Court File and Parties
COURT FILE NO.: CV-18-76901 DATE: 2019/07/09
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 No one appearing for the Respondents
HEARD: April 15, 2019
RULING ON APPLICATION
CORTHORN J.
Introduction
[1] Michelle Connolly applies for an order appointing her as the guardian of property of her adult son, Michael Taylor Connolly (“Taylor”). Taylor was eight years old when, in 2003, he was injured in a pedestrian vehicle accident. He will be 24 years old in August 2019.
[2] Michelle’s application was originally returned in August 2018. In an endorsement released subsequent to that hearing ( Connolly v. Connolly and PGT, 2018 ONSC 5880 and “the Endorsement”), the court:
a) Found that Taylor is incapable of managing his property within the meaning of the Substitute Decisions Act, 1992, S.O. 1992, c. 30 (“SDA”);
b) Concluded that Michelle satisfies the relevant criteria for appointment as Taylor’s guardian of property; and
c) Was unable to appoint Michelle as Taylor’s guardian of property because additional evidence was required to support the management of Taylor’s assets as set out in the management plan filed by Michelle.
[3] Taylor’s assets are significant. Pursuant to settlements reached in personal injury litigation commenced on his behalf, Taylor received in excess of $2,000,000 (for damages, interest, and costs). Assuming she is appointed as Taylor’s guardian of property, Michelle plans to manage the net settlement funds payable to Taylor in a conservatively managed portfolio placed with BMO Nesbitt Burns (“the Portfolio” and “BMO”, respectively).
[4] The hearing of the application continued in April 2019. A representative of BMO gave viva voce evidence with respect to the management of the Portfolio. With the benefit of that additional evidence, the court is in a position to determine the application.
Disposition
[5] Michelle Connolly is appointed as the guardian of property for Michael Taylor Connolly. The management plan signed by Michelle Connolly on August 29, 2018 (the “Plan”) is approved. Additional steps are, however, required to bring the application to a conclusion.
Appointment of Guardian
[6] For the reasons set out in paras. 19 to 27 of the Endorsement, Michelle Connolly is appointed as the guardian of property for Michael Taylor Connolly.
[7] Not only does Michelle satisfy the statutory criteria for appointment as her son’s guardian of property, for the almost 16 years since Taylor’s accident, Michelle has been the driving force behind the successes Taylor has achieved in life. Those successes include (a) the extent to which Taylor is able to manage day-to-day activities, and (b) Taylor’s graduation from a post-secondary education program. There can be no doubt as to Michelle’s dedication to Taylor’s well-being.
[8] A guardian of property is required by s. 32(10) of the SDA to “act in accordance with the management plan established for the property”. I turn to the Plan.
The Management Plan
a) The Funds to be Managed
[9] Taylor’s most significant asset is the net settlement funds payable to him from the settlement of his personal injury litigation. When the application was commenced in 2018, the motions, pursuant to s. 7.08 of the Rules of Civil Procedure, for approval of the two settlements reached on Taylor’s behalf had not yet been determined (R.R.O. 1990, Reg. 194). The global amount of each settlement was approved. The request for approval of the solicitor-client accounts proposed by Taylor’s litigation counsel remained to be determined. As a result, the net amount of the settlement funds payable to Taylor was not known.
[10] Those solicitor-client accounts have since been addressed in the context of the two motions pursuant to r. 7.08 of the Rules (Connolly v. Riopelle, 2019 ONSC 3988). The net settlement funds payable to Taylor are $1,638,570.59.
[11] The application proceeded on the assumption that the settlement funds available for investment in the Portfolio would be $1,378,246. That amount represented a conservative estimate of the net settlement funds payable to Taylor.
[12] The difference between estimated and actual net settlement funds payable to Taylor is $260,324.59. It is not necessary to delay the determination of the application to permit Michelle to file an amended management plan. The additional funds available to Taylor can be addressed in an amended management plan to be filed with the court.
[13] The Plan is premised on (a) the investment of $1,378,246 in the Portfolio, and (b) Taylor’s continuing receipt of a non-earner benefit in the amount of $320 per week.
b) The Savings Account
[14] As of August 2018, when the Plan was signed by Michelle, (a) a savings account had been opened in Taylor’s name, and (b) there was approximately $5,000 in the account. Once again, to Michelle’s and Taylor’s credit, Taylor has access to funds in that account for his personal use. Taylor does not have a bank card. He withdraws money from the account by attending in person at the bank. The savings account is one method that Michelle has utilized to encourage a degree of independence in Taylor.
[15] The Plan calls for the savings account to be maintained and for Taylor to continue to have access to and use of the funds in the same way that he has to date. I find that maintaining the savings account is both reasonable and in Taylor’s best interests.
[16] I turn to the investment, in the Portfolio, of the net settlement funds payable to Taylor.
c) BMO Investment Portfolio
[17] On the continuation of the application in April 2019, James Annis—a financial planner and manager with BMO—was qualified as an expert witness to give opinion evidence in that field. Mr. Annis works as part of a two-person team with Rick Hughes. Mr. Hughes also works in financial planning and management. He is 17 years more senior than Mr. Annis.
[18] In the Endorsement, I expressed concern about deficiencies in the evidence, originally filed, in which management of the settlement funds in an investment portfolio was compared to the purchase of a structured settlement. Mr. Annis’ evidence is helpful in addressing that concern.
[19] I found Mr. Annis to be fair and frank in explaining why, for Taylor, an investment portfolio is preferable to a structured settlement. Mr. Annis acknowledged that in some circumstances a structure would be preferable to an investment portfolio. He cited as one such example, where the injured/incapable person is older, the individual’s future expenses are relatively certain or predictable, and the flexibility of access to capital over time is not important.
[20] Taylor is, however, at the other end of the spectrum:
- Taylor’s expenses, while fixed at this time, will change when his mother is no longer able to provide attendant care for and/or share her home with Taylor;
- Taylor may, over time, be required to compensate a guardian of property for their work (Michelle is not taking compensation in that role); and
- The rate of return available from a structure is low at the moment. The structure effectively provides for $30,000 per year in tax-free income, adjusted for inflation. It would not address changes (increases) in Taylor’s expenses over time.
[21] I am satisfied that Taylor is not at risk of indiscriminate erosion of the capital in the Portfolio. Mr. Annis testified that BMO would not, without a court order, deviate from the initial directions for the Portfolio. BMO would require a court order, approving of any significant change in cash flow for Taylor, before it would make changes to the management of the Portfolio.
[22] In addition, BMO has several layers of internal checks and balances to ensure that (a) the requisite asset mix is being maintained, and (b) the Portfolio is being managed in accordance with the prevailing court order.
[23] Mr. Annis’ evidence is that the Portfolio provides Taylor with some protection against inflation at any point in the next decades of Taylor’s life. Mr. Annis explained that with inflation, it would be expected that the equity in the Portfolio would increase and, in turn, bond yields would increase.
[24] With a structure, Taylor’s cash flow is fixed. Some adjustment in the cash flow over time is possible through indexation. That indexation, if included in the structure payment schedule, does not provide the flexibility required to address the unpredictable timing of the changes in Taylor’s expenses over time.
[25] In his submissions, Mr. Obagi raised the possibility that Taylor could, in time, be declared capable of managing his property. Even if that possibility is remote, the investment of the funds in the Portfolio means that Taylor would, in that event, be in a position to choose how to manage his assets; he would not be able to do so if a structure is purchased.
[26] Mr. Obagi also highlighted that the Portfolio provides for flexibility when Michelle is no longer available to act as guardian of property. Pending the appointment of someone to replace Michelle in that capacity, Taylor’s property would be managed by the Public Guardian and Trustee. Regardless of who replaces Michelle and when, the new guardian of property would have the flexibility to propose, and the court the opportunity to consider, a revised management plan.
[27] I recognize that compensation for the guardian of property, if paid, has the potential in years to come to erode the capital in the Portfolio. By contrast, the guardianship fees, if any, payable in the structured scenario would be far less than those payable based on the investment Portfolio. Despite that difference, and for the reasons discussed above, I conclude that the Portfolio is reasonable and in Taylor’s best interests.
[28] The portfolio documents are included as part of the Plan which, in turn, is included as part of the order to be made at the conclusion of the hearing of this application. The portfolio documents include a “Cash Flow Outlook – Proposed” (at page 8 of 18). They demonstrate that the investment income from the Portfolio together with Taylor’s non-earner benefits will be applied as follows:
a) To pay Taylor’s lifestyle expenses; b) To pay investment management expenses; c) Re-invested in the Portfolio (including in a Tax-Free Savings Account); and d) To pay income tax owing by Taylor each year.
[29] The Cash Flow Outlook – Proposed is based on an estimated return of five per cent per year. Based on Taylor’s current level of lifestyle expenses, it is anticipated that (a) at least 50 per cent of the investment income will be re-invested in the Portfolio, and (b) Taylor’s capital will grow. Mr. Annis acknowledges that with changes in Taylor’s circumstances in the future, it is expected that the capital will begin to be eroded. Balanced against the erosion of capital in time is the benefit of the flexibility that the Portfolio provides in an effort to minimize that erosion as Taylor’s circumstances change.
[30] I find that the investment of the net settlement funds in the Portfolio as set out in the Plan and in accordance with the portfolio documents is reasonable and in Taylor’s best interests.
d) Security Bond
[31] Mr. Annis expressed the opinion that there is little to be gained by requiring the guardian of property to post security. He testified that within the Portfolio there is only a very small amount of money which the guardian of property would be in a position to access easily. The cash flow would be managed by BMO. The Portfolio is subject to several layers of internal checks and balances—providing protection of Taylor’s assets.
[32] The security, if posted, would cost 0.5 per cent of the total assets. Assuming assets totaling $1,600,000 (rounded figure), then the annual cost for posting security is $8,000. The cost of a security bond is frequently, if not typically, paid out of the incapable person’s assets. Such a payment if made, would serve to erode Taylor’s capital.
[33] Whether or not to require the posting of security is an issue that can be addressed from time to time. At this stage of Michelle’s guardianship of Taylor’s property, I do not see the need for a security bond to be posted. The requirement for the posting of security (a) is dispensed with, and (b) shall be re-considered on each occasion the guardian of property passes accounts.
Summary
[34] The Disposition section of this ruling sets out the relief required at a bare bones level. Counsel for the applicant is to schedule the continuation of the hearing of the application. The matters to be addressed on the continuation include:
a) Settling the terms of the order to be taken out pursuant to this ruling, addressing relief granted in previous endorsements in this matter, and addressing the logistics of the guardianship of Taylor’s property in the foreseeable future; and
b) Review of the solicitor-client account Connolly Obagi proposes to deliver to Michelle Connolly in this matter and have paid from Taylor’s net settlement funds in the personal injury litigation.
Madam Justice Sylvia Corthorn
Date: July 9, 2019
COURT FILE NO.: CV-18-76901 DATE: 2019/07/09
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
RULING ON APPLICATION
Madam Justice Sylvia Corthorn