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Seeking legal counsel, fiduciary accountant shouldn’t be an afterthought

It’s important for those acting as a guardian or a trustee during litigation to seek both experienced legal advice and fiduciary accounting expertise at the outset before challenges can arise, says Avi Dahary, founder of AccounTrust.

“For those acting in such a role, it’s advisable to speak with a lawyer and a fiduciary accountant before they accept the position or immediately thereafter,” he tells AdvocateDaily.com.

“They need to know how to manage the responsibilities that go along with it. By being proactive, the need to address a matter in crisis management mode is avoided.”

Dahary notes this applies to those acting in a fiduciary position as a guardian, attorney under a power of attorney, an estate trustee named in a will or a court-appointed estate trustee during litigation.

He says these issues can also apply in personal injury situations where someone has been injured and is no longer capable of handling their own financial affairs.

“What happens in some personal injury cases is that a guardian is appointed to take care of the injured party's finances and other matters,” he says. “Very often the person who is appointed as a guardian is not suited for the role because he or she doesn’t have the skills and knowledge to deal with the fiduciary responsibilities of managing such affairs and problems can develop in the years following the appointment."

Dahary notes that he recently had a discussion with lawyer Alex Procope of Swadron Associates about this issue as it relates to matters of guardianships and trusteeships. Procope, who specializes in the areas of guardianship, power of attorney and estate litigation, has been retained on several occasions when a guardian has been asked to pass accounts three to four years into a guardianship, says Dahary.

As they compared experiences, Procope from the legal perspective and Dahary from the fiduciary accounting perspective, they noted it was evident there are some problematic patterns that arise.

“In many cases, there are serious problems that could have been avoided if the guardian had accounting and legal advice from professionals with estate and trust expertise at the outset of the guardianship,” says Dahary. 

He points to inadequate record keeping as a major issue that can develop.

“An intermingling of the incapable person’s funds with the funds of the guardian, use of the incapable person’s funds for unauthorized transactions, and taking and spending incorrectly calculated compensation are just some of the problems that can arise,” he says. “So when they go to pass accounts, if it can be shown that it is clear that the guardian is not suited for the role and/or that there are unaccounted funds and/or that the guardian miscalculated and overdrew compensation, he or she can be required to repay the unaccounted or missing funds.”

Dahary says it would be prudent for anyone acting in such a fiduciary role to seek the expertise of an accountant trained in these matters.

"Some guardians have been appointed in what seems to be an afterthought to significant personal injury litigation and without the benefit of counsel with knowledge of what can go wrong in a guardianship,” he says. “They would have benefitted from these referrals at the outset and identified a mechanism to pay for that advice from their compensation or the incapable person’s assets. This also applies to those facing the prospect of becoming either an attorney acting under a power of attorney, an executor under a will, or a court-appointed estate trustee during litigation.”

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