Law Times

PAGE 10 FOCUS OctOber 27, 2008 • Law times Powers of attorney: a recipe for litigation? BY GLENN KAUTH Law Times legations from her brother that she had mishandled their mom's finances. In fact, a judge in the brother's court ac- tion against Hudgin found a "significant concern" with the mother, Lois McAllister's, accounts. A mutual fund set up at the time she sold her home had just $29,000 left in it, a seemingly low sum compared to the nearly $128,000 the judge said he assumed would have been remaining. In his motion, the brother, Ian McAllis- Y ears after her mother granted her power of attorney, Gail Hudgin found herself in court facing al- ter, argued Hudgin should have to produce formal accounts for her actions as attorney following the mother's death in 2007. But the judge, while noting his concerns as well as Hudgin's "extensive involvement" in her mother's affairs, ruled that because Lois McAllister had been capable of man- aging her property throughout, Hudgin would not have to produce accounts. In- stead, bank and investments records would suffice. The judge also ruled there was no evidence Hudgin, who was also the estate trustee, had done anything dishonest in handling her mother's affairs. The case is nevertheless a good example of the legal limbo people granted powers of attorney are increasingly finding them- selves in, trust and estates lawyers say. "I think as people get older, you've got this group of baby boomers who are aging and you're getting more substitute decision making than you would [otherwise]," says Megan Connolly of Hull and Hull LLP in Toronto. "So, obviously that's going to give rise to litigation." For people like Hudgin who agree to take on the role of attorney, being aware of the potential liabilities is key, as is find- ing ways to protect themselves, Connolly notes. "The one thing is to keep detailed records of the transactions that they make on behalf of the incapable person because when people come along and start asking questions, you get clients who say, 'I didn't really keep good records.' Then it becomes more difficult to establish that they were prudent in managing the funds." But Pamela Cross, a lawyer with Bor- den Ladner Gervais LLP in Ottawa, says the issues facing an attorney can be very complicated and that people finding themselves having to manage someone else's affairs can underestimate their li- abilities. "There's historically not been a lot of oversight on what attorneys do for people. Then the person dies, and the beneficiaries of the estate say, 'Where did all the money go?' That's where you're go- ing to find some of the issues." Particularly challenging is the need to balance the incapable person's current needs with his or her wishes in the will. Giving the example of a hypothetical Aunt Betty who grants power of attorney to a relative, Cross says the question of whether to sell her house to help pay for her care in a re- tirement home, for example, could conflict with the beneficiaries' expectations that they will inherit the property. "They have to look after the best interests of the person. But then they have to keep in mind Aunt Betty's wishes under her will, which may not be the most convenient thing to deal with. If you're going to do anything that might affect what Aunt Betty's will says, you have to be aware that [your decisions] might be challenged by a beneficiary who gets dis- inherited because of some action taken." Adding to the burden is the fact that people are living longer, which can make the financial decisions attorneys face even harder. "It's a com- plicated issue because it can go on for years," says Cross. "You have to think [about] what if Aunt Betty lives another 15 years, then what are you going to do? What if there's not enough cash in the bank or the investment portfolio?" In the McAllister Estate v. Hudgin case, be personally responsible for everything." But proving whether someone is truly capable or not isn't always an easy question, particularly after he or she has died and the attorney is now facing court challenges by the beneficia- ries. "It's a really interesting area, and I think we'll find more and more of that as people age," Cross says. Also challenging for at- Pamela Cross says there's 'historically not been a lot of oversight on what attorneys do for people.' taking it out and spending it for the per- son's benefit," says Connolly. "They don't have receipts." torneys are the regular, small financial transactions they make, such as withdrawing a weekly allowance for the incapable person out of a bank account. "You don't know if the [attorney] is the court acknowledged another distinc- tion attorneys have to consider when making decisions: whether the person granting power of attorney is actually incapable of handling his or her affairs. If Aunt Betty is, in fact, capable, the at- torney needs to consult with her on what her wishes are. "If she's not capable, then you have to go through this other analy- sis of why you're making these decisions that ultimately might harm people who are beneficiaries of the estate," Cross says. "Otherwise, as an attorney, you can Also contentious are large cash with- drawals before the incapable person dies. While attorneys will often argue the mon- ey was a gift for their help in managing the affairs, the estate beneficiaries will typically be suspicious. "I've seen cases where there have been gifts that have pretty much de- pleted the entire estate," says Connolly, who adds the claims can be a recipe for recriminations between the attorney and beneficiaries about who did the most to help the now-deceased relative and who he or she liked and didn't like. "Here, you can see how things get litigious," Connolly says. Lawyers wonder why program limited to three cities Continued from page 10 courts have the capacity to case manage," she says, noting some areas of the province still lack the necessary computer systems. "It's intertwined with the case man- agement process." Other factors may be at play, of course. Earlier in the decade, while attorney general for the province, current federal Finance Minister Jim Flaherty worried that the trend towards mediation had gone too far. In particular, he was concerned that moves to keep cases out of the civil courts might begin to affect the judiciary's ability to shape and develop the law. As a result, Fla- herty at the time signalled a shift away from mediation in Ontario. Then, in 2004, changes in Toronto rules loosened timelines for moving to mediation. Now, instead of having to participate in a mediation session within 90 days of filing the first statement of defence, parties have more flexibility over when it happens. The move was in part due to concerns mediation was happen- ing too early in some cases. For his part, Schnurr said he's also heard that the halt to ex- pansion of mediation may also be due to concerns there aren't enough practitioners in smaller cities in Ontario to do it. "The only comment I've heard is there aren't enough resources in terms of the mediators to do that, which doesn't make a lot of sense to me because there are plenty of senior lawyers in various smaller centres across Ontario. Besides, there are mediators who will and do travel to smaller centres to do media- tion, so I do not understand the rationale of not extending it." For its part, the government says it has no plans to expand mandatory mediation in Ontario. Instead, it's focusing on imple- menting recommendations made by former associate chief justice Coulter Osbourne on reform- ing the civil justice system, none of which suggested an expansion of mandatory mediation, says Ministry of the Attorney General spokesman Brendan Crawley. Critics, meanwhile, have point- ed out that although mediation has the lofty goal of keeping cases out of the courts and thereby can save litigants time and money, success rates are lower when parties do it as a mandatory step than when they do it voluntarily. Some statistics, in fact, put settlement rates at 50 per cent or less in mandatory cases as opposed to up to 75 per cent in voluntary ones. Nevertheless, Schnurr doesn't feel the numbers detract from the value of media- tion. "My experience doing this for a number of years now is that when you get to the mediation, people are anxious to use that forum to try to resolve their dispute," he says. "They're not always successful, but the mandatory aspect of it just fades into the background." Schnurr also notes that media- tion isn't the only required step in the legal process and argues that therefore the fact that it's man- datory isn't an undue burden for litigants. "So, introducing this one [step] — the fact that you must go to mediation before you can have your case tried — in no way imposes something which is unique in the sense that there are so many other things that are im- posed on people who invoke the litigation process." In the meantime, both Swartz and Schnurr argue that media- tion is something that is particu- larly suitable for trust and estates cases. "In trusts and estates, the emotional component, the family dynamics — these are the issues which far outweigh the legal dis- pute," says Schnurr. "Therefore, trial in these kinds of disputes is often an extremely frustrating ex- perience because we have all kinds of laws of evidence that restrict what can be adduced as evidence at trial, what can be said, what can't be said, and who you can call as witnesses . . . Whereas if you go to mediation, there are no rules other than civility and proceeding in a business-like way. Therefore, anything that is relevant in the mind of one of the parties is rel- evant and can be discussed. "Whether it goes back to fa- ther always buying you the new bike, and I was always the one who got the hand-me-down, that sort of thing can be raised at the mediation . . . and hope- fully addressed in some kind of mediated settlement." For Swartz, although manda- tory mediation doesn't necessarily guarantee immediate settlement, it at least serves the purpose of narrowing the issues between the parties. The current situation, with the program available in only three cities, has her worried about what she calls an "inequity" in Ontario's justice system. "So, if you're filing a statement of claim in one of the three municipalities, then you've got a different proto- col from what happens in other municipalities," she says. Schnurr, meanwhile, argues mediation could play a key role in handling what he expects will be a barrage of difficult trust and es- tates cases in the coming years. "I can't think of an area of law which is more beneficially affected by the introduction of mandatory mediation than trusts and estates, particularly when one considers the transmission of wealth and the succession of estates that's going to be occurring over the next 10 to 15 years with the baby boomers dying out," he says. Especially challenging will be estates disputes over powers of attorney in which people who be- come incapable of running their affairs delegate the responsibility to someone else. "As the popula- tion gets older, you're going to see more and more of those cases, which are extremely difficult cases to take through the court system and which definitely should be mediated," Schnurr says. LT Marketplace EMPLOYMENT WANTED SERVICES - Available law clerk. Proficient in estates, real estate, litigation, ADR, corporate/com- mercial and labour and employ- ment. Part/full time. Messages (416) 621-2485. To advertise call 905-841-6481 www.lawtimesnews.com LT

• Cover
• Slip And Fall
• Focus On Trusts And Estate Law
• Eye On Hamilton