When I lecture on estate, trust administration and taxes I have a slide that indicates the following scenario: A father dies, naming his brother as his executor. During his lifetime, his brother acted as his attorney under Power of Attorney for Property. On the father’s death the brother applies to the court to be appointed executor. Immediately the father’s children (beneficiaries of the estate) object to the appointment claiming their uncle has alcohol dependency issues and is too controlling. Describing old family disagreements, they insist he cannot be trusted to administer the estate.
I ask attendees — beyond family complaints, personal opinions and old grievances — what evidence could the beneficiaries bring to the court to show that their uncle presents a real risk to the proper administration of the estate.
I rarely get the answer I’m looking for. The real question is not whether the beneficiaries dislike him or distrust him. It is whether he can demonstrate how he fulfilled his fiduciary duties while acting as attorney under a Power of Attorney for Property.
Can he account for every financial transaction and provide an accounting in the applicable format while acting as the attorney?
Whether the uncle becomes the executor or not, the answer to that question often becomes a defining issue.
When individuals agree to act as an executor, trustee or attorney under a Power of Attorney for Property, they usually think they understand the job. They expect to gather assets, pay debts, file tax returns and eventually distribute what remains to the beneficiaries. What almost no one anticipates is that one of their most important legal obligations is preparing a complete fiduciary accounting.
I have found this to be the single greatest misconception about acting as a fiduciary. Most individuals believe that if they are honest, organized and acting in good faith, they have fulfilled their responsibilities.
They haven’t.
A legal obligation to account
A fiduciary has a legal obligation to account. Many first-time executors proudly tell me they have kept every receipt and have all the bank and investment statements. That’s not enough.
A fiduciary accounting is a complete financial history of the administration. It must explain every dollar that came into the estate or trust, every dollar that left, every investment transaction, every distribution and every asset remaining on hand. It must specify inventories of estate assets, liabilities, records of receipts and disbursements, investment transactions, fiduciary compensation and distributions. They are all fundamental components of estate administration.
Beneficiaries are entitled to understand how estate assets have been managed. If disagreements arise, courts can require executors and trustees to formally pass their accounts, where every financial transaction is scrutinized.
This is not merely an accounting exercise. It is evidence that the fiduciary has fulfilled their legal obligations.
Ironically, many fiduciaries create accounting problems before they even realize accounting is part of the job. They may pay estate expenses from personal funds, use their own credit card, deposit estate funds into a personal account or reimburse themselves without adequate support. They may also fail to record the purpose of payments and withdrawals, lose invoices or credit card receipts or make interim distributions without documenting how those distributions were calculated.
If proper records are not maintained from the outset, reconstructing years of transactions becomes expensive and time-consuming.
A case study
Marnie was appointed as her father’s attorney under a Continuing Power of Attorney for Property after he began experiencing cognitive decline.
For the next four years, she managed every aspect of his financial affairs. She paid his bills, arranged for home care, managed his investment portfolio, renewed GICs, sold his home when he moved into long-term care and ensured there was always sufficient cash available to meet his expenses.
She did everything she believed a caring daughter should do.
When her father died, his will appointed Marnie and her two siblings as co-executors.
Marnie assumed the transition would be seamless. After all, she had already been managing her father’s finances for years.
Instead, the administration quickly became contentious.
Her siblings began questioning decisions Marnie had made while acting as attorney under a Power of Attorney for Property. What happened to Dad’s money? Why had one investment been sold? Why had money been transferred between accounts? What were the reimbursements paid back to Marnie? Why had certain expenditures been made?
The discussion was no longer about administering the estate. It was about accounting for the years before death.
The estate lawyer advised that Marnie would need to prepare a complete fiduciary accounting covering the entire period she acted as attorney under a Power of Attorney for Property before the executors could confidently move forward with the estate administration.
Every receipt had to be traced. Every disbursement had to be explained. Every investment transaction had to be supported. Every reimbursement had to be documented.
Marnie had acted honestly and in her father’s best interests throughout. But honesty was not the legal test.
As attorney for property, she had a fiduciary obligation to account for every financial decision she made on her father’s behalf. Without a proper accounting, her siblings could not determine whether their father’s assets had been managed appropriately, regardless of how much they trusted her.
What Marnie believed would be a routine estate administration became an expensive reconstruction of four years of financial activity.
The experience highlights a lesson that many fiduciaries learn too late: the obligation to account as an attorney for property does not end when the grantor dies. It becomes the foundation upon which the estate administration begins.
Why advisors should care
Financial advisors are often among the first professionals clients consult after agreeing to serve as an attorney under a Power of Attorney for Property, executor or trustee.
This creates an opportunity.
Rather than discussing only investment management or tax planning, advisors can prepare clients for the responsibilities they are assuming. They can help clients understand the record keeping discipline that fiduciary roles require. These conversations not only protect fiduciaries but can also strengthen advisor-client relationships.
Fiduciaries often believe their job is complete when the estate is distributed. It is only complete when every transaction can be explained, every decision can be supported and every dollar can be accounted for.
