Client Profile

A deceased man’s estate leaves his nieces and nephews, once intended to be the beneficiaries, without inheritances. The circumstances surrounding the power of attorney’s administration of the estate raise a host of red flags. Three experts piece together the POA’s potentially fraudulent behaviour, and explain what the nieces and nephews should do next.

The experts

Matt McGuire

Matthew MCguire

national anti-money laundering practice leader, MNP LLP in Toronto, Ont.

Joni Metherell

Joni Metherell

partner at Pushor Mitchell LLP in Kelowna, B.C.

Susan St. Amand

Susan St. Amand

president of Sirius Financial Services in Ottawa, Ont.

The situation

Armand Wesley* lived alone outside Kelowna, B.C. He was briefly married, but the union was annulled after a few months in 1958. He never remarried or had children, but planned to dote on his six nieces and nephews—naming each the beneficiary on six $500,000 life insurance policies. These policies had level premiums and were taken out when he was 30. So, he should have had no issues keeping up with payments, even after converting to a fixed income in 1997, following the sale of an office furniture business he founded in 1969.

In keeping with his Depression-era roots, Armand lived frugally. He made a point of reminding his siblings their children would one day inherit his home, substantial savings and investments, along with the insurance money. Instead of naming one, or all, of his nieces and nephews as executor, he made his lawyer POA for financial matters. The lawyer also handled matters related to personal care. (In B.C., personal care is covered under representation agreements.)

Armand lost touch with the younger members of the family after his four siblings passed away. And it wasn’t until a month after his death that his eldest niece received a letter from the POA requesting she phone him. The letter further claimed he had no contact data for any other family members, which immediately aroused suspicions.

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The POA told the niece her uncle had suffered from dementia, and insisted the family receive no further health details. He did divulge her uncle had been cared for in his home during his three-year illness. When she asked about plans for sale of his home and other assets, the location of personal and family mementos, and the status of the insurance policies, the POA became surly and told her she’d eventually receive a packet from the lawyers administrating the deceased’s estate.

When that packet arrived a month later, the nieces and nephews learned their uncle died penniless. There was exactly enough money left to settle the estate’s final expenses, including legal costs. But further review of the estate’s report, and some Internet searching, showed his house had been sold a month prior to his death, and that proceeds were used to pay off a reverse mortgage taken out three years earlier (which exceeded the sale price of the house by nearly $100,000). What remained of their uncle’s savings went toward covering that shortfall.

The accounting provided by the estate also showed the purchase of a $3,000 sofa that was reported as consigned for $100 in the final declaration of assets, $10,000 monthly bills to an unlisted homecare provider company, and large purchases at expensive men’s clothing stores not consistent with the needs of an 80-year-old shut-in.

Further, there was no evidence of the existence of any insurance policies in force, nor that the policies had lapsed or been cashed in to pay bills. The last line of the estate report states there are additional documents that would not be provided since the lawyers were now losing money on the estate administration.

What should the nieces and nephews do?

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Legal action

JM: I’d start with legal proceedings, because the nieces and nephews likely won’t get any co-operation out of the POA.

I have questions immediately about the capacity of the uncle to enter into any of these transactions, and what knowledge the mortgage company may have had about his capacity. I know reverse mortgages are popular products, but they can come with fairly punitive interest charges.

I would try to track down, as quickly as possible, where the assets went: in particular, the money from the reverse mortgage, which would have been a lump sum. If necessary, I would get protective orders so that money would not still be available to the POA.

Under B.C. law, we have a presumption of undue influence. So when somebody is getting gifts, money or assets from a person, and the recipient’s in a position of power or has fiduciary obligations over the giver, the courts’ default assumption is that the recipient is exercising undue influence. The onus would be on the recipient to prove otherwise.

Looking at this fact pattern, I’m smelling undue influence quite strongly. The POA was clearly in a fiduciary position and it appears he has benefitted financially. That’s my suspicion based on his reaction to enquiries made by family members. So I’d try to get court orders for documents detailing what happened during the latter part of Armand’s life. We may even need to remove the executor, as he may have a vested interest in keeping that documentation secret.

If he were to apply for probate, we’d file a notice of dispute. If the nieces and nephews got to me late and a grant of probate had already been issued, they would make an application within the proceeding to remove the executor. The argument would be either that he’s not co-operating with our enquiries, or he has a conflict of interest. We’d need to show there’s reasonable basis to suspect he has benefitted from abuse of Armand’s finances.

In court, you would have to spell out the suspicious circumstances. If it appears the executor has benefitted, you can ask for a neutral third party to become executor to ensure the POA is not benefitting.

Changes to B.C. law earlier this year streamline this kind of litigation. In a single proceeding we can bring claims of undue influence and breach of trust, as well as attempt to drag assets back into the estate so they can be distributed to beneficiaries. In addition to breach of trust, the civil law term I’d use in this case is conversion, which is a polite way of saying theft.

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This is potentially a criminal matter, though it’s unlikely the police would get involved if there’s an avenue for civil recourse. Besides, if the POA’s in jail, it’s unlikely we’re going to be able to recover anything. If we sue and win but he can’t pay, at that point nothing’s stopping the nieces and nephews from going to the police and asking them to investigate it as a criminal matter.

Prior to taking civil action, we’d do our own investigation to see if he could pay. For instance, we’d do a title search to determine if he has any fixed assets, like real estate. If he does, the nieces and nephews could make a claim on it in the event they won their lawsuit and the POA had no other assets.

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