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Fiduciary Accounting – Slicing the Pie Without Causing Indigestion

Transparency has become a powerful discussion point in recent years. A lack of corporate financial transparency has arguably been the cause of many modern major financial crises and corporate bankruptcies. Whether you agree with this view or not, transparency is a hot-button issue, both socially and politically. Lack of transparency can create an emotional, almost visceral reaction in those who view it as a deliberate attempt to hide the facts from those who are entitled to them. This reaction can, in turn, be upsetting and frustrating to those who are not attempting to hide anything, but for a variety of reasons legitimately believe that greater transparency is not necessary or appropriate in the circumstances.

This global dynamic can also be seen in situations where a beneficiary of an estate or trust or someone close to an incapable person is seeking greater transparency from an executor, trustee or attorney for property who has not been forthcoming with information or documents. Voluntary and timely sharing of information, good communication and a sound understanding of the law can prevent disputes between beneficiaries and executors or trustees or among family members of an incapable person based on a lack, or perceived lack, of transparency. 

Executors, trustees and attorneys for property are three types of fiduciaries. Fiduciaries are entrusted with an important role which provides them authority over the property of other persons. The role of a fiduciary comes with legal obligations, one of which is the duty to account to those with a financial interest in the property the fiduciary has been entrusted with. A beneficiary cannot know if their “slice of the pie” is the size it should be if they are not given the necessary information, backed-up by written documents, to confirm what they are being told by the fiduciary.

Disputes in estate, trust and attorney accounting can arise from a variety of circumstances, but it seems that lack, or perceived lack, of transparency is a leading factor. There are three common causes: lack of timely and voluntarily disclosed information, lack of good communication and lack of knowledge of the law. Any of these three causes can result in a dispute between the fiduciary and one or more interested parties, leading unfortunately to mistrust, disrupted families, court actions, wasted time and money and relationship breakdown. These consequences are very serious, but often the cause of the problem is not taken seriously by one party or the other until a dispute erupts. Unfortunately, by then it may be too late to do anything but mitigate the damage.

At the outset of their role, it is important for fiduciaries to understand their obligations and to seek legal advice to ensure that they are keeping appropriate records and providing information on a timely basis. Consideration should be given to volunteering information, not just waiting until being asked to do so. It is also important for fiduciaries to make timely communications a priority, particularly when providing updates, advising of unexpected delays or obstacles and answering questions. While legitimate delays are usually understood and accepted by reasonable parties, and some requests for information may be premature or inappropriate, frequent, ongoing lack of transparency often breeds a level of distrust.

The obligations of a fiduciary can be onerous at times. But keeping on top of communications and being transparent with beneficiaries is key to preventing disputes. Showing at each stage that the “slicing of the pie” is being done properly and fairly is always the best approach for the fiduciary charged with this important role.

— O’Sullivan Estate Lawyers

Don’t miss our next blog post on ethical wills.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.