Southern Alberta Law Offices

Disclosure of gifts

Consequences for the attorney or personal representative for failure to disclose the gift received from the donor and to provide accounting

The recent decision of the Court of Queen’s Bench of Alberta offers quite a few lessons for people who may one day act as attorney or executor of the estate. The decision is unreported, court action No. ES01-124320, Calgary court registry. The transcript of oral reasons for judgment are available at Southern Alberta Law Offices.

Southern Alberta Law Offices represents 5 siblings (the “Applicants”) in the lawsuit against the 6th sibling, Ms. C. Ms. C was the attorney and is the executor of the estate of the parents of the parties. All 6 siblings are equal residual beneficiaries of their father’s estate pursuant to his will made in 2004.

A quick summary of relevant facts is necessary before stating the court’s findings and conclusions.

In February, 2009 the parents signed a Transfer of Land that added Ms. C to the title to the parents’ family home (the “House”) as a 3rd joint tenant. There is no evidence that the parents received legal advice before signing the transfer.

The Applicants believed that the property had been transferred for reasons other than to effect a gift to Ms. C, and the court believed the Applicants.

In May 2012, Ms. C sold the House to an arm length third party using the power of attorney. The Applicants understood that the sale of the House was necessary to cover the cost of the parents’ care in the long term care facility.

After the passing of the last of the parents in July of 2014, the Applicants requested copies of the executed will and of the various accounts. Ms. C consistently refused a full accounting and after about approximately 2 years worth of requests she provided a copy of the will to the Applicants.

In August, 2016, Ms. C alleged to the Applicants for the first time that the transfer of the House into her name was a gift to her. Thus, in her opinion, neither the House nor proceeds of sale of the House form part of the father’s estate. No independent evidence demonstrating the gifting of the House from the parents to Ms. C has ever been provided.

The Applicants retained legal counsel in the fall of 2016 and Ms. C provided some accounting in the summer of 2017. The Applicants started the lawsuit in December of 2017 seeking, among other things, full accounting from Ms. C in her capacity as attorney and personal representative of the estate.

Ms. C relied in her defence on a few arguments.

  1. She argued that the Applicants did not have standing to seek accounting from her in her capacity as attorney since the power of attorney terminated on the day of passing of the donor.

    The court held that Ms. C was in an obvious conflict of interest being the personal representative of the estate and, before that, the attorney. The court commented that Ms. C should have sought advice and direction from the court under the Powers of Attorney Act upon the alleged gifting of the House and its subsequent sale. The court held that it was reasonable for the Applicants to expect that Ms. C would act in accordance with her fiduciary duties as a trustee and in accordance with those same fiduciary duties as both the attorney and later as the personal representative.

    The court further held that the attorney’s obligation to provide an accounting, including to the beneficiaries of the estate, does not lapse with the death of the donor. Typically, the accounting inquiry would come from the personal representative of the estate. In this case, Ms. C is the personal representative and the attorney. This is an obvious conflict and in such circumstances the beneficiaries are entitled to demand and receive an accounting.

  2. Ms. C argued, relying on the Limitations Act, that the Applicants were out of time to require her to account or to sue her.

    Section 3(1)(a) of the Limitations Act provides that in most circumstances a person has 2 years to start a lawsuit. The clock starts ticking from the time when the person knew or ought to have known about the wrongdoing, the defendant was the wrongdoer and it was worth starting the lawsuit. If the person starts the lawsuit later, the person runs the risk that the court will strike the lawsuit because the plaintiff is out of time.

    a)  With respect to the claim requiring Ms. C to provide accounting, the court held that the personal representative’s duty under rule 97 of the Surrogate Rules to provide accounting at least every 2 years is an ongoing duty and, as such, is not constrained by a limitation period. A separate limitation period starts running with respect to each missed accounting.

    So, Ms. C’s ongoing duty to fully account and her omission to do so on an ongoing basis means that the Limitations Act provides her no relief from her obligation to disclose.

    b)  With respect to the claim that the Applicants are out of time to sue Ms. C, the court concluded that limitation period did not start to run until August, 2016 when Ms. C first told the Applicants about the alleged gift. The court held specifically that the Applicants’ requests for accounting were not by themselves reasons for the Applicants to be concerned to the point that they should have exercised reasonable diligence by asking more questions and starting the lawsuit earlier. The Applicants did not have requisite knowledge for the limitation period to start running until August of 2016 when Ms. C alleged the gift for the first time.

    In the words of the judge, “Because the respondent kept the suggestion of a gift a secret until August of 2016 it is not now reasonable for her to suggest that the material facts on which it is based should have been or ought to have been discovered by the exercise of reasonable diligence.”

  3. The court spent considerable time discussing breach of the fiduciary duties owed by Ms. C. Specifically, the court held the following:

    a)  Ms. C, in her capacity as a personal representative was duty bound to inquire of herself in her capacity as past attorney for an accounting of the sale and proceeds resulting from the transfer of the matrimonial home and its eventual sale. Such request for accounting would have been a no brainer in the event the attorney and the personal representative were two different persons. Ms. C argued that she made this inquiry of herself and acted honestly at al times. The court held that her failure to consider the concept of resulting trust “cannot be simply brushed aside on the basis that the respondent claims that she was acting honestly”.

    b)  At the time of her father’s death, Ms. C was aware of the circumstances of the alleged gift and the sale of the House and had an ongoing obligation to account to the estate including the circumstances and the accounts related to the alleged gift.

    c)  Since Ms. C determined that the House sale proceeds were intended as a gift to herself, she had the duty to disclose that fact to the Applicants and to account for that money to them as residual beneficiaries of the estate. Ms. C did not fulfil her fiduciary obligations to the Applicants (who are residual beneficiaries of the estate) by determining in secret that the alleged gift from the parents was valid and then failing to properly account.

  4. Finally, the court concluded that Ms. C’s failure to disclose the alleged gift while she was in a fiduciary capacity is unconscionable and amounts to fraudulent concealment. Fraudulent concealment suspends running of the limitation period.

    The attorneys and personal representatives should be aware of their fiduciary duties to the donor of the power of attorney and to the estate. In the event the attorney and the personal representative is the same person, it is critically important to be aware of potential conflict of interest. It arises for example when the donor of the power of attorney makes a gift to the attorney. In the event the gift is substantial, the attorney has a duty to disclose the gift to and the circumstances of making the gift to residual beneficiaries of the estate of the donor.

    In the event, the attorney or a personal representative conceals the fact of the gift, he/she cannot rely later on the Limitation Act defence.

    The court ordered Ms. C to pay personally legal costs of the Applicants.

 

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