Inappropriate Guardian Compensation and Breach of Fiduciary Duty

Inappropriate Guardian Compensation and Breach of Fiduciary Duty

Nadia Osmulski needed a guardian. Her son Joe stepped in as court appointed guardian for property and personal care. Although Joe managed to ensure Nadia was taken care of, he made many decisions which were considered a breach of his fiduciary duty as guardian. While analyzing Joe’s conduct the court in Osmulski Estate v Osmulski Estate (2014 ONSC 6370) took the opportunity to examine the various principles of guardianship:

Standard of Care: The Substitute Decisions Act contains two different standards of care for someone acting as a guardian for property. Under s. 32(7) a guardian who is not receiving compensation must exercise the degree of care and skill used by an ordinary person managing their own affairs while s. 32(8) requires a guardian receiving compensation to exercise the skill of a person in the business of property management. Joe argued that even though he sought compensation, the higher standard should not automatically apply. The court found that even if this were true, his conduct was so egregious neither standard was met.

Maximizing Return: Joe made many decisions that resulted in a failure to maximize the value of Nadia’s property. Rather than selling her real estate Joe allowed a sibling to live in the house without paying for utilities or taxes. Joe also sold property to a family member for less than the estimated value. The court rejected the argument that avoidance of relator costs made up for the loss of profit. To make matters worse, Joe failed to retrieve full payment from the sale and what proceeds he did receive were placed in his own account rather than invested for greater return. This failure to maximize return was found to be a breach of fiduciary duty.

Inappropriate Compensation: After depositing the sale proceeds into his own account Joe gave himself 40% of the interest earned. The court found this completely unwarranted as was the use Nadia’s funds to pay his own property taxes. The court was also concerned by the fact that Joe sporadically paid himself without recording why and paid his wife significant funds for inadequate accounting services. Had he and his wife operated at an arms-length away, the payment for her services might have been evaluated differently. The court held that Joe’s lack of knowledge about being a guardian did not make up for his mismanagement and inappropriate compensation.

Yet despite these shortcomings, Joe managed to ensure his mother’s needs were met and was entitled to some compensation. The court calculated Joe’s compensation based on the formulas set out in the Regulations to the SDA and he was ordered to repay the difference between the compensation he was entitled to and the compensation he took. He was also ordered to pay back the compensation given to his wife for her bookkeeping services, but the court did not hold Joe liable for loss of profit from the sale of Nadia’s property and the taxes paid, which was likely due to the fact that he took on the guardianship reluctantly and seemed genuinely unknowledgeable about his role.

Osmulki is a helpful reminder and a useful example of a not atypical guardianship situation. It is also a cautionary tale of a court being sensitive to the standards of being a guardian while balancing the theory and practice.