One useful comparison when contemplating a simplified probate application procedure for small value estates is the procedure regarding Continuing Powers of Attorney for Property (“POA”), which are statutorily provided for, and governed by, the Substitute Decisions Act, S.O. 1992, c.30 (the “SDA”). As we have seen, one of the rationales for the procedural rigour of the probate application is to protect the estate from fraud, financial mishandling, or abuse by the estate representative. However, as a legal system, we have provided much less procedural protection over the POA regime, and the application requirements for a POA are minimal to non-existent.
Attorneys for incapable grantors, exercising their authority under a POA, and estate representatives may seem to have similar powers, duties, and responsibilities. However, as will be seen, this is not necessarily so. It can be argued that the fiduciary duties owed by an attorney to an incapable grantor extend beyond those owed by an estate representative to the estate or the beneficiaries. Owing to the nature of their relationship to the grantor, and to the extreme vulnerability of the grantor in such a situation, attorneys should be held to the highest possible standards. Yet, in Ontario, the procedural rigour required of attorneys is minimal, especially in comparison to that required of estate representatives. Does this suggest anything for a simplified probate application procedure for small value estates?
A. Functions and Features of the Continuing Power of Attorney for Property
A POA is a legal document in which someone (the “grantor”) appoints an individual or individuals (the “attorney”), to manage the grantor’s finances and property on the grantor’s behalf during any subsequent incapacity of the grantor. Attorneys are responsible for managing and making decisions regarding all of the grantor’s property and financial affairs.
Attorneys have discretionary powers over almost any aspect of the grantor’s finances and property, except that they cannot make, revoke, or otherwise alter testamentary dispositions made by the grantor. Up to that point, however, and subject to any contrary terms in the document and their fiduciary obligations, they have extremely wide discretionary powers regarding the finances and property of the grantor. This includes the power to make discretionary gifts out of the grantor’s estate while the grantor is living.
Attorneys under a POA are fiduciaries. They are required to undertake their duties and responsibilities with the utmost care, honestly and in good faith, standing in the place of the grantor and in the grantor’s best interests, having regard to all the circumstances. The attorney’s fiduciary obligations are owed to the grantor, and only to the grantor. Part of an attorney’s duty to the grantor is not to disclose personal or confidential information about the grantor or his or her finances to anyone other than the grantor, unless so authorized. This includes family members or other close relations. An attorney does not have fiduciary obligations to other interested persons or family members of the grantor, although the SDA encourages the attorney to include family members in the decision-making, and case law suggests there may be a subordinate duty to consider family members’ interests in the estate. However, the overarching duty is always to the grantor and to make decisions in the grantor’s best interests, and it is presumed that the grantor has chosen the attorney who will best manage the fiduciary obligations that the attorney owes to the grantor.
Outside of those within the legal and estate planning community, it is my experience that the average individual is less aware of what a POA is or why it is necessary . As a result, they tend to feel that a POA can be an afterthought in estate planning. However, the decisions made by an attorney under a POA can have serious, life-altering impacts on a grantor, not just on their finances. These decisions are made and carried out while the grantor is alive; as a result, the decisions can have enormous impacts on the grantor’s quality of life and well-being. Once the grantor is incapable, and the attorney begins to act, the grantor is entirely vulnerable and completely dependent on the attorney to make responsible decisions. Sadly, quality of life, quality of care, and comfort can vary significantly depending on the assets at one’s disposal.
Furthermore, in the context of the elderly, it may be unlikely that a grantor will recover from their incapacity and regain control over his or her own affairs . As a result, an attorney’s decisions can have significant consequences that last for the remainder of the grantor’s lifetime. The vulnerability and total dependency of a grantor put the attorney in a higher position of trust, and of control over the grantor, than the estate representative has over the estate or the beneficiaries. This can make a POA a more important document in any estate plan than a will, and also make it more critical that POAs are thoughtfully and carefully granted.
Given that an attorney’s decisions have much farther-reaching impacts than those of an estate representative, the choice of attorney is, in my opinion, as or more important than the choice of estate representative. This is especially so because the oversight mechanisms in the POA regime are less rigourous than those of estate representatives. This lack of rigour is present in four ways.
First, grantors can execute POAs without legal advice or legal assistance provided they are executed in accordance with the formalities laid out in the legislation, as they can for holograph wills. There is no mandatory form, and no mandatory information required for either the grantor or the attorney. While, arguably, this increases accessibility of the document to those who may not be able to access legal advice or assistance, it also limits the opportunities for grantor and attorney education about the document, its parameters, and the duties that the attorney must undertake. As we have seen, the consequences of a poorly thought-out homemade POA can be more severe than the consequences of a poorly thought-out holograph will. While information and guidance about POAs are publicly available, it is dependent on either the grantor or the attorney choosing to avail themselves of it. It also limits the opportunities for grantors to discuss and receive advice from a neutral party about who best to name as their attorney, in light of their personal circumstances. While legal advice is not required, it is my (perhaps biased) opinion that some measure of informed guidance and protection is lost when proper legal advice is not obtained. It may increase the risk that a grantor names an attorney who is ill-suited to the role out of a lack of understanding, and that the POA may be used improperly.
Second, in Ontario, grantors are not required to notify attorneys of their appointment at the time the appointment is made, nor do attorneys have to agree in advance to assume the role and responsibilities of being an attorney. It is possible, therefore, for an attorney to suddenly be informed of their appointment and asked to act immediately, without necessarily understanding their legal duties or obligations, or the parameters of their powers, as discussed above. The fact that appointments are made in private certainly increases the privacy of the document and may encourage the creation of a POA in those who may not wish their private affairs to become public. However, the privacy of appointments also increases the risk that any misuse or abuse remains hidden, and increases the opportunities for coercion or undue influence. It is possible for no one else to know that a POA has been granted, and/or for concerned family and friends not to know who has been appointed as attorney.
Third, there is no application to become officially appointed as the attorney once the grantor becomes incapable, as there is for the estate representative to be officially appointed by the court through the probate process. There is therefore no mechanism for vetting the validity of the POA, or for ensuring that the execution formalities have been properly followed and that the grantor had the requisite capacity to make such a document. There is no process or institution that acts as a gatekeeper, and ensures that the attorney is the person intended by the grantor to act, or that the attorney is aware of the entirety of the grantor’s financial and property affairs. The system is entirely reliant on outside third parties to raise concerns and rebut the presumption of validity if they become concerned. Critically, however, this may only take place once the attorney is already using the POA. In that case, misuse, abuse, or fraud, and the attendant financial loss, may have already taken place.
Fourth, there is no public or third-party oversight of an attorney’s actions, nor any passing of accounts unless ordered by the court. Attorneys are required to keep records, and required to keep the grantor informed of the decisions they make, the reasons, and the financial picture or accounting of the grantor’s estate. However, incapable grantors may be unable to participate meaningfully in this process, to monitor or question the attorney’s decisions, and may be incapable of alerting anyone else to a suspicion that something is amiss. They may not even know that the attorney is behaving improperly or fraudulently.
Section 42 of the SDA does permit those with automatic standing, and those who are able to obtain leave, to obtain a court order forcing the attorney to begin an application to pass accounts. Case law suggests that a grantor’s child would likely qualify for leave of the court; other, more remote family members would have a higher threshold to prove why they should qualify for such leave. However, this is a complex, time-consuming, and likely expensive process. It is likely that, should an individual wish to pursue this process, they would require legal advice. The difficulty in obtaining such an order may reflect concerns over privacy, as discussed above. It may also exist in part to discourage frivolous applications. Indeed, where the court deems that the application was unnecessary, or that the attorney is not, in fact, acting improperly, the applicant may be ordered to pay costs. In situations where it is needed, however, it is still a difficult, time-consuming, and potentially extremely expensive proposition to obtain such an order.
This lack of oversight, coupled with the lack of procedural requirements regarding the naming of the attorney, give the impression that the POA regime lacks procedural rigour and protective measures, especially in contrast with the probate system, considered below. However, the duties and functions of the attorney are wide-ranging; the consequences of an attorney’s mishandling of the grantor’s estate can be catastrophic. Without oversight and procedural protection, the POA regime may be open to misuse, abuse, and fraud. The risk of fraud is considered in Section C.
B. Contrasting the Functions and Features of an Attorney With Those of an Estate Representative
This paper has already considered the functions and features of both the probate application and of the estate representative. This section will not recap those functions and features, but rather highlight some areas where they differ from the functions and features of the POA.
Attorneys, have we have seen, have discretionary powers to make gifts out of the grantor’s estate, although they cannot alter testamentary dispositions made while the grantor had capacity. Subject to any debt or tax liabilities of the estate, however, estate representatives are generally bound by the terms of the will and the testamentary dispositions made by the deceased. Depending on the terms of the will, there is much less room for estate representatives to make discretionary decisions. The discretion granted to attorneys is therefore more wide-ranging than any that may be given to estate representatives.
An estate representative’s duties are owed to the beneficiaries, not to the deceased. This is a fundamental difference from the attorney’s duty, which is owed solely to the grantor. The estate representative is a trustee for the estate, and is safeguarding that estate for the benefit of those entitled to receive it. The fiduciary duty is owed to the beneficiaries, not the deceased. Estate representatives also face different, and perhaps lesser, privacy concerns than attorneys, although estate representatives do have privacy concerns vis-à-vis third parties. While attorneys are not permitted to disclose information about the grantor or the grantor’s estate to anyone other than the grantor, except in limited circumstances described above, estate representatives are required to keep beneficiaries informed about the financial affairs of the estate.
The procedure for the appointment of an estate representative has also been covered elsewhere in this paper. The simple difference is that estate representatives do have procedural requirements to be appointed, as part of an application system in which the procedure is designed to serve protective functions for the estate and the beneficiaries. In a POA, there are no such procedural requirements. Anyone can be named, and no one need apply; rather, they are appointed by the grantor, at the grantor’s choosing. There is no notification to other interested parties of the attorney’s appointment, nor do they need to approve the appointment. Attorneys are not required to swear an oath of good faith, as estate representatives must on application, nor be informed of the content of their duties. As we have seen, there are no procedural safeguards in place to ensure, for example, that the POA was not made fraudulently, that is it the grantor’s last true POA and has not been revoked, that it is properly witnessed, that the attorney has proper regard for, and accounting of, all of the grantor’s assets and property, or that the attorney understands their duties and responsibilities in acting as attorney. All of these safeguards are present in the estate representative’s application for probate. While some of this can be explained by the difference in fiduciary duty and by privacy concerns, the difference is stark enough that those two reasons alone may not be sufficient to explain the vast difference in procedural requirement.
This lack of procedural protection is compounded when one considers the difference in the effects of misuse, abuse, or fraud in a POA versus those in an estate. As we have seen, the consequences of the attorney’s handling of the grantor’s finances and property can be more severe than those of an estate representative’s handling of the estate. Although the estate representative has duties to the estate and to the beneficiaries not to waste assets or otherwise mishandle the estate, their decisions do not have potentially life-altering consequences for the testator.
C. Contrasting the Risk of Misuse and Fraud in the Two Regimes
We have examined already in this paper the risk of fraud in estates, and in the application to be estate representative. POAs, however, also carry with them a risk of misuse and fraud that is equal to, or perhaps greater, than that in the probate regime.
POAs can be used to perpetuate financial abuse in a number of ways: for example, misuse by a well-intentioned attorney who does not understan the limits or ramifications of their decision-making powers, coercion or undue influence, forgery, fraudulently obtained POAs, predatory relationships, unauthorized asset sales or investments, misappropriation or depletion of assets, unauthorized restrictions on personal liberty through certain financial decisions, and misusing the POA for personal gain or to commit, among others, title or mortgage fraud.
Misuse, abuse and fraud can be perpetuated whether the POA is valid and validly granted or not. As we have seen, there is no application in the POA system that can serve as a safeguard against the risks of fraud, or serve a gatekeeping function to the grantor’s assets the way the probate application serves for estates. Nevertheless, having an application procedure would not prevent those who are validly appointed from misusing the POA, just as there remains a risk of fraud or misuse in estates once even after probate is granted. Therefore, an application or appointment procedure that take place if the grantor does become incapacitated, similar to the procedural requirements for the probate application, would only go some way towards combating potential fraud.
However, the fact that there is no application process and no procedural oversight may encourage those with predatory or fraudulent intentions to coerce or unduly influence a grantor to name them as the attorney, knowing that once named, they can have complete control over the finances and property, and exercise this control in secret. The lack of protection may also encourage attorneys to be unscrupulous in situations where, if oversight existed, they may be more circumspect. It may encourage laziness or a laissez-faire attitude in attorneys who may be even be well-intentioned, but become careless while they know that no one is monitoring their actions. As well, the lack of continual oversight in the POA regime, as compared to that required from estate representatives, means that fraud and abuse may continue undiscovered for much longer under a POA than in an estate; the only person to whom the attorney owes a duty of disclosure may not be capable of understanding the attorney’s actions, or of raising the alarm if they suspect something is amiss. In addition, the more restrictive mechanisms for concerned parties to force an attorney to account, or to attempt to force removal of an attorney, may also mean that abuse, fraud, or mishandling of the asset are less likely to come to the attention of concerned parties, are less easy to remedy, and may therefore be more likely to continue, unfettered. Lastly, as discussed, the consequences of financial mismanagement, fraud, or abuse under the POA regime are potentially more significant than those in an estate.
The result of these factors may be that POAs present a strong possibility for misuse, abuse, and fraud. The prevalence of financial misuse, abuse, or fraud under POAs is understudied, but generally thought to be high; it has become a much-discussed topic in both law and public policy in recent years. In my own professional experience, and among practitioners I have spoken with, the ease with which POAs can be used improperly is of utmost concern, and abuse of POAs is felt to be more probable, and more problematic, than abuse in the context of estate administration.
Importantly for this project, abuse of POAs is seen not only where the value of the grantor’s finances and property are high, but equally where the value is small, perhaps consisting of misappropriation of Old Age Security payments or other monthly benefits. The effect of this can, of course, be devastating where the grantor has no other significant assets.
D. What Can the Differences Between the POA Regime and the Probate Regime Tell Us?
We have seen that one of the primary rationales of the probate application regime has been to protect estates from fraud. We have also seen that the POA regime has, comparatively, been left more open to misuse, abuse, and fraud by lacking procedural rigour. As a result, it is felt that the incidence of misuse or abuse of POAs may be high. This contrast begs the question of why we have designed a system of procedure that is so concerned with protection from fraud and financial abuse in the estate, but not as similarly concerned with providing procedural protection for POAs. As the population ages and more people adopt POAs to be used during their incapacity, is it not possible that by the time the adult dies and the estate representative applies for probate, the deceased’s estate will have already been mishandled or even depleted by an attorney acting for the grantor before death?
The evidence of the prevalence of misuse, abuse, and fraud under POAs may suggest two things. First, it may suggest that our concern regarding fraud is misplaced when we focus on estate administration, and not on POAs. Our focus on fraud in the estate may be somewhat disproportionate to the actual incidence of fraud in that system. By the same token, our lack of procedural protections in the POA system may also be disproportionate to the higher incidence of fraud taken place within that system.
It follows from this that, if we look at the POA system and the probate system existing along a continuum for the older adult (in that probate follows after the death of the grantor of a POA), the timing of the procedural safeguards may also be misplaced. More evidence is needed to show that misuse or fraud of the probate system is sufficiently prevalent to warrant the rigourous protections that the system has put in place to guard against it. However, in looking for this evidence, we must be careful not to mistake the prevalent reporting (in the media or in the case law) of the mishandling of estates as compared to that of POAs as empirical proof of an actual higher incidence of misuse or fraud. As we have seen, abuse of POAs is more likely to occur in secret, and legal redress is more difficult and expensive to obtain as compared with that under estate administration. It is therefore possible that the reported cases of mishandling of estate assets represent a majority of cases that exist, while the reported cases of abuse under POAs represent only a fraction of those that exist. If it is true that fraud is more commonly occurring under POAs than under estate administrations, it may mean that the timing of procedural protections should occur at the POA stage, and not exclusively at the probate application stage.
However, this leads to the second point raised by the prevalence of fraud in the POA system. If we accept that fraud is a greater possibility under the POA system than under the estate administration system, and we also know that the probate application presents a safeguard against fraud, while the POA system has no such safeguard, a chicken-and-egg problem emerges. That is, is fraud less likely under estate administrations because of the nature of the law in that area – for instance, that the fiduciary duty owed to the beneficiaries provides greater potential for oversight – or is it because the safeguards in place in the probate application serve their function well, and actually reduce the incidence or likelihood of fraud? Does the lack of procedural protection under POAs contribute to the higher incidence or likelihood of fraud, or is it incidental to the nature of the document?
This suggests that any simplification of the probate application procedure for small value estates should proceed with caution. This is especially true because, as we have seen, fraud in the POA system is not limited to only large value estates, but small value ones as well. It may be wise to extrapolate that the same could be true in the probate regime. Without more empirical evidence, it may not be possible to attribute the greater incidence of fraud in the POA system to the lack of procedural safeguards in place. However, knowing that both are true, even if we do not know if there is a causal relationship between them, encourages caution whenever we contemplate altering the probate process in such a way that may lessen or even remove some of the procedural protections it offers.
This paper does not suggest that the probate application process move to the POA model of minimal to no procedural protections; while, in some ways, this would increase accessibility of the probate system, in my personal view it could also render the probate system more easy to exploit and misuse. Where changes are contemplated, therefore, it may be wise to consider those that streamline or simplify the mechanisms of the probate application, without stripping away those features of the system that provide procedural protection. This is the balancing that is at the heart of this project. Some suggestions for how to achieve this balance are considered below, in Part Five of this paper.
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