want to make sure that an adult who can afford a nicer lifestyle has that lifestyle. Don't cheap out on the adult's accommodation or care in order to save more for an inheritance.

5.  You must protect the adult from financial predators, whether those are door-to-door scammers or family members constantly asking for money.

6.  You must ask for financial advice from a professional planner or advisor unless you are trained in that area yourself, as you are responsible for losses due to recklessness or foolishness.

7.  You must keep detailed, accurate records of all financial transactions.

8.  You must apply to the court for a review of your trusteeship or passing of accounts if the court order appointing you directs you to do that.

9.  You must see that the adult's income tax returns are completed each year.

10.  You must work with the adult to determine how much money he or she needs for discretionary spending, how much he or she can safely handle, and the best way for him or her to do that. For example, should he or she have a debit card? A credit card? Cash on a weekly basis?

11.  You must work with anyone appointed as a guardian to ensure that arrangements being made by the guardian are within the financial means of the incapacitated adult.

12.  If the adult passes away, you must stop acting on behalf of the adult. You must provide your financial records to the executor. You must pass possession of all assets to the executor.

13.  You must remember that it's not your money!

Alternatives to court-ordered guardianship and trusteeship for an aging parent

The legislation setting out policy and procedures for becoming a guardian and/or a trustee for aging parents is made provincially, not federally, so it differs across the country. One concept that is present in the legislation of most parts of Canada is that a full guardianship and trusteeship is a last resort. Other, less intrusive, means of helping an aging parent should be tried first, or at least considered.

The idea behind this is that taking away full control of a person's money and life is going overboard. It's like doing a major surgery when all you needed was a few stitches. The amount and type of help offered should be appropriate to the person's specific situation.

Now that we've established that looking at alternative solutions is a good idea, let's look more closely. What exactly are those alternative solutions?

Enduring (Continuing/Durable) Power of Attorney - this document allows a senior to choose the person who will make financial decisions once the senior loses the ability to do that for himself. It enables someone to do all of the things - and more - than someone could with a court appointment as trustee. It's cheaper and quicker, but best of all it allows the senior to exercise control over important decisions.

Health Care (Personal/Medical/Advance) Directive - this document allows the appointed person to make decisions about health care, medical procedures, place of residence and many more matters when the senior can no longer do that. Again, it allows the senior to choose who represents him.

Representation agreements/Supported decision making - under this kind of arrangement, the senior can choose someone to help him or her with decision-making to the extent that he or she wants help. Unlike powers of attorney or health directives, this arrangement enables the person to make decisions with the senior, rather than for the senior. This is available in one form or another in BC, Saskatchewan, Yukon and Alberta.

Informal trusteeship - this refers to an arrangement whereby a person gains legal authority over another person's pension or benefit income, to use those income sources on behalf of the person who owns them. He or she may collect the pensions, deposit them and use them to pay the owner's bills. Informal trusteeship is available for Old Age Security, Canada Pension Plan, Guaranteed Income Supplement, Spouse's Allowance, Survivor's Allowance and Veteran's Affairs benefits. I posted about informal trusteeship once before - click here to read it.

In-Home Support - (sometimes also called Aging in Place support) - this refers to any combination of medical services, housekeeping services, companionship and transportation that allows an aging person to continue living in his or her own house rather than moving to a seniors' residence. If the problems are more severe, medically speaking, the in-home care might have to be a full-time live-in caregiver.

Renovations to the senior's home - making appropriate renovations might make it possible for a senior to stay in his or her home longer, particularly when teamed with in-home support. A variation on this is to renovate the home of one of the senior's children and have the senior move in there.

Custodial bank account - this is a type of account offered at most banks that provides additional services, such as managing the investments, getting the annual tax return filed and paying bills.

Joint assets - those of you who read my blog often know that I'm not generally in favour of placing a senior's assets in joint names with anyone but his or her spouse, but from time to time it's the right solution. Placing assets in joint names gives both people a right of survivorship of the assets, so it should only be used when the senior has an opportunity to talk to a lawyer first.

Should an executor invest estate funds?

In this blog, we mention executor's duties pretty often, and we sometimes mention the executor's bank account. That's an account that an executor opens when he or she begins working on an estate, so that there is a place to deposit funds coming into the estate. The account is later used to pay bills and distribute the estate to the beneficiaries.

Now, I don't want you to take the words "executor's bank account" too literally. Don't leave large amounts of money in a cash account if you have the chance to invest it. As an executor, your responsibility is to maximize the estate value for the beneficiaries. For example, if you have sold the deceased's home and cashed in the RRIF and the life insurance policy, you might have close to a million dollars. If you know you won't be paying the beneficiaries until some legal and accounting problems are sorted out - say six months away - you should invest the funds. Think of the income that could be lost over six months from that much money.

An executor who has the chance to invest estate money because the funds are being held in trust while estate matters are being worked out, should invest the funds. If he or she doesn't invest, and a beneficiary realizes that the interest that could have been earned would be in the thousands of dollars, the executor may be on the hook for that lost income.

When you are choosing an investment, you will base your decision partly on how long you expect the funds to be invested. You won't always know, of course, but if you believe the estate work is almost all wound up, you wouldn't choose an investment that is locked in for, say, a year. On the other hand, if you're setting up a trust for a five-year-old that isn't due to be paid out until the child is 18, you probably wouldn't invest in something that has to be rolled over every 30 days.

When you're investing on behalf of the estate, make sure that all investments are properly set up so that interest earned is allocated to the estate and not to you personally.

In most places in Canada, executors and administrators are permitted to invest estate funds in any kind of investment (e.g. stocks, GICs, mutual funds) as long as the executor uses the same care and attention that a reasonably prudent person would use. It is always worth the time to talk to your banker or investment advisor when investing estate money to make sure that you're not breaching your province or territory's Trustee Act in any way.

An executor should check the Will that appoints him or her to see whether it gives any specific guidance for investing.

The effect of court order on an Enduring Power of Attorney

At my recent seminars, I was asked several questions about the workings of Enduring Powers of Attorney (EPAs). A number of questions were based on revocation of an EPA, and a few were about whether an EPA is affected by a court-ordered trusteeship.

One of the reasons individuals make EPAs is to prevent the need for a trustee to be appointed should the individual lose mental capacity. The individual wants to maintain control over important decisions such as who will be appointed as Attorney, and to set some guidelines for the Attorney's actions. In the vast majority of cases, this works as it was supposed to.

Occasionally, even when there is an EPA in existence, there is still a need for a court-appointed trustee. For example, this could happen when the appointed Attorney passes away and the EPA doesn't name an alternate. It could happen when the court removes an Attorney and there is no alternate named, or the alternate isn't willing to act. It could also happen if the EPA itself is invalid or inadequate for the situation.

If the court appoints a trustee, that appointment supersedes any EPA that is in existence. If the EPA has been used at banks or other places, a copy of the court order appointing the trustee should be sent to each one, with clear instructions that the order replaces the EPA.

I posted earlier on revoking an EPA (in a situation other than using a court order) and if you'd like to read that post, click here.

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)

Planning ahead can ease the process of adult guardianship

I'm attaching an article here that talks about a non-profit group in Texas that acts as legal guardian and trustee for adults who need that help, when appointed by the courts. I don't know of any Canadian equivalent. What do you think of this concept? In Canada, if you haven't planned ahead for your own mental capacity, the courts will likely appoint a family member or friend to represent you. If you don't have anyone who is able and willing to take this on, the remaining options are a trust company (for financial, but not health/medical/personal, decisions) or the Public Trustee and Public Guardian.

I completely agree with the author's comments that people should plan ahead. Most estate-planning lawyers consider planning for incapacity to be just as important as planning for passing away, and will encourage clients to prepare all needed documents.

Can an incarcerated person be an executor?

In determining whether an incarcerated person is the right person to be your executor, there are two major factors to consider.

The first is the law. In this case I'm citing section 16(2)(a) of Alberta's Trustee Act, but similar legislation exists in other parts of Canada as well. The Act says that the court may substitute a new trustee (which in this case includes an executor) when the named trustee has been convicted of an indictable offence. An indictable offence, generally, is a more serious offence.

Note that the wording is "may" appoint a new trustee, not "must" appoint a new trustee, so it isn't automatic. Also, remember that not every incarcerated person has been convicted of an indictable offence so the rule doesn't apply to everyone behind bars. However, a person who named an incarcerated executor would be taking the chance that an application for probate would be rejected by the court, or that a beneficiary would ask the court to replace the executor.

The second thing to consider is the practicality of the arrangement. Being an executor is a heck of a lot of work and usually involves numerous meetings with lawyers, accountants, bankers, court registries, land titles clerks, realtors, appraisers and beneficiaries. Documents must be signed in person. Though not impossible, this is considerably harder to achieve for a person who is incarcerated. The estate will take longer to wrap up.

This is one of those areas where you have to make theory and reality work together.

Will I have to manage my parents' finances?

Ted Rechtshaffen discusses steps you can take now to ease the transition into looking after your aging parent's finances, particularly when the one who handled the finances has passed away. Click here to read this article in today's Globe and Mail.

Answering your question - adult guardianship forms

I've been asked a couple of times now where people can find the forms they need to apply for guardianship or trusteeship of their aging parents. This is the subject of my book, Protect Your Elderly Parents, which contains a CD with all of the forms needed for every province and territory in Canada. It also includes sample forms for record-keeping and passing of trustee's accounts, as well as chapters on guardian's duties, trustee's duties, limitations on those roles, and how those legal appointments come to an end. Updates for Alberta are underway and will be available to those who buy the book at no extra charge. Click here to see more about the book. The feedback I've received is that it's very easy to use.

Another source you can look at is the webpage for the Office of the Public Trustee and/or Public Guardian for your province or territory.