August 8, 2013

May an attorney for property mix his own funds with that of the incapable person?

The short answer is: never. But the consequences for a well-meaning but ill-advised client might not be as dire as we litigators sometimes would expect. In the recent case of Villa v. Villa 2013 ONSC 2202, two brothers, Renzo and Enzo Villa, clashed over Enzo’s actions as attorney for property of their mother, Emilia. Emilia, who was 91 when she passed away in 2011, granted a power of attorney for property to Enzo, who managed her affairs from 2007 until her death. Enzo claimed compensation for managing her property. Renzo took issue with the compensation sought and put forward several objections to Enzo’s management of Emilia’s property (indicative of the “acidic relationship” between the two brothers is the fact that they were also not able to agree on a headstone for her grave – usually a good way of predicting that an estate’s administration will be rocky!).

One such objection, which the judge hearing the application viewed as the strongest, was that Enzo breached his fiduciary duty by improperly mixing his own personal assets with that of his mother’s assets. Renzo relied in this regard on the evidence of a Bank of Montreal manager who testified that Enzo requested the mutual funds in Emilia’s name be cashed and placed in Enzo’s personal account.

With respect to the mixing of Emilia’s funds with Enzo’s funds, the judge found that in a strict sense, the mixing of Emilia’s funds (referred to as “Estate” funds by the judge) with Enzo’s personal funds would be a breach of fiduciary duty. The onus then falls on the attorney for property “to distinguish the estate funds and pay the estate funds back first and make good any loss to the estate.” Consequently, the judge found that in the event that Enzo could not separate his own funds from the estate funds, “all of the property will be considered the property of the Estate.”

The judge found that Enzo’s mixing of Estate monies with his own funds was a “possible breach of his fiduciary duties.” However, the judge went on to find that it “would seem” (based on the accounting) that Emilia’s funds could be distinguished from Enzo’s personal funds, and the money owed to Emilia’s Estate could be paid back by Enzo. In this regard, the judge commented if the money could be accounted for, Enzo likely made “an honest but misguided mistake”, made without “malicious intent.”  TheTrustee Act (s. 35) provides that trustees will not be liable for mere errors in judgment, so long as they acted honestly and reasonably.

As such, while Enzo was liable to repay the Estate funds that were intermingled with his personal funds, this error did not preclude him from compensation as estate trustee. Indeed, the judge agreed that Enzo was entitled to compensation “for the ongoing effort and grief of trying to resolve the assets of this modest Estate with his brother Renzo.”

Thanks for reading.