Financial Abuse and the Power of Attorney

This post was written prior to our January 2017 merger, under our previous firm name, MacPherson Leslie & Tyerman LLP.

A recent Saskatchewan Court of Queen’s Bench decision confirms the tough stance courts will take on individuals with powers of attorney who fail to uphold their fiduciary duties.

On the facts in Kessler (Estate) v Kessler, 2015 SKQB 369, the defendant daughter was granted power of attorney in 1993 to look after her father’s financial affairs. Upon suffering a stroke, the father moved in with his daughter in 2004, where she also became his primary care giver. The father eventually passed away in 2011 destitute and indebted to a care home facility.

The executor of the father’s estate commenced an action against the daughter alleging breach of fiduciary duty for the wrongful and habitual misappropriation of his funds for her personal use. The daughter maintained that many of the transactions unaccounted from her father’s accounts were either gifts, reimbursements for care costs or repayment of debts.

Gifts made on behalf of a donor while alive attract a special level of scrutiny in the context of powers of attorney. Where the evidence does not show a clear and unmistakable intention by the donor as transferor to part with his property, the law will presume that the gift creates a resulting trust in favour of the donor. This case was no exception.

The evidence established that the daughter used her father’s assets to buy vehicles, personal items, consumables, and services far beyond her actual expenses. She also used her father’s bank account interchangeably with her own to finance personal and family expenses while failing to pay his bills. When the father entered a care home facility, she continued to deplete his funds even though none of the care home’s bills were paid from his account. The Court found that expenditures of this nature “cries out” for evidence of full knowledge and consent on the part of the father, which was never forthcoming.

The daughter’s failure to keep proper accounts and bookkeeping was not only a breach of her fiduciary duties but also left her with no rational explanation as to how these expenditures could be in his best interests. This is another fundamental obligation of an individual with a power of attorney. The Court accordingly awarded damages against the daughter in favour of the Plaintiff estate in the amount of $82, 874.00.

Most interestingly, the Judge went further and made a declaration pursuant to section 178(1)(e) of the Bankruptcy and Insolvency Act, finding that the judgment debt arose as a result of the daughter committing a fraudulent act in a fiduciary capacity.   The availability of this order is normally considered at the time of application by a creditor in bankruptcy proceedings yet the judge made the declaration pre-assignment.

The frequency with which courts will grant such orders remains to be seen. However, this decision highlights the power of attorney’s possible significant exposure to liability where self-dealing and repeated breaches of fiduciary trust are found to have occurred.