EKN (Administration)
[2010] TASGAB 9
•4 June 2010
GUARDIANSHIP AND ADMINISTRATION BOARD
HOBART
EKN – Review of administration of Board’s Own Motion and Hearing Pursuant to Section 63(5) of the Guardianship and Administration Act 1995
Neutral citation: EKN (Administration) [2010] TASGAB 9
REASONS FOR DECISION
Anita Smith (President)
Administration – review of appointment of Board’s own motion – administrator’s actions showed that he was no longer suitable for appointment
Disallowance proceedings – administrator made expenditures without reasonable care – severance of a joint tenancy as an ‘expenditure’ – conflict of interests in holding roles as administrator, attorney, executor and beneficiary in both parents’ estates – administrator benefited financially from conflict transaction – deposit of represented person’s sale proceeds to account in administrator’s name - failure to pursue Testators Family Maintenance Act claim - administrator’s duty to act in the best interests of the represented person ‘at all times’ includes actions undertaken in a different role – personal liability of administrator for the expenditure - directions for recovery – inadequate reporting to the Board
Guardianship and Administration Act 1995 – ss 58, 63, 67, 57, 85
On 29 January 2009 the Board appointed TFN as administrator for his mother, EKN (‘the represented person’) conferring upon him the powers and duties of Division 4 Part 7 of the Guardianship and Administration Act 1995 (‘the Act’). The Board was aware at the time of appointment that the administrator was also an attorney for his father appointed pursuant to a power of attorney with an enduring clause dated 26 July 2006. Such an arrangement is not unusual.
On 30 December 2009 the administrator submitted his annual report in accordance with the requirements in section 63 of the Act. (This was in response to a request from the Board dated 21 December 2009 seeking submission of the report by 15 February 2010.) In accordance with usual procedure, the Investigation and Liaison Officer of the Board sought further information from the administrator to verify the accounts. Those enquiries lead to the Board being informed that a series of undisclosed transactions had occurred which had financially disadvantaged the represented person and had been to the financial advantage of the administrator. Therefore the Board convened a review of the appointment of its own motion pursuant to section 67(a) of the Act as well as ‘show-cause’ proceedings pursuant to section 63(5) of the Act.
The circumstances of the appointment:
TFN applied for appointment as administrator at the suggestion of BT, DON of the Nursing Home where the represented person lives. BT explained to an investigation officer of the Board that he did so because NT, and more recently TFN, had been attending the Home to remove excess funds from the represented person’s account and BT felt that SFN lacked an appreciation that he was not free to use his wife’s money for his own expenses. However as there was not formal attorney or administrator, BT was uncertain about the authority for the Home to refuse or grant such transactions.
At the hearing the Board discussed with TFN the concerns about the use of his mother’s funds and was satisfied by the end of the discussion that TFN would be able to distinguish between the represented person making contributions to capital expenses on the jointly owned home and SFN’s day to day living expenses. It was also satisfied that TFN understood that the represented person’s funds must only be used for her benefit, except with the express permission of the Board.
The application otherwise appeared relatively straightforward to the effect that the represented person had dementia and was unable to manage her affairs and SFN had because of ill health become unable to undertake transactions on the her behalf. As a result he had asked his oldest son (one of two surviving offspring) to manage her affairs and to apply for appointment as administrator.
The represented person had, at the time of the appointment, a simple estate which consisted of a house in Hobart (‘the property’) which she and her husband owned as joint tenants and her pension income.
The undisclosed transactions:
Acting in his role as attorney for his father, the administrator attended the offices of solicitor, Maria Dwyer at Ogilvie Jennings, to provide instructions to sever the joint tenancy pertaining to the property. That severance was lodged in accordance with his instructions on 29 September 2009. It was registered on 15 October 2009, however in the meantime, SFN had died on 11 October 2009.
SFN’s will made provision for his estate to be divided equally between his two sons. He made no provision for his wife.
On 23 November 2009 the administrator contacted the Board’s Investigation Officer and asked whether he could sell the property. The Investigation Officer informed him that as executor for his father and administrator for his mother he had the requisite authority to do so, but advised him also to check whether the property was held as a joint tenancy or as tenants in common. The administrator did not inform the Board’s officer at this point that he had recently severed the joint tenancy. Instead he stated that he would refer that matter to his solicitor, Maria Dwyer.
On 1 December 2009 the administrator signed a contract for sale of the property for $338,000.00.
On 30 December 2009, the administrator completed his annual report and declared it before a Medical Practitioner to be true and correct. The annual report was completed on the Board’s pro forma; following is the list of prompts in the pro forma and the responses by the administrator:
Prompt: “Asset Transaction: Describe any significant changes to the represented person’s assets since your appointment as administrator. For example –
Sale or purchase of property including personal property
Significant changes of investment”Answer: “Nil”
Statement of Accounts, prompt: “Real Estate”
Value recorded: “$140,000.00On 5 January 2010, a priority notice was lodged over the property and settlement occurred on 29 January 2010. In the meantime, the Board’s Investigation Officer had assessed the annual report and had sought copies of the accounts statements for the represented person at the Nursing Home on 19 January 2010. On 23 January 2010 those statements were supplied by the administrator and on 28 January the Board’s Investigation Officer raised questions with the administrator about withdrawals from the Nursing Home account of $6500 in three transactions. His letter of that date also stated:
“Please also advise whether you have sold the property in Hobart. If so please also provide evidence of your mother’s share and where those funds are currently held. If a sale has taken place the Board considers that your late father’s estate as the owner of ½ of the property should repay ½ share of the painting costs to your mother.”
Shortly after the Investigation Officer conducted a search and found that the property was held as tenants in common noting registration as such on 15 October 2009.
On 9 March 2010 the administrator supplied to the Board copies of bank correspondence confirming that the sum of $162,770.65 had been paid into a term deposit in the administrator’s name on 3 February 2010. The administrator indicated to the Investigation Officer, in a conversation on 26 March 2010, that the deposit was made in his name because the represented person cannot reach the 100 points of identification required to open a new account. However the account is not in trust and does not indicate the represented person’s interest in the funds.
On 8 April 2010 the Board informed the administrator that the accounts would be audited by the Public Trustee and noted the following concerns:
(1) There appears to have been a severance of a joint tenancy of the property registered as Vol 63430 Folio 3 between the represented person and SFN close to the time of SFN’s death. Following severance, the property was sold. Sale proceeds were $325,541.30. The sale proceeds were divided between the represented person (50%), DN (25%) and yourself (25%).
You were SFN’s attorney and his executor. That severance deprived the represented person the right of survivorship in the property and enabled you to inherit 25% of the value of the property.
If the severance of the joint tenancy was conducted by SFN without your involvement, then there is still an issue as to whether it would have been advisable to pursue a claim under the Testator’s Family Maintenance Act 1912 on the represented person’s behalf.
(2) Following the distribution of the estate, half of the proceeds of the sale were deposited to your term deposit account number XXX with XXXX and gives no apparent indication that the represented person is the owner of those funds.
(3) Given the above concerns, did your annual report, declared on 30 December 2009, accurately reflect the transactions undertaken by you as administrator and represent a true and correct representation of the estate?
The Public Trustee reported to the Board on the audit on 20 April 2010. That report noted that:
The severance of the property was to the detriment of the represented person in that it deprived her of an entitlement in equity valued at $162,770.65.
The administrator had an obvious conflict of interest acting as attorney for his father and administrator for his mother in executing the severance.
A claim under the Testator’s Family Maintenance Act 1912 on the represented person’s behalf may have been a prudent decision for an administrator to make in the circumstances, but if the property had not been severed, such a claim would not have been necessary.
Investment of the represented person’s funds in a term deposit was a prudent decision, but investment in the administrator’s name was detrimental to her interests.The administrator’s annual report to the Board was not an accurate reflection of the transactions undertaken by the administrator.
The administrator may have neglected to advise Centrelink of the changes to the represented person’s financial situation.
Following receipt of the Public Trustee’s report, a hearing was convened on 4 June 2010.
The hearing:
The administrator was provided with a complete copy of the Board’s file in this matter. Solicitor, Maria Dwyer was summonsed to attend. Present at the hearing were:
RFN – Administrator
Maria Dwyer – Solicitor
Lee Perry – Investigation and Liaison Officer GAB
Justin Clifford – The Public Trustee
The administrator was cooperative with the Board to the extent that he confirmed all of the above transactions. The following is a summary of his responses to the issues raised in the report by the Public Trustee:
(i)The severance of the Joint Tenancy:
The administrator argued that he severed the joint tenancy at his father’s request. He gave two conflicting accounts about why this was done. Initially he stated that it was because his father wished to give effect to his will, to ensure that the two sons received a share of his estate. In particular his father was concerned for DN who at 52 years of age lives in a caravan in the bush and has little prospect of improvement. As the hearing progressed however, the administrator said that the nursing home to which his father was admitted would claim all of the value of the house, so the severance was effected to reduce the payment to the nursing home and was not related to an intention to sell the property.
The second explanation unfortunately does not ring true with the Board’s experience of assessment of joint assets of married couples in aged care. No written evidence was advanced to support the proposition and it appears to be inherently unsupportable.
(ii)Conflicts of Interest:
In addressing issues of a conflict of interest in his roles as administrator, attorney, executor and beneficiary, the administrator demonstrated very little grasp of why these presented a conflict and what he may have been able to do to prevent that occurring. His primary motive appears to have been to do his father’s bidding. When asked why he had acted to his mother’s detriment he stated and repeated that he assessed that his mother, being well cared for at the Nursing Home and so incapacitated, would have no need of any greater funds than the share that she received from the sale. This attitude was confirmed by Ms Dwyer who indicated that account had been taken of the represented person’s needs, but that all persons in the transaction had been satisfied that her needs were sufficiently met with the proceeds of a half share of the property.
(iii) Failure to pursue a TFM Claim:
Consistent with the above approach, the administrator demonstrated no understanding of why a claim under the Testator’s Family Maintenance Act 1912 on the represented person’s behalf might have been an appropriate action for an administrator or even what such a claim was.
(iv) Depositing Sale Proceeds to His Own Account:
The administrator repeated his earlier assertions that his mother could not open an account in her name for a lack of identification and therefore those funds were held by him for her (but without adequate recognition). He had attempted, he said, to alter the account after suggestion by the Board’s officer but had been unable to do so. The administrator did appear genuine in his commitment to protecting these funds in his mother’s best interests, however, he is the beneficial owner of the account and his good intentions are not recorded in any overt way. This could significantly disadvantage his brother, for instance, if the represented person died without the account details having been rectified.
(v) Incomplete Disclosure in the Annual Report:
The administrator stated that he did not know what he would get for the property, so he included in the annual report 50% of the Government valuation ($280,000.00) for the property instead of the contract price. It was implausible to the Board that he did not know the value of the property, having signed a contract for $338,000.00 29 days before. It was also implausible that he thought a government valuation would be more accurate than a contract price.
He stated in respect of a failure to note significant changes in the estate that he believed it would all be sorted out in by the next year’s annual report and he would account for it then. Again this was implausible given that there was no urgency in supplying the report and the report could have been tendered after settlement and still be well within the requested time frame (15 February 2010). The administrator’s explanations for the inaccuracies in the annual report were less than convincing.
The administrator was given an opportunity to address the Board as to why he might not be replaced as administrator, but did not advance any cogent reasons.
The administrator was also given an opportunity to address the Board as to whether he ought to be held personally liable for items of expenditure. He indicated that this would put him in difficult financial circumstances as is discussed below.
Outcome of the review pursuant to section 67:
By his actions, the administrator has demonstrated that he is not a suitable person to act as administrator, that he has a number of past and current conflicts of interest and he lacks the expertise to identify and resolve those conflicts of interest in any way that was appropriate to the best interests of the represented person. In his mitigation however, he had made full disclosure to the solicitor who did not advise him as to the complexities and the risk of his position or the error that he was making.
The represented person remains a person with a disability and incapable of managing her estate. She remains in need of an administrator. It is appropriate in the circumstances to appoint the Public Trustee as the administrator of the estate for a period of three years.
Did the administrator act without good faith or reasonable care?
28. Section 63 provides:
“63. Reporting requirements for administrators
… (4) The Board must examine a statement of accounts and may –
(a) cause the accounts to be audited by The Public Trustee or another person determined by the Board at the cost of the represented person's estate; and
(b) if of opinion that the administrator, in making any expenditure in the exercise, or purported exercise, of his or her powers as such, did not act in good faith or with reasonable care, disallow that item of expenditure.
(5) The Board must not disallow an item of expenditure unless it first gives the administrator and any other person the Board thinks fit the opportunity to appear before the Board and be heard on the matter.
(6) Where the Board disallows an item of expenditure under subsection 4(b), the administrator is personally liable to the represented person for the amount of the expenditure and to the Board for its costs and expenses incurred in relation to the disallowance.
(7) An administrator who, without reasonable excuse, contravenes this section is guilty of an offence and is liable on summary conviction to a penalty not exceeding 20 penalty units.”
The Australian Oxford Dictionary defines the verb ‘expend’ as to: “spend or use up (money, time, etc.).” It defines ‘expenditure’ as: “1 the process or an instance of pending or using up. 2 a thing (especially a sum of money) expended.” To this extent, at the point of the severance, the represented person’s future right of survivorship in the property was expended, or used up, by the actions of the administrator.
The administrator expended the future entitlement of survivorship not explicitly through his powers as the represented person’s administrator but by exercising his authority as his father’s attorney. However, as an administrator he had a responsibility to “act at all times in the best interests of the represented person” (section 57(1) of the Act) (emphasis added).
He acknowledged this responsibility twice in writing. Firstly, when making the application for appointment as administrator on 1 December 2008, the administrator signed the following declaration:
“I agree to undertake my duties in accordance with the requirements of the Guardianship and Administration Act 1995”
Of course he had not been appointed at this stage, and such duties may relate to duties as an applicant. However, upon appointment on 29 January 2010, he signed another acknowledgement (read out and explained to him at the hearing) which stated:
1.“As an administrator appointed under Part 7 of the Guardianship and Administration Act 1995 (‘the Act’), I must at all times exercise the powers and duties set out in section 56 in the best interests of the represented person.
2.As administrator I am responsible for ensuring that the represented person’s funds and assets are applied for his or her benefit alone, except where I have obtained an order from the Board approving a gift or settlement pursuant to section 58 of the Act.
3.I am required to keep accurate records of receipts and expenses in the represented person’s estate and to submit an annual report in accordance with section 63 to the Board on the anniversary of the order and at any time ordered by the Board.”
He was also provided with a detailed Handbook setting out the duties and responsibilities of an administrator which includes a discussion about conflicts of interest, advising:
“Should a conflict of interest arise following appointment, you should write to the Board outlining the potential conflict as soon as possible after the potential conflict arises. A conflict of interest may often be resolved by the Board giving certain directions to ensure accountability in the conflict transaction.
A failure to declare or recognise a conflict of interest by an administrator could undermine your continuing appointment as administrator.
If you believe that you may be in a position of a conflict of interest, you should notify the Investigation and Liaison Officer, as soon as possible, who will advise you whether you should seek directions from the Board.” Page 45
Had SFN severed the joint tenancy in the property without notice to the administrator, the administrator could not be held responsible for that. However, not only did this administrator have notice of the severance, he acted as SFN’s agent in doing so. Section 57 requires that an administrator acts in the best interests of the represented person “at all times” so it is clear that one’s hat as administrator is not one that can be taken off when acting on behalf of another person. The actions that he took on his father’s behalf had a direct and detrimental effect upon his mother’s estate. In proceeding in accordance with his father’s instructions he has been personally enriched by approximately $81,000.00 and his brother by the same amount. (Note: no proof has been offered to the Board that DN actually received his purported share of the estate)
The administrator believed that his duties as administrator were fulfilled because he had turned his mind to his mother’s needs and satisfied himself that she is well cared for and has no need of any greater share of her husband’s estate than the $162,770.65 that was paid on her behalf into an account in the administrator’s name. He also stated that had she any needs beyond that, he would fund them himself.
The Board rang the Nursing Home who confirmed that the represented person is well cared for, her fees are paid and she will not be likely to have any financial needs that would use any significant funds at any time before her death. However, the assessment that the administrator and his (or his father’s) solicitor made, that the represented person had no need of a significant part of her estate, was not one that was within the powers of the administrator. In effect, the decision was to alter the nature of the represented person’s estate to the effect that two other persons would receive a significant benefit. Generally these kinds of transactions are called gifts and they fall within section 58 of the Act which requires the express approval of the Board after a hearing.
The costs of the severance were included in the professional costs deducted from the sale proceeds before distribution was made, charged together with probate costs. It is difficult to differentiate the costs of the severance, however it appears that approximately $500.00 could be attributed to the costs of the severance.
If the administrator had acted with reasonable care, he would have identified the conflict of interest, contacted the Board for advice, refrained from entering into the transaction on his father’s behalf, or perhaps even counselled his father against the transaction in his mother’s best interests. His father was apparently competent but physically incapacitated so there were alternatives available that could have avoided the administrator’s involvement in the conflict transaction.
Given the administrator’s low level of understanding of legal concepts and the fact that a legal practitioner enabled him to complete the transaction without the benefit of any caution against the conflict situation that he put himself in, the Board cannot say unequivocally that his actions were made in bad faith. However, the standard of his actions fell well short of being made with reasonable care.
Once the detriment had been suffered by the represented person’s estate, the administrator then failed to seek any advice about recovering a share of the estate pursuant to the Testator’s Family Maintenance Act 1912. The administrator deposited those funds that the represented person did receive from her husband’s account into an account in his own name. Further, his reporting to the Board of each of these transactions was insufficient and misleading. Again these actions and transactions lacked the requisite standard of care expected of an administrator.
Many persons act as financial agent, either as administrator or attorney, for both parents. Usually where elderly parents’ estates are jointly owned, this causes no conflicts of interest. Indeed in this case any potential conflicts of interest were largely irrelevant until the joint tenancy was severed. Many instances of elder financial abuse occur because an adult child believed that their parents with disabilities had no need of their funds and that the adult child’s needs were greater. This is referred to in guardianship and trustee parlance as ‘accelerated inheritance’. Accelerated inheritance might also be referred to as financial abuse and stealing. However, as serious as TFN’s actions were, they were also based on common misconceptions about the roles of attorney and administrator.
The Board hereby disallows the severance of the joint tenancy in the property to the extent of the loss of value to the represented person’s estate of $162,770.65, plus legal costs associated with the severance.
The Board also disallows the payment of $162,770.65 into XXX Account XX in the name of TFN.
Is the administrator personally liable for the disallowed expenditure?
Section 63(6) of the Act makes it an automatic consequence of a disallowance that the administrator is personally liable for the expenditure and the costs associated with the disallowance. The value of the first disallowance for the severance was presumably $162,770.65 plus approximately $500 for legal costs and the value of the second disallowance was $162,770.65.
The Public Trustee rendered an account of $141 for the cost of the report in this matter. As a cost of the disallowance proceedings, this is an expense of the administrator also.
Therefore the total value of the disallowance and therefore the administrator’s personal liability is approximately $326, 068.24.
The administrator has indicated that he has limited means. He is employed but currently on worker’s compensation with an annual salary of $35,000.00 per annum. At sixty years of age, he states that his working life will be shortened by his emphysema, which is not related to his worker’s compensation injury. He owns his home unencumbered and it has a value of approximately $300,000.00. He has invested his purported share (presumably around $81,000.00) of his father’s estate in a term deposit in XXX. He believes that his brother DN is not in a position to repay his purported share of their father’s estate. He states that the only means he will have to pay the amount of a disallowance will be to mortgage his home, but he will be in difficulties repaying a mortgage because of his illnesses and shortened working life.
Half of the administrator’s personal liability can immediately be extinguished with the assignment of the ownership of XXX Account XX to the Public Trustee as the new administrator for the represented person.
As to the remaining half, if the administrator pays that share back to the estate without assistance from DN, and his mother dies leaving her will unchanged, it is likely that (presuming that DN has received his purported share of the estate) DN will be unjustly enriched to the administrator’s disadvantage.
In the circumstances, the Board believes that it is appropriate to make directions to the new administrator about the recovery of the amount of the disallowance to take account of the former administrator’s difficult financial position and the prospect of DN being unjustly enriched by the transactions.
Directions Regarding the Recovery of the Disallowance:
The new administrator is directed to take immediate steps to:
(i)Have TFN acknowledge the represented person’s ownership in all funds in XXX Account XX and relinquish all claims to those funds.
(ii)Request Ogilvie Jennings to itemise the costs of the severance of the represented person’s joint tenancy over Hobart address and require the former administrator to repay those costs to the represented person’s estate.
(iii)Recover payment from TFN of $141.00 being the costs of the audit.
(iv)Have TFN sign an acknowledgement of debt (by deed or otherwise) for the remaining $162,770.65 being the value of the lost right of survivorship in Hobart address, such debt being owed to the represented person during her lifetime but extinguished upon her death.
(v)Not proceed against the acknowledgement of debt in clause (iv) above unless the represented person, in the absolute discretion of the administrator, has exhausted or will soon exhaust all of her other funds and is unable to reasonably support herself without access to those funds.
(vi)If TFN does not comply with reasonable efforts by the Public Trustee to carry out directions (i)-(iv) above, clause (v) above will not apply and the disallowance shall take effect in full and be recoverable immediately entitling the administrator to proceed to the Supreme Court to recover a debt of $325,682.30 (or any outstanding part thereof) plus legal costs of the severance and legal costs of the action.
The Board believes that such directions to the new administrator reflect the justice of the case without being unduly harsh upon the former administrator.
Consequences of the inadequate report to the Board:
The annual report submitted to the Board on 30 December was materially deficient in significant ways. Whether the declaration and submission of that report represents an offence pursuant to section 85(2) of the Act or a breach of the Oaths Act 2001 is a matter for the Police to investigate. The new administrator is directed to report the matter to the Police and to assist them in their investigations.
Findings of the Board:
After hearing a review of an administration order made on 29 January 2009 in respect of EKN of The Nursing Home, Hobart (hereinafter called the ‘represented person’)
The Board was satisfied that the represented person
is a person with a disability, and
is unable by reason of the disability to make reasonable judgements in respect of her estate, and
is in need of an administrator;
THE BOARD ORDERS
That The Public Trustee be appointed as administrator of the estate of the represented person in place of TFN.
That the powers and duties of the administrator be those conferred by Division 4 of Part 7 of the Guardianship and Administration Act 1995.
That the order remains in effect until 3 June 2013.
SECTION 63(3) PROCEEDINGS:
After examining a statement of accounts submitted by TFN as administrator for the represented person, causing those accounts to be audited by the Public Trustee and giving TFN an opportunity to appear before the Board and be heard on the matter, the Board was of the opinion that in making the certain expenditures as administrator TFN did not act with reasonable care. As a result of that finding:
The Board hereby disallows the severance of the joint tenancy in the property to the extent of the loss of value to the represented person’s estate of $162,770.65, plus legal costs associated with the severance.
The Board also disallows the payment of $162,770.65 into XXX Account XX in the name of TFN.
THE BOARD HEREBY DIRECTS THE ADMINISTRATOR:
To take immediate steps to:
(i)Have TFN acknowledge the represented person’s ownership in all funds in XXX Account XX and relinquish all claims to those funds.
(ii)Request Ogilvie Jennings to itemise the costs of the severance of the represented person’s joint tenancy over Hobart address and require the former administrator to repay those costs to the represented person’s estate.
(iii)Recover payment from TFN of $141.00 being the costs of the audit.
(iv)Have TFN sign an acknowledgement of debt (by deed or otherwise) for the remaining $162,770.65 being the value of the lost right of survivorship in Hobart address, such debt being owed to the represented person during her lifetime but extinguished upon her death.
(v)Not proceed against the acknowledgement of debt in clause (iv) above unless the represented person, in the absolute discretion of the administrator, has exhausted or will soon exhaust all of her other funds and is unable to reasonably support herself without access to those funds.
(vi)If TFN does not comply with reasonable efforts by the Public Trustee to carry out directions (i)-(iv) above, clause (v) above will not apply and the disallowance shall take effect in full and be recoverable immediately entitling the administrator to proceed to the Supreme Court to recover a debt of $325,682.30 (or any outstanding part thereof) plus legal costs of the severance and legal costs of the action.
(vii)Make a report to the Police regarding the report by the former administrator on 30 December 2009.
Anita Smith
PRESIDENT
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