A “Power of Attorney” document grants a person the power to act on behalf of someone else. In POA’s for property, the creator of the document (“principal”) allows the agent to buy and sell property, sign documents on their behalf, and more. When a POA for property document is signed, it creates what is known as a fiduciary relationship, wherein a person (the designated agent) holds a legal and/or ethical relationship of trust with another person ( principal).
Until recently, the Court assumed that a fiduciary relationship does not begin at the execution of a POA, but rather when it becomes necessary to enact the POA such as, for example, when a person’s mental state dwindles and the agent must step in to make the decisions. The Court also assumed that the execution of a POA alone and without the acknowledgement or acceptance from the agent is not enough to establish a fiduciary relationship. However, in the Supreme Court of Illinois’ recent ruling in the Estate of Coffman, 2023 IL 128867, judges decided that the execution of a POA alone is sufficient to create a fiduciary relationship even if the agent is unaware that they have been appointed as the agent.
Why is this important?
The ruling in the Estate of Coffman makes it easier and more likely for an agent to be found guilty of fraud. POA’s are typically created by family members who appoint their favorite sibling or child as the agent. The agent tends to be around more often, help with everyday tasks, and ultimately have a close relationship with the principal. Due to the nature of this relationship, any action or transaction by which the agent benefits is presumed fraudulent due to the assumption that the agent convinced or persuaded the principal to do an action on their behalf. For example, if the agent receives more of the assets of the estate than their siblings or other heirs, the Court assumes fraud took place which forced the principal to execute those decisions.
This ruling is important because it holds the agent of a POA to a higher standard by which they must prove with clear and convincing evidence that the transaction was fair and not fraudulent. This is a challenging task because the principal is normally unable to testify in Court due to mental incapacity which required the use of the POA in the first place, and many times the principal dies before the alleged fraud comes to the attention of the Court. The task only becomes more challenging when you consider certain evidentiary rules such as the Dead Man’s Act which states a person cannot provide testimony about any conversation or event that occurred in the presence of the decedent, thereby prohibiting the agent or other witnesses from testifying about what the principal said or did.
Preventative measures
In light of the ruling in Coffman, estate planning lawyers must advise their clients with great caution when suggesting which agent should be appointed as POA. If a child/heir is named as the beneficiary of a life insurance company or joint accounts, added to the title of a property, etc., then it would be wise to not appoint that child/heir as the POA. Similarly, if the principal plans on making any transactions that benefit a child/heir disproportionately, then they should not be appointed as the agent.
The ruling in the Estate of Coffman makes it easier and more likely for an agent of a POA to be found guilty of fraud changing the way that we execute POA’s going forward. It may be time to review your Power of Attorney documents and/or a loved one’s POA to ensure you do not run into issues down the road. To schedule a free consultation with one of our attorneys, click HERE.
