One of the best tools available for assistance with day to day tasks is the Power of Attorney for Property. This is especially true with our elderly clients. Often, our elderly clients have trouble getting out of the house to get their financial transactions accomplished. It might be cold or rainy weather, or a medical complication. It might be that their mental health is beginning to slip, and they want to ensure a loved one will handle their affairs once their mental decline becomes beyond a sustainable level. Whatever the basis for the power of attorney, this tool is exemplary for accomplishing the tasks needed to go through everyday life. But…and this is a big but…no tool is without its weakness.
Agents, who are authorized to act under the Power of Attorney for Property, have been known to financially exploit the principal who enacted the authorization. This is especially true in relation to family members, who are the most likely agent. More than eighty percent of principals abused under these documents are abused by family members; with a greater majority of them being immediate family members. Criminal family members are often not prosecuted by police, as police consider this a civil matter and one too complex for their organization. To the contrary though, abuse of a principal is in fact conversion and should be prosecuted.
Courts hold that an agent in a Power of Attorney is a fiduciary in his or her capacity as an agent. A fiduciary must exercise good faith and loyalty towards the principal. The agent must act solely for the benefit of the principal. There is a famous case in which a director of a bank was acting as agent under a power of attorney. In this matter, the court made clear that the agent shall place the interest of the principal, even over their own interest. Bank of Cal. v. Hoffmann, 255 Wis. 165, 38 N.W.2d 506 (Wis. 1949) In this matter, the court held the following:
‘It is well settled that an agent is a fiduciary with respect to the matters within the scope of his agency. The very relation implies that the principal has reposed some trust or confidence in the agent. Therefore, the agent or employee is bound to the exercise of the utmost good faith and loyalty toward his principal or employer. He is duty bound not to act adversely to the interest of his employer by serving or acquiring any private interest of his own in antagonism or opposition thereto. His duty is to act solely for the benefit of the principal in all matters connected with his agency. This is a rule of common sense and honesty as well as of law. Any custom subversive of this principle must be deemed to be unreasonable, opposed to the policy of the law, and hence of no effect. Indeed, it has been stated that in the usual case, it is the duty of the agent to further his principal’s interests even at the expense of his own in matters connected with the agency. But no presumption of fraud will be deemed to arise against an agent unless it appears that he has personal interests conflicting with those of the principal.
In Illinois, the ability of courts to intervene is usually predicated upon an action by an interested party. The law is cited as follows:
Sec. 2-10. Agency-court relationship.
(a) Upon petition by any interested person (including the agent), with such notice to interested persons as the court directs and a finding by the court that the principal lacks either the capacity to control or the capacity to revoke the agency, the court may construe a power of attorney, review the agent’s conduct, and grant appropriate relief including compensatory damages.
(b) If the court finds that the agent is not acting for the benefit of the principal in accordance with the terms of the agency or that the agent’s action or inaction has caused or threatens substantial harm to the principal’s person or property in a manner not authorized or intended by the principal, the court may order a guardian of the principal’s person or estate to exercise any powers of the principal under the agency, including the power to revoke the agency, or may enter such other orders without appointment of a guardian as the court deems necessary to provide for the best interests of the principal.
(c) If the court finds that the agency requires interpretation, the court may construe the agency and instruct the agent, but the court may not amend the agency.
(d) If the court finds that the agent has not acted for the benefit of the principal in accordance with the terms of the agency and the Illinois Power of Attorney Act, or that the agent’s action caused or threatened substantial harm to the principal’s person or property in a manner not authorized or intended by the principal, then the agent shall not be authorized to pay or be reimbursed from the estate of the principal the attorneys’ fees and costs of the agent in defending a proceeding brought pursuant to this Section.
(e) Upon a finding that the agent’s action has caused substantial harm to the principal’s person or property, the court may assess against the agent reasonable costs and attorney’s fees to a prevailing party who is a provider agency as defined in Section 2 of the Adult Protective Services Act Elder Abuse and Neglect Act, a representative of the Office of the State Long Term Care Ombudsman, or a governmental agency having regulatory authority to protect the welfare of the principal.
(f) As used in this Section, the term “interested person” includes (1) the principal or the agent; (2) a guardian of the person, guardian of the estate, or other fiduciary charged with management of the principal’s property; (3) the principal’s spouse, parent, or descendant; (4) a person who would be a presumptive heir-at-law of the principal; (5) a person named as a beneficiary to receive any property, benefit, or contractual right upon the principal’s death, or as a beneficiary of a trust created by or for the principal; (6) a provider agency as defined in Section 2 of the Adult Protective Services Act Elder Abuse and Neglect Act, a representative of the Office of the State Long Term Care Ombudsman, or a governmental agency having regulatory authority to protect the welfare of the principal; and (7) the principal’s caregiver or another person who demonstrates sufficient interest in the principal’s welfare.
This rule is clear about the remedies available to the court to reimburse the principal, terminate the agency, or refer the principal to guardianship. The courts also can hear and rule on issues where the agent moved money or executed estate planning that would drastically inheritance. An attorney can bring a tort claim called tortious interference with an expected inheritance. This will allow the court to undue actions of the agent or hold the agent responsible for the value of the improper action.
The courts have a number of remedies available for resolving the problem after the fact. Prior to the abuse occurring, it is important follow a few simple rules. First, maintain a relationship with the person you have chosen as your agent. There are times the principal – agent relationship breaks down and the agent develops a drug or gambling habit. This situation causes the agent to alter their priorities which may not be in the best interest of the principal. If the principal maintains a relationship with the agent on a consistent basis, these types of addiction become apparent and the principal has an opportunity to revoke the power of attorney before the financial abuse occurs. Another safety net is to request an accounting of all actions performed by your agent on a periodic basis. This should include receipts for purchases and an accounting of all actions taken. If you receive this accounting on a quarterly basis, or semi-annual basis, you can rest assured that the agent is honoring their fiduciary duty. If you have additional concerns, a CPA can monitor your accounts on a predetermined basis and flag questionable transactions for you. Setting a professional as a backup to ensure there is no breach of fiduciary duty goes a long way.
If you have questions about creating your power of attorney, of about the actions of someone under the power of attorney, please give us a call at (708) 529-7794. The Law Office of Jonathan W. Cole frequently handles all different types of issues with the power of attorney and looks forward to assisting you with your needs.