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 in