Cary A. Lind, P.C. - Arlington Heights Probate Attorney

POWERS OF ATTORNEY - PART 2 - MISUSE OF POWERS

Cary A. Lind, P.C. - Arlington Heights Probate Attorney

POWERS OF ATTORNEY - PART 2 - MISUSE OF POWERS

By Cary A. Lind

Cases on Misuse of Powers of Attorney.

Deason v. Gutzler, 251 Ill.App.3d 630, 622 N.E.2d 1276, 190 Ill.Dec. 959 (Ill.App. Dist. 5, 1993). In 1986, Pauline named Robert (her husband) and Sherry (her daughter) as agents under a non-statutory property power of attorney. In 1987, Pauline developed Alzheimer’s disease. Subsequently, Robert closed out bank accounts belonging to Pauline and put the money in joint accounts in his name and Sherry's. Sherry drafted and with Robert executed a deed to the marital home transferring title from Pauline and Robert to Robert and Sherry as joint tenants. Robert died in April, 1990. Sherry's son James was appointed guardian of Pauline's estate in June, 1990, and brought proceedings against Robert's estate (and Sherry) to recover the money (approximately $42,000.00) and the real estate.

The trial court noted that the power of attorney established a fiduciary relationship as a matter of law between Pauline and Robert and Pauline and Sherry. That set up a presumption that any transactions which benefited the agent were fraudulent, and the burden of proof shifted to the agent to prove by clear and convincing evidence that the transaction was fair and equitable and did not result from undue influence. In order to rebut the presumption, the fiduciary in effect had to show that the transfer was a gift. The trial court found that Sherry had rebutted the presumption as to herself but that Robert did not rebut the presumption. The appellate court partially agreed and also found that the transactions benefitted Robert but gave little benefit to Pauline. It affirmed the invalidation of all of the money transfers and remanded that part of the case to clarify the amount of money Robert owed to the estate. The appellate court reversed the finding in favor of Sherry and re-established the former joint tenancy in the home between Robert and Pauline.

NOTES: 1. Even though the decision was rendered after the Power of Attorney Act was passed, the decision was based upon prior law and made no reference to the Act. Both courts applied the old rules regarding fiduciary relationships, presumptions, and burdens of proof and decided the case on that basis.

2. The court focused on whether the transactions benefited the principal and if not, whether there was adequate proof that the transactions were authorized and proper. It found that they were not.

Guardianship of Mabry , 281 Ill.App.3d 76, 666 N.E.2d 16, 216 Ill.Dec. 848 (Ill.App. Dist. 4, 1996). In 1991, Myrtle Mabry executed a power of attorney naming Gerald and Francis as her agents. The power of attorney granted specific powers to "manage and lease my real estate, collect the rent therefrom and pay the usual and customary expenses paid by owners of real estate." The power also contained a "catchall provision" which granted the agent the power "in general, to do all other acts, matters and things whatsoever in or about the specified premises of this Power of Attorney to all intents and purposes as I could do in my own proper person if personally present." Subsequently, Myrtle became incompetent, and Gerald and Francis were appointed guardians of her estate. A bank was later appointed successor guardian of the estate. An $18,000.00 claim was filed against Myrtle's estate by the veterinarian who boarded and had cared for her animals for 20 months. The bank settled the veterinarian's claim by transferring Myrtle's home (worth between $18,000.00 and $27,000.00) to the veterinarian in full settlement of the claim.

The trial court approved the settlement. Gerald and Francis disputed the settlement, claiming that the power of attorney authorized them to deal with Myrtle's real estate and that the guardianship court had no authority to approve the settlement or deal with Myrtle's real estate in any manner. On appeal, the appellate court did not state whether the power of attorney was statutory or not. The court noted that the power of attorney did not specifically grant the agents the power to sell real estate. The agents argued that the catchall provision allowed them to take whatever other actions Myrtle could take, including the sale of the real estate. The court ruled to the contrary that that provision could not be used to expand powers that were otherwise specifically addressed. Thus, the power of attorney did not authorize the agents to sell the real estate, and the guardianship court did have that authority. (The appellate court then reversed the lower court ruling by observing that the transaction might not be in Mabry's best interest and remanded the case for further determinations by the trial court.)

NOTE: Mabry has often been cited in later cases for the court's limitation on the catchall provision: "[a] catchall provision will not expand a specifically limited power absent clear evidence of the principal's intent that it do so."

Estate of DeJarnette, 286 Ill.App.3d 1082, 677 N.E.2d 1024, 222 Ill.Dec. 490 (Ill.App. Dist. 4, 1997). In 1979 and again in 1988, Rose executed a power of attorney naming Vera as her agent. Vera then transferred Rose's funds to accounts in her name and Vera's as joint tenants. Vera also named herself the beneficiary of Vera's life insurance policy and pension fund.

The trial court reversed the inter vivos gifts (approximately $13,000.00) but allowed the other dispositions to stand. On appeal, the appellate court did not say whether the power of attorney was statutory or non-statutory. The court noted the conflicting presumptions of fraud and breach of fiduciary duty on one side and of gift by joint tenancy on the other and held that the presumption of fraud is controlling for accounts created during the agency. That presumption can only be overcome by clear and convincing evidence. The court noted three factors that were important in making that determination: a) the fiduciary made a frank disclosure of the information he had; b) the fiduciary paid adequate consideration; and c) the principal had competent independent advice. The appellate court found that Vera did not overcome the presumption. The court reversed and remanded the case for further proceedings against Vera.

NOTE: The court relied solely on law other than the Power of Attorney Act and did not refer to the Act in its decision. In similar manner to Deason, where there was no or limited benefit to the principal, all of the transactions in favor of the agent were overturned.

Simon vs. Wilson , 291 Ill.App.3d 495, 684 N.E.2d 791, 225 Ill.Dec. 800 (Ill.App. Dist. 1, 1997). In 1991, Ruth executed a power of attorney naming her husband, Sam, as her agent. Subsequent thereto, Sam transferred all of the joint tenancy securities (worth approximately $1.34 million) to his living trust. Ruth died, and Ruth's children brought proceedings against Sam. (The case also involved a conflict of interest by the attorneys who drafted Sam's and Ruth's estate plans.)

The trial court dismissed the case, because Sam would have received all of the assets anyway on Ruth's death as her surviving joint tenant. On appeal, the appellate court held that the transfers severed the joint tenancies and that the transfers were presumptively fraudulent. The court remanded the case to allow Sam to prove by clear and convincing evidence that the transfers were made in good faith and with full disclosure. The court also noted that if the trial court found that there was fraud, it then had to determine the current status of those assets, suggested that that status should be as tenants in common and not as joint tenants, and directed the trial court to fashion an appropriate remedy. The appellate court also reversed the dismissal of a claim for common law fraud regarding the marital residence.

NOTES: 1. Had Sam waited, he would have received all of the joint assets. However, by using the power of attorney during Ruth's life and contrary to her best interest, he came out worse, because the accounts were not put back as they were before but were to be established so as to not necessarily pass by operation of law to Sam.

2. The court did not state whether the power of attorney was statutory or non-statutory, and in similar manner as some of the above cases, analyzed the case entirely on law other than the Power of Attorney Act.

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