Appointing adult children to manage finances

It’s not uncommon for parents to choose an adult child to act under a power of attorney for property (PoAP). After all, who else can or should be trusted in such an important role, if not close family? This person receives broad powers to make financial decisions on behalf of their incapacitated parent, such as selling property, filing and paying taxes, dealing with private businesses, making investment decisions — and much more.

However, with these broad powers also come significant responsibilities. Provincial legislation outlines the fiduciary duties and responsibilities a person acting under a PoAP should adhere to, including acting in the best interests of the incapable person. Additionally, certain breaches of duty by a person acting under a power of attorney (PoA) are criminal offences pursuant to the Criminal Code of Canada.

Given these powers and responsibilities, as well as the higher likelihood of children surviving their parents, it’s easy to see why appointing an adult child makes sense for many families. However, there are situations in which this may not be ideal. Consider the following cases.

Theft

The 2019 Ontario case R. vs. Banoub involves a mother diagnosed with a form of dementia. In 2011 she appointed her daughter to act under her PoAP. Eight months later she moved into a long-term care facility, and then sold her home the following year.

The daughter assumed charge of her mother’s finances. The court noted that by 2015, payments to the mother’s long-term care facility were being returned for non-sufficient funds. The police conducted an investigation and determined that the daughter had taken approximately $161,000 from her mother’s accounts and investments over four years. The funds were spent on gambling, an overseas trip and personal living expenses.

The daughter was charged and pled guilty to the offence of theft over $5,000 under the Criminal Code. She was sentenced to six months in jail and three years’ probation. The daughter provided no explanation for her conduct.

Misappropriation of funds and incomplete record keeping

The 2021 British Columbia case Sarzynick vs. Skwarchuk involves an estate dispute between siblings following the death of their mother. The court noted that at the time of the mother’s death, the majority of her assets had been depleted.

In 2007 the mother appointed her son to manage her finances under an enduring PoA. The following year, the mother suffered a brain injury and was diagnosed with Alzheimer’s disease. She died in 2017.

The sister asserted that her brother had misappropriated large sums of money for his sole benefit, using the mother’s funds for the purchase of properties and their renovations. She claimed that her brother made consistent withdrawals from joint bank accounts that were created for the parents’ sole use in paying their bills and expenses.

The court found that the son breached his fiduciary duties while having an obligation to act in the best interests of his mother. The court determined that he benefited personally from the misappropriation of her funds. It noted that he was responsible for accounting for all of the mother’s assets under his control, as well as the proceeds generated from those assets, which he failed to do.

The court also noted that the brother failed to produce most of the documents, including financial, tax, and bank statements he was ordered to produce. The court ruled that the sister, on behalf of the mother’s estate, was entitled to recover more than $440,000 from the brother.

Fraud

R. vs. Barker is a 2019 case from Nova Scotia. A husband and wife, aged 80 and 58, respectively, pled guilty to fraud charges under the Criminal Code. Over the course of nine months, they pressured the wife’s 83-year-old mother to sign and enter into several financial services contracts, for which she received no benefit.

The mother, diagnosed with dementia and dysphasia, required 24-hour care and lived with the couple. The court noted that she had no capacity to enter into these contracts and would not have but for the pressure exerted by her daughter and son-in-law. The couple profited from their actions by receiving over $50,000, while the mother was left responsible to repay the loans.

This case does not indicate whether the mother had a PoAP appointing her daughter. However, even in situations in which there is no PoAP, fiduciary duties may still exist. The court noted that there was a breach of trust and that the daughter and her husband exploited the mother for their gain and to the mother’s great financial detriment. The court also noted the couple had limited financial means and the husband had experienced a bankruptcy.

The husband and wife were each sentenced to probation for three years, with six months of house arrest and ordered to repay the monies they received.

Tips for making an appropriate choice

Careful consideration of an adult child’s skills and strengths is essential in determining who is best suited for financial decision-making during parental incapacity. Below are qualities clients should consider, and questions they should ask themselves, before appointing an adult child to act under their PoAP.

• Trustworthiness. Can this son or daughter be trusted with money, particularly money that does not belong to them? Do they feel entitled to your assets? Giving a child charge over a parent’s assets, when the child inherently believes those assets belong or should belong to them, could actually be setting them up for failure with serious consequences.

• Money management skills. How well does my child manage their own finances? Do they often look to me or others for financial assistance? A child consistently experiencing personal financial challenges is unlikely to manage a parent’s affairs more successfully.

• Record-keeping skills. How organized and skilled is my child when it comes to record keeping and storing financial documents? A key responsibility when acting under a PoAP is the duty to keep accounts and records for all financial transactions of the incapable person. If an accounting is required, appropriate documentation and records supporting that accounting will be necessary.    

Akua Carmichael

Tax & Estate

Akua Carmichael, LL.B, J.D., TEP, is vice-president, Estate Planning and Services, with Estate Stewards. She can be reached at acarmichael@estatestewards.com.