POWERS OF ATTORNEY - PART 4 - MISUSE OF POWERS
By Cary A. Lind
Conclusions and Observations.
The case reviews in the prior two articles are not exhaustive, but the cases illustrate the issues that are reaching the appellate courts. The cases lead to a number of conclusions and observations.
- The courts have been inconsistent in how they analyze actions dealing with abuse of powers of attorney. All powers of attorney are covered by at least Article II of the Act, but some cases have been analyzed as if the Act did not exist. Other courts have analyzed cases strictly under the Act. There appears to be no discernible basis for choosing one or the other. In most cases, the result will be the same under the Act or under common law.
- In some instances the Act clarified and defined what an agent can or cannot do, amplified some powers and case law, or added new bases for recovery, especially with regard to statutory powers. In some cases, the Act actually loosened the standards, allowing agents to benefit themselves in ways they could not under common law. In other cases, the Act made standards stricter actually prohibiting actions by the agent which might benefit the principal. In general, if powers are non-statutory, the agent's powers are less restricted.
- The Fort Dearborn Life court struggled with the preliminary determination of whether or not the power of attorney in question was in statutory form, although it clearly seemed to track the statutory language. That determination then controlled whether the analysis would proceed under Article II or Article III of the Act. The issue was how far the language and terms of the power of attorney could stray from the statutory language and still be deemed "substantially to be a statutory short form." That issue must be decided on a case-by-case basis.
- The courts have ruled starting with Mabry that even a general "catchall" provision added to Paragraph 1 of the statutory form power of attorney for property does not allow free reign to an agent to do whatever he or she wishes. In the absence of specific contrary authorization, the stated limitations on the standard powers set forth in §3-4 of the Act still control.
- The particular facts of each case continue to play the biggest role in how the courts rule. The court's sense of equity often comes into play. When the agent changes the status quo and receives a benefit to the detriment of others, the change will usually not be upheld and will be reversed or worse.
PRACTICAL ISSUES: 1. Taking into consideration the prior articles, which form - statutory or non-statutory - should an attorney use? As is often the case, the answer is, "It depends."
The statutory form has clear advantages. It must be accepted and relied upon by third parties. However, the enumerated powers are limited in ways that are not always obvious. It may be necessary to add additional specific powers to accomplish particular purposes. For example, if the power is to be used to close a real estate deal, you should add a separate "catchall" provision authorizing all of the actions relating to the deal. If the power is intended to initiate and carry on litigation, describe the action to be prosecuted and grant all powers necessary to carry out that litigation. If the power is to establish and fund a living trust, specify the power to do so and all of the critical terms of the proposed trust. Going beyond the statutory powers without specifying additional powers may someday subject the agent to a suit by a disgruntled beneficiary and may subject the drafting attorney to liability for malpractice.
A non-statutory form has different advantages. The powers are not so limited. Hoopingarner is a prime example where the court upheld actions taken pursuant to a non-statutory form that would be invalid had the power been statutory. In the years since the Power of Attorney Act was passed, I have seen a number of non-statutory forms prepared by large Chicago law firms. Electing to use a non-statutory form avoids the statutory limitations and also avoids having to comply with any changes to the statutory form or its required formalities. However, a non-statutory form may have to be separately approved by the legal departments of third parties, such as banks, brokerage firms, etc., because it is not in statutory form.
2. §2-7.5 of the Act sets forth certain required record-keeping by an agent when the principal is incapacitated. However, every agent should be cautioned to keep detailed records of all financial transactions, since the burden of proof will be on the agent to substantiate any expenditure made or action taken under the agency.
3. The agent should also be advised to keep detailed records of time and expenses, including driving mileage. The Act gives the agent under a property power of attorney the right to reasonable fees for so acting, and an agent is entitled to reimbursement of actual expenses incurred. The agent may later choose to waive fees but should still keep the records in case he or she later decides to seek compensation.
4. Finally, the agent should be warned to beware of any gifts made by the principal to the agent or transactions which benefit the agent. With regard to all such transactions, the agent should be warned to get the directions in writing, to have the transfers witnessed by third parties who can later testify, or to take other actions to clearly document the principal's intent to benefit the agent. The agent should assume that anyone who is disadvantaged will later sue to undo any questionable actions. Without the principal available to testify to his or her intent, the transfers will likely be reversed.
©2004 by Cary A. Lind, all rights reserved.
Cary A. Lind, P.C.
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