Fiduciary accounting: Accounting and record-keeping requirements for attorneys and guardians for property

Court-appointed guardians of property and persons acting pursuant to a continuing power of attorney for property (commonly referred to as “attorneys for property”) share a common duty: they are tasked with managing money and/or property for the benefit of someone who is no longer capable of doing so themselves.

The task of managing someone else’s money and/or property is a serious one. If an incapable person’s property is not managed properly, it can be depleted or exhausted. Take, for example, a poor or risky investment decision. Similarly, if someone has unfettered access to an incapable person’s property, there is a risk that the person managing the property might misappropriate it for their own personal gain and benefit, to the detriment of the incapable party. Due to the risk of potential harm in these sorts of relationships, the law imposes special duties on persons who accept the responsibility of managing an incapable person’s property.

Guardians and attorneys for property are known as “fiduciaries”. Fiduciary is defined in the dictionary as “of, relating to, or involving a confidence of trust”. Attorneys and guardians of property, trustees, executors, and estate trustees are all examples of fiduciaries, as they all manage property for the benefit of other persons.

Fiduciaries owe a special duty — a fiduciary duty — to the beneficiary or incapable person whose property the fiduciary is tasked with managing. As confirmed in the 2014 Ontario Superior Court decision of Gray v. Lyle et al:

• The highest standard of faith to another is that of the fiduciary standard.  It arises where the obligation that is undertaken or imposed is the obligation of loyalty or selflessness;
• At the heart of the fiduciary relationship lie the dual concepts of trust and loyalty;
• The critical feature of fiduciary relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense;
• In order to protect the interests of the beneficiary, the fiduciary is held to a stringent standard; the fiduciary is under a duty to act in a completely selfless manner for the sole benefit of the trust and its beneficiaries;
• A fiduciary obligation carries with it a duty of skill and competence, the special elements of trust, loyalty, and confidentiality that obtain in a fiduciary relationship give rise to a corresponding duty of loyalty.

Given the high standard imposed on fiduciaries, it should not come as a surprise that when it comes to accounting and record-keeping requirements of a fiduciary, the standard of care that is expected of a fiduciary is very high. This is especially so if the fiduciary wishes to claim compensation in their management of an incapable person’s property. Pursuant to the Substitute Decisions Act, 1992 a person acting in a fiduciary role who wishes to receive compensation must exercise diligence and skill that a person in the business of managing the property of others is required to exercise. For more information on power of attorney compensation, when it is available, and how it is calculated, please check out my previous blog post.

When it comes to record-keeping for guardians and attorneys for property, there are statutory requirements that are specified in s. 2(1) of the Account and Records Regulations (O. Reg. 100/96). The fiduciary is expected to maintain the following records:

a) a list of all the incapable person’s assets as of the date of the first transaction by the attorney or guardian on the incapable person’s behalf, including real property, money, securities, investments, motor vehicles and other personal property;

b) an ongoing list of assets acquired and disposed of on behalf of the incapable person, including the date of and reason for the acquisition or disposition and from or to whom the asset is acquired or disposed;

c) an ongoing list of all money received on behalf of the incapable person, including the amount, date, from whom it was received, the reason for the payment and the particulars of the account into which it was deposited;

d) an ongoing list of all money paid out on behalf of the incapable person, including the amount, date, purpose of the payment and to whom it was paid;

e) an ongoing list of all investments made on behalf of the incapable person, including the amount, date, interest rate and type of investment purchased or redeemed;

f) a list of all the incapable person’s liabilities as of the date of the first transaction by the attorney or guardian on the incapable person’s behalf;

g) an ongoing list of liabilities incurred and discharged on behalf of the incapable person, including the date, nature of and reason for the liability being incurred or discharged;

h) an ongoing list of all compensation taken by the attorney or guardian, if any, including the amount, date and method of calculation; and,

i) a list of the assets, and value of each, used to calculate the attorney’s or guardian’s care and management fee, if any.

A fiduciary is well advised to maintain fulsome records of their dealings with an incapable person’s property. This is especially so given that, a fiduciary can be called upon to pass their accounts at any time during the period they have control and possession of an incapable person’s property and, in some instances even after they no longer act in such a capacity.

When a fiduciary “passes their accounts”, what they are doing is providing a formal accounting to the court in a prescribed form. If a fiduciary does not maintain detailed records together with supporting documentation during the time that they serve as a fiduciary, such as receipts, invoices, vouchers and bank statements, the fiduciary can find themselves in an accounting nightmare.

In extreme cases, if a fiduciary is not able to account for a given transaction, it is open for the court to make an adverse inference that it was the fiduciary who personally benefited from the transaction as opposed to the incapable person. For example, let’s assume that there is a $130.00 transaction at Shopper’s Drug Mart depicted in a bank statement for a bank account that is owned by an incapable person, but the only person who has access and control of the account is the fiduciary. The expectation is that the fiduciary should be able to produce a receipt in the exact amount of $130.00. Not only should the fiduciary be able to produce a receipt that mirrors the amount depicted in the incapable person’s account statement, but the fiduciary must also be able to prove that the transaction was performed for the sole benefit of the incapable person. 

This Shopper’s Drug Mart example, above, is just one transaction. Quite often, fiduciaries act for years, performing hundreds, if not thousands of transactions per year. Spread across two, three or four years, we could be dealing with many thousands of transactions. Without proper record-keeping practices, a fiduciary could find themselves in hot water if ever asked to pass their accounts without the proper supporting documentation.

When I advise fiduciaries at the outset of their trusteeship, I compare the duties and obligations they owe to the incapable person to the duties and obligations that a bookkeeper/accountant owes to a business. Every penny that leaves the incapable person’s account(s), and every dollar spent on the incapable person, should be accounted for and supported with documentation. This may seem like an onerous task — and it is — but this is what is expected of a fiduciary. 

Here are some basic tips that we provide to fiduciaries:

1. First and foremost, take inventory of all of the incapable person’s property as of the day you began acting as a fiduciary. This includes real property, personal property, investments, and money on deposit at financial institutions. This will be the starting point of your accounting period;
2. Always maintain a separate bank account for the incapable person and ensure that all cheques are returned with the statements. All appropriate expenses and payments relating to the incapable person should be made from their account and all money that the incapable person receives should be deposited to their account;
3. A fiduciary should never add their name to an incapable person’s account;
4. Complete monthly reconciliations of the bank account as soon as the statement is received to ensure that nothing is missed. As noted above, each and every transaction should be accounted for and each and every transaction should be for the exclusive benefit of the incapable person;
5. Keep all bank statements with cheques and debit or credit memos in a file folder or 3-ring binder;
6. Keep a ledger of all receipts and payments with complete details (i.e., to or from whom, date, amount and what for) and be sure to include bank charges and automatic payments. Keep in mind that there is no such expense as “Miscellaneous”;
7. Keep receipts for all expenditures in an envelope or attach them to pages and keep them in a 3-ring binder. Because ink on receipts fade, and because paper can be destroyed or lost in fires, floods, or thefts, we recommend that you photocopy the receipt and that you store the receipt in more than just one way (i.e., paper and electronic);
8. Keep all investments certificates in a file folder or binder, as well as all statements from investment accounts;
9. While there is no rule against this, a fiduciary should do their best not to use their own money for the benefit of an incapable person. This is due to the fact that an extra layer of accounting is required. If, however, a fiduciary finds themselves in a situation where they need to expend their own money for the benefit of the incapable person, the fiduciary may do so and may then take reimbursement from the incapable person’s account but only in the exact amount of the expenditure and with appropriate receipts, etc., retained and particulars recorded. For example, if a fiduciary purchases a set of reading glasses for the incapable person in the amount of $45.99, the fiduciary will be entitled to reimburse themselves in the sum of $45.99. Keep a receipt of this transaction; and
10. While it is sometimes possible to do so, a fiduciary should not take compensation without court approval.

If you have landed on this article because you are a fiduciary and you have questions or concerns about what your record-keeping and accounting obligations are, or if you think a fiduciary may be acting improperly, please reach out to me and my team at Siskinds. We would be pleased to discuss your matter with you.