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.

Tracking insurance

SSA: There are six life insurance policies at $500,000 each. That works out to $3 million. Tracing 30-year-old policies could be difficult because there have been so many mergers and acquisitions in the insurance industry over the decades. To get started, you’d have to know who the agent or insurer was.

We’d look through bank accounts to see if any preauthorized payments had been made. That can sometimes determine who the issuer was. Another way: if the policy had cash value, there may have been a taxable disposition. So I’d look though Armand’s tax returns.

The POA couldn’t change the policies’ beneficiaries himself; but, if this was somebody committing a criminal act, it wouldn’t be far-fetched to say he could have forged the signature.

When my own clients want to change beneficiaries, they contact us personally, and we’re responsible for ensuring that the person who makes the change is the owner of the policy and has the legal capacity to make the change. We occasionally get calls from people who say, “I’m power of attorney for so-and-so, and I’d like to change the beneficiary on his life insurance policy.” We don’t do it.

With a policy as old as Armand’s, it conceivable an agent was no longer in touch. We call that an orphaned policy. And in recent years, insurance companies have turned extensively to servicing policyholders through 1-800 numbers. That’s possibly how the POA could’ve gotten the forms to forge the signature and change the beneficiary.

It’s fairly simple to change a beneficiary, and it happens frequently. If an insurance company is getting thousands of requests a year, they may get one or two that perhaps aren’t right. If I suspected forgery, I would counsel the nieces and nephews to speak with a lawyer.

But maybe Armand did willingly transfer ownership to the POA, who then changed the beneficiary. There’s nothing wrong with that. It would’ve triggered tax, and once the insurer issues a tax slip, it also goes to CRA. With proper justification, a lawyer could find out from CRA if this happened.

Follow the money

MM: My job as a forensic accountant is to collect and summarize information in a way that’s suitable for presentation in court. So when we take on these sorts of cases, it’s usually at a lawyer’s request.

A key tool is net-worth analysis. This means examining changes in someone’s net worth over a certain period and assessing whether they were legitimate. We also do funds tracing, which involves determining how the money’s used, who benefitted from it, and whether they did so rightfully.

I would start by analyzing Armand’s net worth, looking first at what it was in 1997, after he sold his business, and then the declared amount as part of filing for the estate.

In the event of civil or criminal action, a net-worth analysis of the POA may also be useful. It could show his net worth increased in unexplained ways, or in ways that can be explained by mistreatment of Armand’s assets. The insurance policies are a good starting point, and I like Susan’s suggestions on how to find the issuer.

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Next is the home. What’s it worth, and what could a reverse mortgage get him? The average house price in the Okanagan is about $544,000—there was a huge boom over the last while. A reverse mortgage can have punitive provisions, but generally it can’t be for the full value of the property. We have to ask: What were the terms of the sale? Was it arm’s length?

Next, we look at income sources apart from Armand’s fixed-income holdings. It’s likely he had CPP and OAS.

We don’t actually see what his personal life is like. Whom does he befriend? Whom is he benevolent to financially, if anyone?

In terms of home care, if the $10,000 a month were valid, he could have dissipated a fair amount of his assets, and may even have needed to dip into his home’s equity. So, the validity of the homecare receipts is critical to the analysis.

And keep in mind that withholding documents is fairly common among executors. Some feel the process needs to be secretive, even when they’ve done nothing wrong. The most worrisome thing about the case is the house being sold a month prior to his death.

SSA: It could have been force-sold, right?

MM: Absolutely. And there could be a nefarious or perfectly rational reason for that happening. The lender likely wouldn’t tolerate a situation where it had an exposure of $100,000 for very long, depending on the agreement.

So it’s possible nothing untoward is going on here. Bank statements and cancelled cheques would tell us a lot. In the event the POA acted improperly, we can trace the money to a point where we can recover those assets to make the beneficiaries whole.

If, in fact, there’s something improper here, it might have happened like this: Armand didn’t actually have dementia, though may have had some healthcare needs. That vulnerability was exploited by someone in a position of power—a person who had all the information necessary to be able to separate Armand from his rightful assets. In the case of the reverse mortgage, the money could be converted into assets that aren’t traceable, like bitcoins.

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It does seem like too much of a coincidence that there’s only enough money at the end so the estate has no debt. It breaks even exactly, and that might stretch credibility.

JM: Great point about questioning the dementia. The nieces and nephews will need access to Armand’s medical records to determine whether he did in fact have dementia, preventing him from entering the transactions himself, and also to assess the care costs.

And to Matthew’s point about looking at the bank records and cancelled cheques: you want to see if the $10,000 a month was going, for instance, to the POA’s wife (perhaps she’s in the private care business).

If she was getting the market rate it’s not necessarily a problem, but it certainly does raise questions. It’s just not prudent for a POA to make non-arm’s-length transactions, even if they’re for fair market value.

*This is a hypothetical case. Any resemblance to real persons or circumstances is coincidental.