Avoid Common Mistakes when Keeping Records

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There are a number of pitfalls waiting for those who have agreed to act as Attorney under a Power of Attorney for Property (“POAP”). Despite our best intentions to execute the tasks associated with looking after another person’s financial affairs with diligence and awareness, we are after all, only human. Regrettably, mistakes and omissions will be made. Fortunately, many of the most common errors are in fact, the easiest to avoid. In this article we will review three of the most common errors and offer some prescriptive action to help rectify these mistakes.

1. Lack of Adequate Supporting Documentation

One of the most common oversights that Attorneys make is with respect to supporting documentation for allactivity in the Grantor’s (the person who has made the POAP) bank and investment accounts. Ensuring there is adequate documentation is one of the most important habits an Attorney can develop and yet far too often, no documentation has been filed with the respective bank and investment statements. What specific ‘supporting documentation’ is required will depend on the nature of the transaction and the size. Supporting documentation can be such things as supplier’s invoice/receipt and, in the case of investment activity, transaction receipts. It is true that some activity will have no documentation to support it, such as monthly CPP and OAS payments received by direct deposit. However, at the very least, a notation should be made on the bank statement identifying these amounts, if the banking institution hasn’t already done so. There may also be a lack of documentary support for regular withdrawals, such as a life insurance premium. In such cases, there will be original documentation establishing the automatic withdrawal. The Attorney should have this filed appropriately.

Attaching the documentation to each bank/investment statement and filing it in an appropriately labelled file stored in a banker’s box on a monthly basis will ensure that any questions asked by the Grantor or others entitled to know can be answered in a timely manner.

This supporting documentation will also help with the preparation of the Tax Return. While it is not your responsibility to physically do the tax return, being able to provide investment activity statements, medical and dental bills and other tax-related documentation will be of immense help to the preparer of the Return.

2. Record Retention

A second common error an Attorney can made is disposing of financial records too soon. There are two separate time frames that one needs to be aware of for record retention: one is imposed by the Canada Revenue Agency (CRA); and the other time frame is specified by provincial legislation that provides the rules and regulations for accounts and record keeping by an Attorney and/or Guardian. The CRA only requires records be retained for six years. In addition, the CRA also only require documentation that supports information contained in a person’s tax return.

The time frame established by provincial law governing an Attorney’s record keeping obligations is usually much longer than that required by the CRA and it is also more inclusive.

Generally speaking, all records supporting your management of someone’s property and financial affairs must be kept until such time as you are relieved of the responsibility or until a court’s approval on the passing of Accounts is final. In cases where the Grantor has died, the Estate’s financial affairs become the responsibility of the Estate Trustee (Executor). While your record keeping obligations may end with the death of the Grantor, you are still accountable until the Executor (whether yourself or someone else) has completed administering the Estate, made the final distribution of the Estate’s assets and received signed Releases from all beneficiaries that they are satisfied with how the Estate’s affairs have been managed. Should any beneficiary make enquiries, the Executor may well come back to you and may require you to formally account for your management of the deceased’s affairs. If you have been conscientious and regular with your record keeping, this will not cause you any great concerns.

3. Keeping Separate Records

The third and final item to be discussed is with respect to the importance of keeping separate records. This may seem obvious, but many a suspicion has been created by funds going back and forth between the Grantor’s accounts and the Attorney’s with no apparent rhyme or reason. For example: you find you’ve used your own debit card when making a purchase on behalf of the Grantor, rather than using the Grantor’s debit card. You realize your mistake and correct it by making a withdrawal from the Grantor’s account. While you are certainly entitled (and expected) to do this, it is paramount that you also file with the Grantor’s bank statement the original receipt and an explanation of what happened.

Unfortunately, it is a sad fact that there is considerable time consumed at court with litigation initiated by siblings against siblings over the management of a parent’s or relative’s property/financial affairs. Many of these cases are fuelled by the inability of the Attorney to answer questions promptly and provide proper support for the activity in bank and investment accounts belonging to the parent(s) / relative. Being aware of the above common errors will reduce the likelihood of their occurrence and will ensure no one has cause to question your integrity or proficiency when executing your duties as an Attorney.

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About Linda Alderson, Chartered Accountant

Linda Alderson has been practicing accounting for 30 years in a variety of roles. During that time Linda has had many opportunities to assist people in understanding the record keeping responsibilities that come with looking after someone else’s money either because they are an Attorney under a Power of Attorney or an Executor under a Will. Experience has shown that starting off on the right foot with a clear plan of action reduces the stress and time involved with the record keeping that is required. If you have recently found yourself looking after someone else’s money or administering an estate, Linda can assist you by clarifying the essentials of estate management and record keeping. Linda has clients in and around York Region and can be contacted at 416-837-5660 or at my.ca@sympatico.ca . She is available evenings or Saturdays for consultations.

PO Box 2928,

Richmond Hill, ON

L4E 1A8

416-837-5660

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