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Estate Planning & Probate Law FLASHPOINTS June 2020

June 15, 2020Print This Post Print This Post

Elizabeth A. Garlovsky & Carrie A. Zuniga, Lesser Lutrey Pasquesi & Howe LLP, Lake Forest
847-235-6745 | E-mail Elizabeth A. Garlovsky | 847-295-8800 | E-mail Carrie A. Zuniga

CARES Act Brings Relief to People and Businesses

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Pub.L. No. 116-136, 134 Stat. 281 (2020). The Act provided $2 trillion in stimulus funds as relief for individuals, business owners, and businesses in response to the financial crisis caused by the COVID-19 pandemic.

Several provisions for potential relief were included under the CARES Act for “qualified” participants of retirement plans. A qualified participant is a plan participant, spouse, or dependent (diagnosed by a CDC approved test) with SARS-CoV-2 or COVID-19 “who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).” 26 U.S.C. §72 note.

The relief available includes a waiver of the 10-percent early withdrawal penalty and withholding requirements for “coronavirus distributions,” which can be no more than $100,000 per individual, not per plan. Id. Coronavirus-related distributions can be repaid to an eligible plan or pay the tax over three years. In addition, there is a temporary increase for loan amounts from qualified employer plans to the lesser of $100,000 or 100 percent of the vested account balance in the plan. For existing plan loans, repayments otherwise required between March 27, 2020, and December 31, 2020, are delayed for one year. Id.

In addition to relief for qualified participants, any taxpayer can waive their required minimum distribution for 2020 from certain defined contribution plans and for all traditional IRAs.

S.B. 2135 — Government Emergency Administration Act

The Government Emergency Administration Act, S.B. 2135, 101st Gen.Assem. (2020), passed both houses of the General Assembly on May 23, 2020, and was sent to the Governor on June 4, 2020. Section 15 of Article 15 amends the Electronic Commerce Security Act (ESCA), 5 ILCS 175/1-101, et seq., by adding §95-20, Remote Witnessing and Notarization. The “purpose” of this new section to the ECSA is “to give statutory approval to the notary and witness guidelines provided in State of Illinois Executive Order 2020-14.” 5 ILCS 175/95-20(a).

In re Estate of Eugenius Gerulis

In In re Estate of Gerulis, 2020 IL App (3d) 180734, the Third District addressed an appeal by Rimas and Rita Gerulis (the respondents) of the trial court’s decision that (1) Rimas had breached his fiduciary duty as agent to his father, Eugenius (the decedent), and ordered Rimas to pay $600,400 to the decedent’s estate; (2) set aside the decedent’s will and trust as a result of undue influence; and (3) ordered the respondents to pay prejudgment interest in the amount of $290,690.36 pursuant to 815 ILCS 205/2.

The decedent immigrated to the United States from Lithuania around 1951. 2020 IL App (3d) 180734 at ¶3. Thereafter, he married and had three children. Rimas is the middle child and older son. Id. In the mid-1980s, Eugenius and his wife retired to Florida and, in 2000, executed wills, a joint trust, and powers of attorney for property. 2020 IL App (3d) 180734 at ¶4. Rimas was named the successor agent in the powers of attorney. In 2001, the decedent’s wife died and Rimas became the agent for his father. In 2004, the decedent moved back to Illinois after fracturing his back and moved in with the respondents. Id.

The court summarized the testimony of various witnesses from the trial court that the decedent was mentally competent during the time the decedent lived with the respondents. The deacon of the decedent’s church testified that Eugenius gave sermons of a “high intellectual level.” 2020 IL App (3d) 180734 at ¶7. One of the petitioners, Eugenius’ daughter, Laima, testified that she never felt the decedent was confused, including when he sold his car to her in 2006, the same year Eugenius changed his trust and will. 2020 IL App (3d) 180734 at ¶9. The decedent’s cardiologist, who examined him every six months, also testified that Eugenius was always “mentally alert and oriented to time, place, and person and understanding of what was going on around him” during neuro-psych exams. 2020 IL App (3d) 180734 at ¶11.

On the other hand, the decedent’s physical health deteriorated during the time he lived with Rimas and Rita, and the parties asserted that in those five years prior to his death, Eugenius was a physically disabled person as defined by the Probate Act. 2020 IL App (3d) 180734 at ¶¶12 – 13. Once the decedent moved in with the respondents, Rimas quit his job as a commodities broker at the Chicago Board of Trade to care for his father, while Rita worked at MidAmerica Bank. Id.

While Eugenius lived in Florida, he had maintained two bank accounts: the first was held in joint tenancy with right of survivorship with all three children, and the second was held in joint tenancy with his wife and their two sons. 2020 IL App (3d) 180734 at ¶15. Once the decedent began living with the respondents, he and Rimas opened a joint bank account with right of survivorship at MidAmerica Bank, and that same week Eugenius made a gift of $130,000 to Rimas. 2020 IL App (3d) 180734 at ¶16. In late 2004, Rimas sold his home in Wheaton and used the proceeds of sale plus the $130,000 from the joint account with the decedent to purchase a new house in Naperville. 2020 IL App (3d) 180734 at ¶17. Testimony was provided that the purchase of the new home was to accommodate the decedent with a first-floor bedroom and accessible bathroom. Id.

Thereafter, Eugenius sold his condo in Florida, and Rimas deposited the proceeds in the amount of $335,774.87 in their joint bank account. 2020 IL App (3d) 180734 at ¶18. The same day, Rimas transferred $333,640.13 to three certificates of deposit, held jointly with Eugenius. Id. At the same time, the decedent and Rimas opened another joint account at MidAmerica Bank where Eugenius’ social security and pension benefits were deposited for the remainder of his life. 2020 IL App (3d) 180734 at ¶19.

In 2006, the decedent executed a new will and trust and Illinois powers of attorney for property and healthcare. 2020 IL App (3d) 180734 at ¶23. Under the new estate plan, Rimas would receive two thirds of Eugenius’ estate and the other two children would split the balance. Id. The estate planning documents were prepared by Karl Smith, an attorney whom Rimas had known since high school, and who had known the decedent since 1970. 2020 IL App (3d) 180734 at ¶24. Smith testified that he met with Eugenius alone to ensure that it was Eugenius’ desire to leave unequal amounts to his children, although he did not question why that was the decedent’s intent. Id.

Subsequently, in 2007, Rimas deposited a total of $60,460.88 from the two joint bank accounts the decedent held in Florida to a money market account owned by Rimas and Rita at MidAmerica Bank. Id. Finally, in 2009, Rimas transferred $58,153.29 from one of the joint CDs to his individual money market. 2020 IL App (3d) 180734 at ¶21. Then, he paid himself a total of $20,188 from the joint account for the purchase and installation of Pella windows and doors. Id. In November 2009, one month before the decedent’s death, Rimas transferred a total of $406,958.07 from the joint CD and joint account into a bank account held with Rita and a brokerage account in his individual name. Id.

In their appeal, the respondents argued that because the transfers were from joint accounts and that the decedent opened the accounts while he was mentally competent, this evidenced his intent to make a gift to Rimas. 2020 IL App (3d) 180734 at ¶33. The petitioners asserted that the transfers were presumed fraudulent because Rimas was the decedent’s fiduciary under a valid power of attorney. Id.

An individual designated as an agent under a power of attorney has a fiduciary duty to the person who made the designation and that relationship begins at the time the principal signs the power of attorney. 2020 IL App (3d) 180734 at ¶35, citing Spring Valley Nursing Center, L.P. v. Allen, 2012 IL App (3d) 110915, ¶12, 977 N.E.2d 1230, 365 Ill.Dec. 131, and In re Estate of Shelton, 2017 IL 121199, ¶22, 89 N.E.3d 391, 417 Ill.Dec. 743. A presumption of fraud exists when the agent obtains a benefit for himself and “any conveyance of the principal’s property that either materially benefits the agent or is for the agent’s own use is presumed to be fraudulent.” 2020 IL App (3d) 180734 at ¶36, quoting Estate of Shelton, supra, 2017 IL 121199 at ¶23. Nonetheless, the presumption of fraud can be rebutted by clear and convincing evidence and the burden is on the agent to prove that he “acted in good faith and that he did not betray the confidence placed in him.” 2020 IL App (3d) 180734 at ¶37, Spring Valley, supra, 2012 IL App (3d) 110915 at ¶13. If the agent does not meet the threshold burden, the transaction will be set aside. Id.

The significant factors to consider when an agent seeks to rebut a presumption of fraud are “(1) whether the fiduciary made a frank disclosure to the principal of the information he had, (2) whether the fiduciary paid adequate consideration, and (3) whether the principal had competent and independent advice.” 2020 IL App (3d) 180734 at ¶42, citing Spring Valley, supra, 2012 IL App (3d) 110915 at ¶13.

It is not in dispute that the decedent was mentally competent during the relevant period. 2020 IL App (3d) 180734 at ¶40. However, the relevant inquiry is only whether the agent benefited from the transfer. Id. Furthermore, the competency of the principal is not enough to rebut the presumption of fraud when the agent receives obvious benefits from the transaction(s), particularly when there is no consideration paid to the principal. Id., citing Spring Valley, supra, 2012 IL App (3d) 110915, ¶¶15 – 17. In this case, none of the witnesses testified that the decedent had initiated the transfers or whether Eugenius had any knowledge of the activity in the joint accounts. 2020 IL App (3d) 180734 at ¶41. Furthermore, there was no indication that the decedent received any consideration or compensation, but Rimas received an obvious benefit in receiving funds that he otherwise would not have. 2020 IL App (3d) 180734 at ¶43. Even though the decedent retained an interest in the joint accounts, he did not have an interest in any of the accounts in Rimas’ name or held in joint tenancy with Rita. 2020 IL App (3d) 180734 at ¶44. The court further concluded that the benefit the decedent received in occupying living space in the Naperville home was not enough to rise to an interest in the home, certainly not one that would be accounted for in his estate, and there was no evidence that Eugenius was informed whether he had an interest in the new house. 2020 IL App (3d) 180734 at ¶45.

The respondents next argued that there was a presumption of donative intent in that the decedent gifted Rimas the interest in the transferred funds to the joint accounts. 2020 IL App (3d) 180734 at ¶46. If the presumption of donative intent were established, the petitioners would have the burden to establish that no gift was intended. 2020 IL App (3d) 180734 at ¶47. Faced with two conflicting presumptions, the presumption of donative intent and the presumption of fiduciary fraud, the court distinguished In re Copp, 132 Ill.App.2d 974, 271 N.E.2d 1 (3d Dist. 1971), which the respondents cited to support the argument that “the presumption of donative intent should supersede the presumption of fraud.” Id. First, the surviving joint tenant in Copp established that the decedent intended the creation of a joint tenancy account as a gift. Id. Second, and perhaps more importantly, the decedent and the surviving joint tenant did not have a fiduciary relationship like that of Eugenius and Rimas. 2020 IL App (3d) 180734 at ¶49.

Instead, the Gerulis court found the reasoning in In re DeJarnette, 286 Ill.App.3d 1082, 677 N.E.2d 1024, 222 Ill.Dec. 490 (4th Dist. 1997), to be more persuasive “than a blind application of Copp” when there are conflicting presumptions. 2020 IL App (3d) 180734 at ¶50. In Gerulis, the joint accounts in Florida predated the fiduciary relationship between the decedent and Rimas. 2020 IL App (3d) 180734 at ¶51. However, the joint accounts with challenged deposits were not established until after the fiduciary relationship was established. Id. Therefore, the situation at hand was not a mixed situation as the court in DeJarnette considered in which the presumptions could cancel each other out as long as the “deposits made during the fiduciary relationship followed a procedure established prior to the relationship.” 2020 IL App (3d) 180734 at ¶50, quoting DeJarnette, supra, 677 N.E.2d at 1029. Instead, the problematic joint tenancy accounts were created after the fiduciary relationship was established and while it is unclear whether Rimas used his position to create the accounts, the court considered it problematic that the accounts were opened at the bank where Rita was employed. 2020 IL App (3d) 180734 at ¶52.

Next, the court reversed the trial court’s decision to set aside the decedent’s will and trust on the basis of undue influence. In Illinois, undue influence must rise to the level that the decedent no longer acts freely and is induced to act in a way that they would not otherwise. 2020 IL App (3d) 180734 at ¶55. There are four elements that the petition must establish:

(1) a fiduciary relationship between testator and a person who receives a substantial benefit under the will (compared to other persons who have an equal claim to testator’s bounty);

(2) a testator in a dependent situation in which the substantial beneficiaries are in dominant roles;

(3) a testator who reposed trust and confidence in such beneficiaries; and

(4) a will prepared or procured and executed in circumstances wherein such beneficiaries were instrumental or participated. 2020 IL App (3d) 180734 at ¶56, quoting In re Estate of Kline, 245 Ill.App.3d 413, 422, 613 N.E.2d 1329, 1336, 1337, 184 Ill.Dec. 737 (3d Dist. 1993).

The respondent can attack a presumption of undue influence by either introducing evidence to disprove the existence of the facts needed for the presumption or by offering evidence to disprove the presumed facts. 2020 IL App (3d) 180734 at ¶58, citing Kline, supra, 613 N.E.2d at 1337. In the former method of attacking the presumption, an issue of fact exists, but in the latter method, the court must determine if the presumption remains. Id. Here, the respondents argued that the will was not prepared in circumstances in which Rimas was instrumental or in which he participated. 2020 IL App (3d) 180734 at ¶59. The court agreed that while Rimas introduced the decedent to the drafting attorney, the attorney’s conduct did not create a presumption that Rimas was necessary in procuring the will. 2020 IL App (3d) 180734 at ¶61. Here, it is important to note that the drafting attorney’s conduct in meeting with the decedent alone and only completing the drafts after that meeting broke the link between Rimas and the creation of the will.

Lastly, the court remanded the issue of prejudgment interest because the trial court did not exercise its discretion in determining whether to order interest but rather came to the erroneous conclusion that it had no discretion. 2020 IL App (3d) 180734 at ¶¶64, 65.

For more information about estate planning and probate, see POSTMORTEM ESTATE PLANNING (IICLE®, 2020). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.

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