Search

Estate Planning & Probate Law FLASHPOINTS January 2023

David E. Braden, Yudell and Lonoff, LLC, Northfield
847-441-9500 | E-mail David Braden

First District Affirms Trial Court’s Order Requiring Agent Under Power of Attorney for Property To Reimburse Principal’s Estate for $76,274.99

In In re Estate of Jackson, 2022 IL App (1st) 211132, the First District Appellate Court affirmed the trial court’s decision requiring an agent under a power of attorney (POA) for property to reimburse the principal’s estate when the agent breached his fiduciary duty and failed to provide an adequate accounting.

Facts of the Case

On January 18, 2016, the principal appointed a “close friend” as her agent to handle “all of [her] financial, medical and real estate affairs, and any other personal or business affairs.” 2022 IL App (1st) 211132 at ¶4. The signed instrument was titled “Power of Attorney.” Id. The instrument did not include a notice paragraph requiring the agent to keep an accounting, as set forth in the statutory POA form. 2022 IL App (1st) 211132 at ¶17.

On September 16, 2016, the principal contacted her broker and requested that the agent be granted trading authorization. 2022 IL App (1st) 211132 at ¶5. In August 2017, a check in the amount of $47,397.37 was disbursed from the principal’s trading account after the sale of certain stock. The agent testified that said check was deposited into another account of the principal but failed to produce any documents or records to support such contention. Id.

In November 2019, there was a distribution of $25,000 from one of the principal’s trading accounts. Again, the agent testified that such distribution was deposited into another account of the principal but failed to produce any documents or records to support such contention. 2022 IL App (1st) 211132 at ¶7.

On November 8, 2019, the principal was evaluated by a physician who prepared a neurological report finding the principal “totally incapable of making financial and personal decisions due to progressive cognitive impairment.” 2022 IL App (1st) 211132 at ¶6.

On December 26, 2019, the principal’s sister filed a petition for the appointment of a guardian of the principal’s estate and person. On February 10, 2020, the court appointed a guardian ad litem (GAL). On the same day, $1,000 was disbursed from one of the principal’s accounts purportedly to pay for the agent’s legal representation in the matter, without court approval. 2022 IL App (1st) 211132 at ¶8.

After her initial investigation, the GAL, in part, recommended the appointment of the principal’s sister as guardian and the termination of the agent’s POA, due to the agent’s suspicious acts, including the alleged purchase of a vehicle in the principal’s name with the principal’s assets. 2022 IL App (1st) 211132 at ¶9.

On March 3, 2020, the principal’s sister was appointed plenary guardian of the principal. On the same day, the agent resigned from his office as agent for the principal. The court also ordered the agent to provide an accounting of the principal’s assets from February 2016 through January 2020. 2022 IL App (1st) 211132 at ¶10.

Over the following year, the agent filed an initial and three revised accountings (four total), all of which were objected to by the guardian. In her objections to the third revised accounting, the guardian demanded explanations related to (1) where the August 2017 disbursement of $47,397.37 was deposited, (2) where the November 2019 disbursement of $25,000 was deposited, (3) discrepancies in the principal’s retirement income, which was reported on the account to be $3,667 per month but shown actually to be $4,444.62 per month, (4) discrepancies in the amount paid to repave the principal’s driveway, which was reported on the account to be $14,000 but the company invoice showed $11,900, and (5) the $1,000 payment for the agent’s attorneys’ fees. 2022 IL App (1st) 211132 at ¶11.

The agent responded that he had no explanations for the disbursements of $47,397.37 or $25,000 because he alleged the principal handled those transactions. The agent further responded that the principal miscommunicated her retirement income amount to him and that he misremembered the cost of repaving the driveway. The agent also reported that the principal requested he pay the $1,000 attorneys’ fees so that the attorney would represent her in the guardianship proceeding. 2022 IL App (1st) 211132 at ¶11.

On March 31, 2022, the trial court held a hearing on the objections to the third revised accounting. The trial court found that the agent failed to produce adequate information to explain the substantial disbursements from the principal’s trading accounts or the discrepancies in the agent’s third revised account. Accordingly, the trial court ordered the agent to reimburse the principal’s estate in the amount of $76,274.99. 2022 IL App (1st) 211132 at ¶¶12 – 13.

First District Appellate Court Analysis

First, the agent argued that because the POA instrument executed by the principal in this case did not contain a notice provision requiring him to keep an accounting, he was not required to do so. 2022 IL App (1st) 211132 at ¶17. The First District found this argument unpersuasive.

The First District stated that it has “h[e]ld that the Short Form provided in section 3-3 [of the Illinois Power of Attorney Act, 755 ILCS 45/1-1, et seq.,] is merely directory and that absolute or exact compliance with the statutory format is not required.” 2022 IL App (1st) 211132 at ¶18, quoting Fort Dearborn Life Insurance Co. v. Holcomb, 316 Ill.App.3d 485, 736 N.E.2d 578, 584, 249 Ill.Dec. 384 (1st Dist. 2000). The First District found that “[b]y the very language of the power of attorney document he signed, which gave him authority to handle contracts, checks, banking drafts, and other instruments related to business and financial affairs, [the agent] should have known that he was required to keep an accounting of substantial disbursements, even without explicit mention of his duty to keep records.” 2022 IL App (1st) 211132 at ¶19.

Moreover, the First District held that “[a] power of attorney, regardless of whether it was executed precisely as set forth in section 3-3 [of the Illinois Power of Attorney Act], creates a fiduciary duty as a matter of law.” 2022 IL App (1st) 211132 at ¶20, citing In re Estate of Shelton, 2017 IL 121199, ¶22, 89 N.E.3d 391, 417 Ill.Dec. 743. As a fiduciary, “[a]n agent shall keep a record of all receipts, disbursements, and significant actions taken under the authority of the agency and shall provide a copy of this record when requested to do so.” 2022 IL App (1st) 211132 at ¶20, citing 755 ILCS 45/2-7(c).

The First District found that the agent “had the duty to keep an accounting of disbursements made from [the principal]’s accounts starting on the date he and [the principal] executed the power of attorney document because ‘[t]he fiduciary relationship between the principal and agent begins at the time the power of attorney document is signed.’ ” 2022 IL App (1st) 211132 at ¶20, quoting Shelton, supra, 2017 IL 121199 at ¶22.

Second, the agent argued that the trial court erred by entering a judgment on the basis that the agent failed to provide an adequate account. 2022 IL App (1st) 211132 at ¶21. “An agent that violates [the Illinois Power of Attorney Act] is liable to the principal . . . for the amount required (i) to restore the value of the principal’s property to what it would have been had the violation not occurred, and (ii) to reimburse the principal . . . for the attorney’s fees and costs paid on the agent’s behalf.” 2022 IL App (1st) 211132 at ¶23, quoting 755 ILCS 45/2-7(f).

Here, the First District underscored that the trial court found that the agent failed to show where significant sums of the principal’s assets went and that he failed to provide any evidence that he managed the principal’s assets in her best interests. 2022 IL App (1st) 211132 at ¶24. The First District found that it was the agent’s failure to show that he fulfilled his duty as the principal’s agent and not simply his inability to provide an accounting that led the trial court to conclude the agent had breached his duty. 2022 IL App (1st) 211132 at ¶25. Accordingly, the First District held that the trial court’s order requiring the agent to reimburse the estate was not against the manifest weight of the evidence. 2022 IL App (1st) 211132 at ¶26.

Third, the agent argued that the trial court erred in holding the agent responsible to account for the $47,397.37 disbursement in August 2017 because the agent contended that he did not begin to act under the POA until February 2018. 2022 IL App (1st) 211132 at ¶27. The First District disagreed.

The First District found that the principal granted the agent authority to handle her “business, financial, medical, [and] real estate affairs” on January 18, 2016. Id. In addition, the principal contacted her broker on September 16, 2016, requesting that the agent be given trading authorization on the account. Such trading authorization on the account occurred one year before the $47,397.37 disbursement. Under these facts, the First District concluded that the agent could not now claim that he was not acting under the POA at the time of the $47,397.37 distribution. Id.

Key Takeaways

In this case, there are numerous bad facts that prevent a favorable result for the agent. But what if we posit a different scenario? Consider a parent who nominates one of her two children as agent under a POA. The parent becomes incapacitated three years later and the child-agent begins at that time to act as agent by securing the parent’s bank accounts. If the POA was effective upon signing, the fiduciary relationship arguably begins upon signing — potentially years before the designated agent even knows he or she is an agent. If the siblings do not get along, what is the potential for litigation over the child-agent’s agency, including the period for which the child-agent “hadn’t been acting”?

Understanding the relationships between designated agents and successors in interest to the principal can aid the practitioner in planning to avoid future familial conflicts. Practitioners should consider when to use immediately effective POAs versus “springing powers” based on express circumstances, and whether an agency should not become effective until the agent has accepted the office in writing.

In Jackson, however, the principal not only named her friend as agent under a POA instrument but also gave him actual trading powers on a brokerage account. Absent the POA, adding an authorized user may not have triggered fiduciaries’ duties. Practitioners should discuss with their clients the implications of naming coowners, agents, and/or authorized trader/users to accounts, which could increase exposure for such authorized trader/user when he or she is also designated as an agent under a POA.

For more information about estate planning and probate, see REVOCABLE GRANTOR TRUSTS (IICLE®, 2023). 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.

Leave your comment
Filters
Sort
display