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

POWERS OF ATTORNEY - PART 3 - MISUSE OF POWERS

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

POWERS OF ATTORNEY - PART 3 - MISUSE OF POWERS

By Cary A. Lind

Cases on Misuse of Powers of Attorney (continued).

Fort Dearborn Life vs. Holcomb, 316 Ill.App.3d 485, 736 N.E.2d 578, 249 Ill.Dec. 384 (Ill.App. Dist. 1, 2000). Paul was married to Susan and executed a power of attorney naming her as his agent. Paul and Susan were having marital troubles, and Paul was involved in a romantic relationship with Janet. Paul changed the beneficiary on his life insurance policies to Janet, Paul became incompetent, competent again, then incompetent again. Susan used the power of attorney to change the beneficiary on Paul's policies to herself. Paul died, and Janet and Susan both made claims to the insurance proceeds. The insurance company filed an interpleader action and deposited the insurance proceeds with the Court.

The trial court found that the power of attorney was not in the statutory form and was not revoked. Since the power was non-statutory, the agent had broad plenary powers, including the power to change beneficiaries on life insurance policies. As such, Susan won, because she was within her rights to change the beneficiary. The appellate court found to the contrary that the power of attorney was "substantially" in statutory form. Because the power was statutory, §3-4 of the Power of Attorney Act applied. §3-4 prohibited changing the beneficiary of a life insurance policy because the beneficiary was one "whom the principal has designated to take the principal's interest at death." The catchall provision did not expand the powers that were expressly limited in other portions of the power of attorney (citing Mabry). The appellate court further noted that even if it agreed that the power was non-statutory, the result would be the same, because the document itself specifically referred to §3-4 of the Act. The case was reversed and remanded.

NOTE: This appellate case appears to be the first one that used the Power of Attorney Act to analyze the facts. Because of the reference to §3-4, the result would have been the same without use of the Act. Had the power been non-statutory and had §3-4 not been referenced, the result would have been different, as the next case shows. The case is another example of the agent benefiting herself without any benefit to the principal and without any other explanation for the change.

Hoopingarner vs. Stenzel , 329 Ill.App.3d 271, 768 N.E.2d 772, 263 Ill.Dec. 691 (Ill.App. Dist. 3, 2002).

Helen named Fred and Jennifer as her agents under a non-statutory power of attorney. Helen later attempted to change the beneficiary of an annuity to Klara. Jennifer then used the power of attorney to change the beneficiary of the same annuity to a trust of which she was the sole beneficiary. One week later, Jennifer surrendered the annuity and received the funds. After Helen died, Klara filed claims against both agents.

The trial court granted both a §2-615 motion to dismiss and motion for summary judgment in favor of the agents and against Klara. On appeal, the appellate court determined that the initial change of beneficiary to Klara was irrelevant. Once the annuity was surrendered during Helen's life, no beneficiary could take any interest in the annuity upon her death. The question then was whether the surrender of the annuity by use of the power of attorney was proper. The appellate court found the power to be non-statutory and cited §2-9 of the Power of Attorney Act as the governing statute. Under that section, the court required proof of "bad faith" to overcome the agent's change of the principal's estate plan. Since there was no evidence of bad faith, Klara could not prevail on that basis. Further, except for the annuity, Helen never changed the rest of her "estate plan" under which the entire estate would go to Jennifer. The appellate court also looked at §2-7 of the Act. That section requires the agent to act with due care for the benefit of the principal. Klara presented no proof that Jennifer did not act with due care for Helen's benefit. Since there was insufficient proof to invalidate the agent's action under either provision, the rulings of the trial court were sustained.

NOTE: The court's analysis was based on Article II of the Power of Attorney Act and the fact that the power of attorney was non-statutory. If the power had been a statutory power, Klara's case would not have been dismissed, because the stricter standards would have applied.

Estate of Romanowski, 329 Ill.App.3d 769, 771 N.E.2d 966, 265 Ill.Dec. 7 (Ill.App. Dist. 1, 2002). In 1993, Genevieve executed a statutory power of attorney naming Evelyn, her daughter, as agent. Evelyn created a land trust and transferred commercial property into the trust. Genevieve was the beneficiary of the trust, and Evelyn and her daughter Eileen were the contingent beneficiaries. Genevieve died in 1997. The property was sold in 1998, and Evelyn and Eileen received the proceeds. In 1999, letters of administration were issued to Edward, one of Genevieve's sons. Edward initiated citation proceedings to recover the proceeds.

On a motion for summary determination on the issue of liability, the trial court (Judge Malak) found that Evelyn had exceeded her authority as agent in naming herself and Eileen as contingent beneficiaries of the trust and that the proceeds of sale were assets of the Estate. On appeal, the appellate court found that since the power of attorney was not ambiguous, Evelyn had violated §3-4 of the Power of Attorney Act, and testimony of Genevieve's intent was not admissible. Since Evelyn and Eileen were only contingent beneficiaries, they would not receive the asset until after Genevieve's death. They were thus similar to beneficiaries of life insurance, and fell within §3-4. The catchall provision did not authorize the transfer, and no additional powers were added to the power of attorney to authorize the actions that were taken. Finally, the appellate court said that it did not matter that whether the trust was established before or after the execution of the power of attorney, since it did exist at the date of the transfer to the trust.

NOTE: The trial court correctly analyzed the facts and ruled in this case, and the decision was affirmed by the appellate court. Both the language and the spirit of §3-4 referred to by the court did not allow the agent to benefit herself or others by her actions as agent. The result would have been the same under the Act or under common law.

Estate of Miller , 334 Ill.App.3d 692, 778 N.E.2d 262, 268 Ill.Dec. 276 (Ill.App. Dist. 5, 2002). In 1996, Louis executed a statutory power of attorney naming Emma (his sister) as agent. Over the next year, Emma proceeded to put the power to work. She closed out a number of Louis' bank accounts held variously in the name of Louis, Louis as trustee for Albert (his brother), and Louis as joint tenant with others. The funds were placed in new accounts in Emma's name or in some cases distributed or partially distributed to Emma's children and grandchildren.

The trial court found a fiduciary relationship as a matter of law between Emma and Louis and ruled that Emma failed to overcome the presumption of fraud resulting from the relationship. The court allowed Emma to keep the proceeds of the accounts that had been in joint tenancy between herself and Louis before the execution of the power of attorney, because she would have received them anyway on Louis' death. The trial court ordered that six accounts totalling approximately $80,000.00 which were previously in joint tenancy with or payable on death to Albert should be returned to the Estate but for Albert's benefit and that all other assets belonging to Louis (over $190,000.00) be repaid to the Estate by Emma and her descendants. Albert was also given a judgment against Emma for his amounts.

The appellate court affirmed the trial court. Although the power was a statutory power, the appellate court also analyzed the case under common law principals. With regard to all of the money that did not involve Albert or was not joint with Emma, the appellate court agreed that the funds were to be returned to the Estate. The appellate court also agreed that accounts that were joint with Emma would still go to her. Finally, the appellate court agreed that although Albert was not a party to the citation proceedings, it was proper to grant him relief within the Probate proceedings.

NOTES. 1. This case could have been decided under the Power of Attorney Act, and the result would have been the same. Instead, both courts decided the case under common law.

2. The appellate court discussed Simon vs. Wilson and distinguished it. However, it did not discuss the difference in the remedies ordered. In Simon, because Sam closed out the joint tenancies before Rose died, he was deemed to have severed the joint tenancies and was to receive only one-half of each account. Emma took the same actions in this case, but she was allowed to keep all of the joint funds.

3. The analysis of Albert's rights is most interesting. The estate apparently sought to enforce Albert's rights for him in the Probate proceedings. Once relief was granted, it was upheld by the appellate court. That court reviewed §16-1 of the Probate Act and noted that the court in citation proceedings "may determine all questions of title, claims of adverse title[,] and the right of property[,] and may enter such orders and judgment as the case requires." Had Albert tried to sue Emma through the estate, he would likely have failed based on his lack of standing to do so, since Albert was not seeking to recover funds on behalf of the estate but only for himself. A similar situation will be discussed in a subsequent article.

©2004 by Cary A. Lind, all rights reserved.

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