COURT FILE NO.: CV-18-76901
DATE: 2018/10/09
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MICHELLE CONNOLLY
Applicant
– and –
MICHAEL TAYLOR CONNOLLY and THE PUBLIC GUARDIAN AND TRUSTEE
Respondents
Joseph Y. Obagi, Counsel for the Applicant
HEARD: August 28, 2018
ENDORSEMENT
CORTHORN J.
Introduction
[1] Michelle Connolly applies for an order appointing her as the guardian of property of her adult son and approving a proposed management plan. Michael Taylor Connolly (“Taylor”) is Michelle’s son. He was injured in a pedestrian-vehicle accident in 2003. At the time, he was eight years old. In late August of this year, he turned 23 years of age.
[2] Throughout Taylor’s life, Michelle has been her son’s primary caregiver and support. She has assisted him in every way possible—including with respect to the management of his finances.
[3] Taylor’s personal injury litigation arising from the November 2003 accident was resolved by way of two negotiated settlements. The net settlement funds available to Taylor exceed $1,000,000. It is important that the settlement funds be properly managed for Taylor’s future well-being.
[4] Michelle intends to continue to be her son’s primary caregiver and support. She wishes to formalize her role as the person responsible for the management of Taylor’s property. The documents filed in support of this application demonstrate very clearly Michelle’s devotion to Taylor, her desire for him to achieve and maintain some level of independence in his life, and her recognition that Taylor’s future needs will likely increase over time.
[5] In accordance with s. 70 of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (“SDA”), the materials filed in support of the application include a management plan. In fact, the plan currently before the court (Third Supplementary Application Record, Tab 4 and “the Plan”) is a revised version of the management plan originally submitted. The Plan was signed by Michelle on August 29, 2018.
[6] For the reasons set out below, I am unable at this time to approve the Plan. Additional evidence is required in support of the Plan; alternatively, a further revised management plan and evidence in support of it are required.
[7] As indicated in a previous, unpublished interim endorsement, barring unforeseen events, I anticipate that, when a management plan is ultimately approved, Michelle Connolly will be appointed as the guardian of property for Taylor.
[8] The court is, at this time, in a position to determine the issue of Taylor’s capacity or lack of capacity to manage his property.
1) Finding of Incapacity
[9] An individual is incapable of managing property, “if the person is not able to understand information that is relevant to making a decision in the management of his or her property, or is not able to appreciate the reasonably foreseeable consequences of a decision or lack of decision” (SDA, s. 6).
[10] Taylor’s ability to manage his property was assessed by capacity assessor, Dr. Barbara Collins, in February 2018. Dr. Collins was aware that Taylor’s property includes settlement funds in the seven-figure range from personal injury litigation.
[11] Dr. Collins sets out her assessment of Taylor’s mental capacity in a four-page report (Application Record, Tab 2D, pages 2-6). She acknowledges that Taylor may, with education, be able to manage simple, day-to-day financial tasks. She includes as examples of such tasks shopping, the use of a bank card, and bill payment.
[12] Dr. Collins concludes her assessment of Taylor’s capacity to manage property with the following:
I do not believe that he is capable of developing the level of knowledge and skill, or the degree of initiation, motivation, and organization, required to manage a large estate.
On the grounds of Taylor’s very limited understanding of information (knowledge and skills) relevant to managing property and his presumably irremediable lack of interest and motivation in acquiring such understanding, it is my opinion that Taylor is INCAPABLE OF MANAGING PROPERTY.
[13] I find that Dr. Collins was well-informed when considering Taylor’s estate, financial skill and knowledge, and capacity to manage his property. Her analysis of those factors is detailed. Based on the opinion and conclusions of Dr. Collins, I find that Taylor is incapable of managing property within the meaning of the SDA. I also find that it is necessary for decisions to be made on Taylor’s behalf by a person who is authorized to do so (SDA, s. 25(1)).
[14] Taylor requires a guardian of property. The issue of whether Michelle is the appropriate person to fulfill that role remains to be determined at the same time as the request for approval of the Plan or, if submitted, a further revised management plan. Both of those issues are adjourned to a date to be arranged by counsel for the applicant.
2) Appointment of Guardian
[15] I am unable to make an order appointing Michelle as the guardian of property without, at the same time, approving a management plan submitted by her. Pursuant to the SDA, the guardian’s management of property is carried out under court supervision.
[16] Section 32(10) of the SDA provides that, “[a] guardian shall act in accordance with the management plan established for the property”. The management plan is the framework for the guardian’s management of the incapable person’s property. The court’s supervision of the guardian is premised on the terms of the management plan. The court’s assessment of whether the guardian is fulfilling his or her obligations is determined in part on the basis of the management plan.
[17] The application record and a number of the supplementary records filed were reviewed by the Office of the Public Guardian and Trustee (“PGT”). The PGT does not in any way oppose the request for Michelle to be appointed as Taylor’s guardian of property.
[18] The PGT provided comment and direction with respect to (a) the contents of the management plans, and (b) the posting of security. Those matters are addressed below.
[19] Three criteria for appointment as a guardian of property are specifically set out in s. 24(5) of the SDA. The first criterion is whether the proposed guardian is the incapable person’s attorney under a continuing power of attorney. There is no evidence of Taylor having executed a power of attorney for property naming his mother as his attorney for property.
[20] The second criterion is the wishes of the incapable person, if they can be ascertained. The record does not include an affidavit from Taylor. As a result it is necessary to look other than directly to Taylor in an effort to ascertain his wishes. In that regard, I note the following:
• Taylor is a respondent on this application. He was served with the application record and did not deliver a notice of appearance or any other materials in response to the application;
• Taylor was present in court on at least one of the days on which the application was heard. He attended court with Michelle. At no time did Taylor attempt in any way to inform the court of his opposition to the application;
• In her June 2018 affidavit filed in support of the application, Michelle states, “I have explained to my son, Taylor, the nature of this application and have explained to him that he could oppose the application if he wishes to do so. I truly believe that he is both happy and content to have me act as his guardian of property”;
• The capacity assessment completed by Dr. Collins provides some insight into Taylor’s relationship with Michelle, including with respect to the management of Taylor’s property. Dr. Collins identified that not only did Michelle accompany Taylor to the relevant appointment, she remained throughout the interview. Dr. Collins recognized that Michelle did so to provide both support and collateral information. Dr. Collins noted that Taylor agreed that it would be helpful if Michelle remained for the interview;
• Dr. Collins was able to observe Taylor’s interaction with his mother, albeit in a limited way. She observed that Taylor interacted “comfortably and amicably” with his mother; and
• Dr. Collins questioned Taylor about his interest, if any, in managing his own money. His response was that he is not interested in doing so and that he is happy with the “status quo” – the latter meaning that his mother would continue to manage his money. Taylor expressed concern to Dr. Collins that if he were to begin to manage his money he might “mess [him]self up.”
[21] I find that I am able to ascertain Taylor’s wishes and that his wishes are for his mother to manage his property.
[22] The third criterion is the closeness of the relationship of the applicant to the incapable person. In this case, that relationship is one of parent and child. To describe Michelle as a devoted and caring mother is an understatement.
[23] Michelle is intent on seeing Taylor achieve personal satisfaction in the areas of academics and employment. Given Dr. Collins’ observations about Taylor’s lack of initiative, it is clear that Taylor’s accomplishments to date – including his recent graduation from a post-secondary education program – are in large part due to his mother’s dedication to seeing her son succeed in life. There can be no doubt about the closeness of the relationship between Taylor and Michelle.
[24] I find that Michelle satisfies the relevant criteria for appointment as Taylor’s guardian of property.
[25] Before turning to the management plan, I shall address Michelle’s role as the attendant care provider to Taylor. In the Plan, Michelle acknowledges that (a) she provides 24-hour care to Taylor, and (b) in doing so she receives the attendant care benefit of $2,032.65 per month. That benefit is paid by the Statutory Accident Benefits (“SABS”) insurer.
[26] Section 24(1) of the SDA states that a person who provides “support services to an incapable person for compensation” should not be appointed as that individual’s guardian of property. Michelle falls within the scope of that section. She also falls within the scope of the exclusion to that section.
[27] Section 24(2) of the SDA states that s. 24(1) does not apply to the “spouse, partner or relative” of the incapable person. As a result, the fact that Michelle receives compensation for providing attendant care to Taylor does not preclude her from being appointed as Taylor’s guardian of property.
[28] Without making an order appointing Michelle as the guardian of property, I turn next to the Plan.
3) Proposed Management Plan
[29] At present, Taylor lives with his mother. Pending approval of a management plan, Taylor’s sole source of income is the weekly non-earner benefit (“NEB”) he receives from the Statutory Accident Benefits insurer. The NEB is in the amount of $320. Given Taylor’s limited income, he has not to date had significant assets, income, or expenses.
[30] The most important part of the Plan is the proposal for the investment and long-term management of the funds payable to Taylor from the settlements reached of his personal injury litigation. I refer to more than one settlement because Taylor recovered funds (a) from the sole defendant in the personal injury litigation, and (b) in his capacity as an assignee of the defendant’s rights, from the third party against whom the defendant pursued a third party claim.
[31] The total of the settlement funds recovered is in excess of $2,000,000. The amounts recovered in each settlement have been approved pursuant to Rule 7 motions in the main action and the third party claim. Two issues remain to be determined on each of the Rule 7 motions:
a) Whether the net settlement funds payable to Taylor shall be paid into court or shall be managed in some other way (rule 7.09); and
b) The total of the solicitor-client accounts to be delivered to Taylor and Michelle by their current counsel, Joseph Y. Obagi (Connolly Obagi) and by their former counsel, Christopher Moore.
[32] For the purpose of this application, the Plan addresses a potential net recovery for Taylor of $1,400,000 from the settlement funds. That amount is slightly in excess of the minimum amount potentially available to Taylor from the settlement funds. The parties, counsel, and the court recognize that if something more than the minimum amount is ultimately paid to Taylor from the settlement funds, and depending on the additional sum payable to him, a revised management plan may need to be filed with the court.
[33] The reference to the “minimum amount” payable is not intended in any way to be pejorative. It is simply that the court has yet to determine (a) the issue of the contingency fee retainer agreement pursuant to which counsel wish to submit their respective solicitor-client accounts, and (b) the request for approval of the solicitor-client accounts.
[34] The Plan sets out that the net settlement funds are to be invested with BMO Nesbitt Burns (“BMO”) in a conservatively managed portfolio (“the Portfolio”). Comparisons are provided between (a) the income earned from the Portfolio, re-investment of net earnings (i.e. after payment of expenses), and Taylor’s projected net worth over time and (b) tax-free income generated by a structured settlement and Taylor’s projected net worth over time if in receipt of structure payments.
[35] This same evidence is relied on in the context of the two Rule 7 motions in the personal injury litigation (Court file nos. 05-CV-32630 and 05-CV-326304). On those motions, relief is sought pursuant to r. 7.09 – leave to pay the settlement funds other than into court. For the sake of efficiency and ease of reference, this Ruling serves as the interim reasons or endorsement with respect to those motions.
[36] Taylor does not require a significant income at this time. Although he has attendant care needs, they are currently being met by his mother and paid for by the SABS insurer. When Taylor’s mother is no longer able to provide Taylor’s attendant care and/or the funding for attendant care from the SABS insurer (directly or from settlement of the SABS claim) runs out, Taylor’s expenses for housing and attendant care services are likely to increase. The expenses may well increase significantly at that time. It is impossible to predict when and how Taylor’s expenses for housing and attendant care will increase.
[37] The evidence on the application does not, however, address in any way how Taylor’s expenses will increase over time – including when his mother is no longer in a position to care for him and/or assist Taylor by contributing to the expenses incurred for accommodation. In support of the application, Michelle has filed documents from BMO (“the BMO Documents”). Those documents do not address the anticipated increase in Taylor’s expenses over time.
[38] I am concerned that the picture painted by the BMO Documents is incomplete. There is no first-hand evidence from a representative of BMO. The BMO Documents are exhibits to an affidavit in Michelle’s name. The BMO Documents are voluminous and detailed with respect to the Portfolio proposed for the settlement funds.
[39] The evidentiary requirements on an application are different than those on a motion. Rule 39.01(5) of the Rules of Civil Procedure provides as follows with respect to evidence on information and belief in support of an application, “[a]n affidavit for use on an application may contain statements of the deponent’s information and belief with respect to facts that are not contentious, if the source of the information and the fact of the belief are specified in the affidavit” (R.R.O. 1990, O. Reg. 194).
[40] Taylor does not oppose Michelle’s application nor does he oppose the Plan. The PGT does not oppose the Plan. Regardless, I find that the management of a seven-figure sum of money for a 23-year old man who may, in the future, have to look to someone other than his mother to act as guardian of property is “contentious” within the meaning of r. 39.01(4). Direct evidence from a representative of BMO is required in support of the application.
[41] The documents before the court include three structured settlement options for the $1,400,000 potentially available to Taylor. The options were prepared by Henderson Structured Settlements (“Henderson’s”) and are:
Option 1 – $2,538.09 / monthly – Indexed at 2% / year – 35-year guarantee – $5,000 every 5 years
Option 2 – $2,511.35 / monthly – Indexed at 2% / year – 35-year guarantee – $20,000 every 5 years
Option 3 – $3,319.34 / monthly – Indexed at 2% / year – 45-year payment period (to age 67) – Fully-guaranteed.
[42] The structure options would generate tax-free payments in the range of approximately $30,000 to $39,000 per year. Once again, the structure options are included as exhibits to Michelle’s affidavit. There is no first-hand evidence from a representative of Henderson’s. For the reasons set out in paragraph 38 to 40, above, first-hand evidence is required from a representative of Henderson’s.
[43] The observations and concerns set out below may be of assistance to Michelle and her counsel, in follow up to this endorsement. The observations are made and concerns expressed without the benefit of first-hand evidence from a representative of each of BMO and Henderson’s.
[44] Using a conservative estimate of income based on 5.3 per cent of capital, a BMO representative predicts an annual income of $61,729 from the Portfolio (based on initial capital of $1,400,000). Net of management fees, the predicted annual income is $46,148. Taking into account various tax credits, the total tax payable is estimated to be $450. On that basis, the initial after-tax income to Taylor is said by BMO to be $45,698.
[45] The estimated after-tax income from the Portfolio is approximately 50 per cent more than the lower of the two structure figures and approximately 15 per cent more than the higher of the two structure figures. There is, however, no evidence as to the potential income from investment over time of the proceeds from the structure payments that are next of expenses paid.
[46] I am concerned about the potential for erosion of capital in the Portfolio because of negative movement of the stock market and/or economic events beyond the control of BMO. I appreciate that the Portfolio will not go unwatched by either BMO or Michelle. The intention is that the Portfolio be managed, in particular with Taylor’s long-term needs in mind. Regardless, the Portfolio lacks the certainty that a structure provides.
[47] The Projected Net Worth charts provided from BMO while helpful, are limited in terms of evidentiary value. From the Projected Net Worth in the Portfolio scenario, the annual income is obvious for the first year of investment. It is important, however, to look ahead a number of years and do a similar comparison.
[48] Using structure Option 2, in 10 years (when Taylor is 33) the total annual tax-free income will be $36,735.84. From that amount some of Taylor’s expenses would be paid. The Projected Net Worth statement (Application Record, Tab 2, Exhibit “J”) shows income, net of projected expenses re-invested in the Portfolio totaling $33,831. Looking at the 25-year mark (when Taylor is 48), the structure payment is $49,441.68 and the Portfolio income net of expenses is $46,484. Once again the first figure is a gross number and the latter figure is net of expenses and income tax.
[49] Based on the manner in which the information is presented, these two sets of figures support a finding that the projected after-expense, after-tax income generated by the Portfolio has the potential to keep pace with, if not exceed, the return on investment from the structure – as long as there is no incursion on capital.
[50] Missing from the projections provided by BMO are two or three examples of projected net worth that take into consideration when Taylor’s expenses will increase and when it will no longer be possible for him to rely on his mother for housing and/or attendant care services. Those scenarios must be considered both in the context of this application and the Rule 7 motions. The Life Care Plan relied on in the Rule 7 motions, speaks to expenses totaling millions of dollars for Taylor’s needs to be met.
[51] For the court to compare the benefits of a structured settlement (tax-free payments that are guaranteed to increase by two per cent every year) with the Portfolio, the projected net worth statements need to take into account (a) the expenses it is anticipated Taylor will incur for housing and attendant care, and (b) the potential for incursion into capital.
[52] A projected net worth statement for structure Option 2 is included in the BMO documents. It is not clear to me whether or not the potential for investment income from unused structure payments has been taken into account when calculating Taylor’s net worth over time.
[53] Another factor not addressed in a meaningful way is the PGT’S “strong recommendation” that the guardian of property be required to post security. In one of the letters filed by the PGT, it is noted that the cost to the guardian of posting security is $0.05/$1,000 invested. Given the amount involved in this case, the cost of security is in the range of $6,500 to $7,000.
[54] The documents before the court include a revised Projected Net Worth based on an annual expense of $7,000 for security with that amount paid from the capital in the BMO portfolio. I am uncertain whether the $7,000 security covers a period of one year or is for a longer period with security to be renewed intermittently.
[55] It makes some sense that the person whose property is being managed would pay the expense associated with the posting of security. If the guardian of property were required to post security (including on an ongoing basis), very few people would be in a position to undertake that role. There is, however, nothing before me to demonstrate that it is reasonable to have Taylor be responsible for the payment of the security. I have not been advised of any statutory provision or case law in support of proceeding in that manner.
[56] Better particulars are required with respect to the posting of security.
[57] I am concerned about the viability of the Plan in the event someone other than Michelle is appointed as the guardian of property. For a number of reasons – personal health for example – Michelle may have to relinquish her role as guardian of property. If, as would ordinarily be expected, Taylor outlives his mother, someone other than Michelle will eventually be appointed as Taylor’s guardian of property.
[58] Michelle’s evidence is that she will not take compensation for her work as guardian of property. In the absence of another individual willing to do the same, the management of a seven-figure investment portfolio would entitle the guardian of property to a fair amount of compensation. How is Taylor’s net worth over time affected if he is required to pay compensation to his guardian of property?
[59] At present, compensation for a guardian of property is calculated based on 3 per cent of capital and income receipts, 3 per cent of capital and income disbursements, and three-fifths of 1 per cent of the annual average value of the assets. If we assume total income of $75,000, expenses of $30,000 and assets of $1,400,000, a guardian of property would be entitled to compensation of $11,550 (including $8,400 for compensation based on the capital amount).
[60] The BMO projection is for the capital amount and income generated to both increase over time. The compensation payable to the guardian of property would also increase over time.
[61] If a structure is in place, Taylor will continue to have an income stream. His assets, however, would be less than as projected for the Portfolio, and the expenses incurred for management of assets would be less for a structure than for the Portfolio. The Projected Net Worth statements for the Portfolio are of limited value because they fail to take into consideration expenses Taylor will, in time, incur for the management of his property.
[62] Whether or not the guardian of property receives compensation for their work has a bearing on the standard of care required of the guardian. Sub-sections 32(7) and (8) of the SDA, respectively, address the standard of care required of a guardian of property who does not receive compensation and of a guardian of property who receives compensation:
(7) A guardian who does not receive compensation for managing the property shall exercise the degree of care, diligence and skill that a person of ordinary prudence would exercise in the conduct of his or her own affairs.
(8) A guardian who receives compensation for managing the property shall exercise the degree of care, diligence and skill that a person in the business of managing the property of others is required to exercise.
[63] Assuming she is appointed as guardian of property, Michelle does not intend to receive compensation from Taylor for her work in that capacity. There is no evidence before the court as to whether Michelle understands the significance, with respect to the issue of standard of care, of her decision in that regard.
[64] There is minimal evidence, if any, before the court with respect to the potential interplay between the SABS that Taylor is currently receiving, the impact a settlement of the SABS claim may have on income and expenses, and any one of the proposed structured settlements and the Portfolio. It would be of assistance to have evidence as to how that interplay may impact Taylor’s income, expenses, and capital over time.
[65] I am unable, at this time, to approve the Plan.
Disposition
[66] I order as follows:
a) Taylor is declared to be incapable of managing his property within the meaning of the SDA;
b) Taylor is declared to require a guardian of property;
c) The balance of the application is adjourned to permit the applicant to file additional materials and arrange for oral evidence, if any, to be presented; and
d) The continuation of the application shall address Michelle’s request for an order appointing her as Taylor’s guardian of property and approving a management plan.
[67] With respect to oral evidence, the applicant may wish to call as witnesses a representative of each of BMO and Henderson’s. Calling a witness from each of those companies would permit the court to ask any questions it may have and allow this process to be concluded in a more efficient manner than might occur if the application continues on the basis of a written record only.
Madam Justice Sylvia Corthorn
Date: October 9, 2018
COURT FILE NO.: CV-18-76901
DATE: 2018/10/09
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
MICHELLE CONNOLLY
Applicant
– and –
MICHAEL TAYLOR CONNOLLY and THE PUBLIC GUARDIAN AND TRUSTEE
Respondents
ENDORSEMENT
Madam Justice Sylvia Corthorn
Released: October 9, 2018