Most spouses enter marriage with the expectation that their finances will be managed and invested by the other in the event one becomes incapable of managing their property. However, this expectation is not often reality where a spouse holds assets, such as investment accounts or real property, in their sole name and no Power of Attorney for Property is in place to address mental or physical incapacity.
Recently, we acted for a client whose spouse of over 30 years suffered a sudden stroke and became incapable of managing their property. As several accounts were held solely in the incapable spouse’s name, the capable spouse was unable to provide instructions with respect to those investments.
To make matters worse, the incapable spouse did not have a valid Power of Attorney for Property in place, so a guardianship application was required to address the incapable spouse’s property. Notwithstanding the above, the spouse retained sufficient capacity to execute a Power of Attorney for Personal Care, given the lower threshold for that instrument.
Applying for Guardianship of Property
In a guardianship of property application pursuant to section 22 of the Substitute Decisions Act 1992, S.O. 1992, c.30, the applicant is required to prepare a Management Plan. The Management Plan outlines the assets held in the name of the incapable person and establishes the value of their estate. The total quantum of the assets held by the incapable person is important when determining whether a bond or security shall be posted which is discussed further below.
The application materials also include detailed information about the incapable person, their family members, and the reasons for the application. Once filed with the Court, this information forms part of the public record.
The responding party to the application is the incapable person, and in most cases, the Ontario Public Guardian and Trustee (“PGT”) acts as litigation guardian, unless the application is opposed. For readers unfamiliar with the PGT, its primary role is to oversee guardianship of property matters by acting as litigation guardian where appropriate, reviewing management plans, and ensuring that the incapable person’s assets are managed and protected in their best interests.
Recent policy developments from the PGT suggest that a marital spouse, notwithstanding prior involvement in financial decision-making during the marriage, may still require a judicial determination of their suitability to act as guardian of property. In many cases, this assessment is tied to whether a bond (also referred to as posting security) is required.
The criteria for suitability generally include that the proposed guardian must:
- be at least 18 years of age;
- be capable of managing property;
- consent to act; and,
- not be prohibited by the Court or otherwise unsuitable in the circumstances.
Posting a Security or Bond
In practice, the proposed guardian should have a close relationship with the incapable person, be financially stable, and have no legal, financial, or criminal issues that would impair their ability to act.
However, recent policy positions of the PGT indicate that security will generally be recommended where the incapable person’s assets exceed $100,000, given concerns regarding potential misappropriation.
These recommendations are typically provided to the Court by way of letter, and the PGT generally does not attend to advance its position on the issue of security. As a result, it falls to counsel for the applicant to put forward submissions in support of dispensing with the security requirement.
In determining whether to require or waive a bond, the Court will consider:
(a) the relationship to the incapable person;
(b) the size and nature of the estate;
(c) the nature of the assets;
(d) the applicant’s financial reliability;
(e) evidence of trustworthiness; and
(f) whether the cost of the bond is proportionate to the value of the estate.
In Practice
In the matter referenced above, the PGT recommended that security be posted. The presiding judge advised that the consent of the adult children to the appointment of their biological parent as guardian of property would be sufficient to dispense with the bond requirement.
However, due to a breakdown in the relationship with one child and capacity concerns regarding another, the necessary consents could not be obtained. Consequently, a court order dispensing with the bond on consent was not achievable. The PGT further asserted that, in addition to the incapable spouse’s sole assets, their 50% interest in joint accounts should be included in determining the principal amount of the bond.
The assets held solely in the name of the incapable person were approximately $1 million, however, when the incapable person’s interest in joint assets was included, the total value increased to approximately $5 million.
What does this mean in the context of obtaining a bond as recommended by the Court?
Applying for a bond or security
To obtain a guardianship bond, the proposed guardian must satisfy the bonding company’s underwriting criteria, which primarily focus on financial reliability and risk. This includes the following:
- demonstrating a strong personal financial position (positive net worth, liquidity, and stable income);
- maintaining good credit; and,
- providing full financial disclosure such as assets, liabilities, and income verification.
The bonding company will also assess whether the applicant has any history of financial misconduct (e.g., bankruptcy or judgments), their relationship to the incapable person (with closer family members viewed more favourably), and the nature and value of the incapable person’s estate. Ultimately, the surety must be confident that the applicant can personally indemnify the bond if a claim arises.
Applying a pro rata premium of 1.5% to the above scenario, the cost of a bond varies significantly depending on the value of the incapable person’s estate, as illustrated below:
Scenario 1: Estate valued at $1,000,000
- Bond amount: $1,000,000
- Premium (1.5%):
$1,000,000 × 1.5% = $15,000 annually
Scenario 2: Estate valued at $5,000,000
- Bond amount: $5,000,000
- Premium (1.5%):
$5,000,000 × 1.5% = $75,000 annually
The imposition of a bond requirement will directly impact both the capital and income generated from the incapable person’s investments, potentially creating a financial deficit. This forms the basis for counsel’s position in seeking to have the bond requirement dispensed with.
When a Bond is denied or unattainable
Applications for a guardianship bond are often declined where the proposed guardian lacks sufficient financial capacity, has a poor or limited credit history, or where the value of the estate is disproportionate to the applicant’s personal assets and income. In such circumstances, bonding companies may not be satisfied that the applicant can adequately indemnify the bond in the event of a claim, creating a significant barrier to appointment under the Substitute Decisions Act, 1992.
Conclusion
In summary, where the majority of assets are held jointly between spouses and the applicant spouse is retired with minimal assets held in their sole name, it is unlikely that a bond application will be approved. In such circumstances, the inability to satisfy the bond requirement may prevent the spouse from being appointed, resulting in the incapable person’s property ultimately falling under the management of the PGT.
In conclusion, while the spousal relationship is a significant factor in assessing the requirement for a bond in a guardianship of property application, it is not determinative. Broader considerations, such as family dynamics, mental health concerns, or the involvement of minor beneficiaries, may affect the ability to obtain such an order.
To avoid these complications, individuals should consult legal counsel regarding the preparation of Powers of Attorney. Proper planning can help prevent government involvement in personal financial affairs and avoid the time and expense associated with court proceedings to appoint guardian.