Does a person designated as someone’s successor power of attorney owe the principal duties before the contingency built into the Power of Attorney happens? That’s one of the questions which the Illinois Supreme Court agreed to decide in the closing days of the November term, allowing a petition for leave to appeal in In re Estate of Shelton, a case from the Third District Appellate Court.
Shelton began in 2005 when the decedent executed an Ilinois Statutory Short Form Power of Attorney for Property, appointing his wife his attorney-in-fact or “agent.” The durable POA gives the wife various powers, including the authority to pledge, sell, and otherwise dispose of real or personal property without advance notice; the power to make estate transactions and gifts; the power to name or change beneficiaries or joint tenants and the power to exercise trust authority. The POA stated that if the wife became “incompetent, resign[ed] or refuse[d] to accept,” the decedent’s son, and then, his daughter, would be successor agent. The POA provided that a person was incompetent “if and while the person is a minor or an adjudicated incompetent or disabled person or the person is unable to give prompt and intelligent consideration to business matters, as certified by a licensed physician.” The same day that decedent executed his POA, his wife executed a substantively similar document appointing the decedent her agent, and first son and then daughter as his successors.
On a single day in 2011, the decedent conveyed his interest in one farm jointly owned with his wife to the son – conveying his own interest on his own behalf, and his wife’s interest as her attorney-in-fact, and conveyed a second farm to the son which he owned himself. Two years later after the decedent’s passing, his estate began proceedings to recover the first farm. According to the amended citation under the Probate Act, at the time of the conveyance, the son was attorney-in-fact since by that time the wife was incompetent within the meaning of the instrument. As attorney-in-fact, the complaint alleged, the son owed his father a fiduciary duty, making the conveyances presumptively fraudulent.
The son filed motions to dismiss, pointing out that the wife had neither been adjudicated incompetent, nor diagnosed incompetent by a licensed physician, at the time of the conveyances. Therefore, the son argued that he owed his father no fiduciary duty – he was still just the designated successor, not the actual attorney-in-fact. Following the motion to dismiss, the estate filed a “Physician’s Report” as a supplemental exhibit to its opposition brief, in which the wife’s physician opined that she had been “unable to give prompt and intelligent consideration [to] her personal affairs” for some time. The trial court denied the motion to dismiss under Rule 2-615 but granted it under Rule 2-619(a)(9) on the grounds that the wife could not be retroactively labeled as incompetent by a declaration signed several years later.
A month later, the daughter, as executor of the wife’s estate, filed a complaint against the son seeking damages for his alleged breach of fiduciary duty to the wife. The complaint alleged that the son had violated his duty as the wife’s agent by participating in the decedent’s breach when he conveyed the wife’s interest without reserving a life estate to her.
The son moved for judgment on the pleadings, or in the alternative to dismiss, arguing that he was not an agent for the wife at the relevant time, and therefore owed her no fiduciary duty. The daughter responded that as designated successor agent, the son was a fiduciary as a matter of law, since a successor agent may not observe the primary agent’s violation of his duty to the principal and do nothing to protect the principal. Following argument, the Court granted the motion to dismiss, holding that the son owed the mother no fiduciary duty. Both dismissals were appealed, and the appeals were consolidated.
The Appellate Court began by addressing the dismissal of the amended estate citation in the decedent’s estate. The daughter maintained in that case that the son had become successor agent at the time of the conveyance, given the doctor’s judgment in 2014 that the wife had been incompetent in late 2011. This raised the issue of retroactive declarations of incompetence, but there was a preceding issue – did it even matter? If the son owed the wife a fiduciary duty by virtue of having been named successor agent, regardless of whether he had succeeded at the time of the conveyance, then the issues of incompetence were unimportant.
The Appellate Court rejected the notion that the successor agent acquired a fiduciary duty from the outset. A successor agent did not acquire his or her powers immediately; the designation was contingent on future events. It is the power to act as attorney-in-fact which creates the fiduciary duty, and the successor agent didn’t have that until the successor succeeded.
So it did matter after all whether the wife had been incompetent in 2011. The Court held that the physician’s testimony three years after the fact was not sufficient to establish her incompetence retroactively. Reading the decedent’s power of attorney as a whole, the Court found that the certification of incompetence must have already happened before the initial attorney gives way to the successor. Besides, there were policy concerns involved; substantial uncertainty would be created if successors had to wonder whether they might one day learn that the primary agent’s authority had been nullified years earlier, based on an after-the-fact doctor’s certificate.
But what about the wife’s estate’s claim against the son? That was different; the wife’s estate was claiming not that the son had already been the incumbent agent, but rather that he had observed the breach of the father/decedent, and failed to protect the wife’s interests. And indeed, subsection (b) of section 2-10.3 of the Probate Act – entitled “successor agents” – provides that an agent “is not liable for the actions of another agent, including a predecessor agent, unless the agent participates in or conceals a breach of fiduciary duty committed by the other agent.” The complaint alleged that the son had known that the decedent was executing a deed wrongfully transferring the wife’s property interest in the farm, and had failed to notify the wife of the breach or take action to safeguard her interests. Therefore, the wife’s estate had stated a claim under the very narrow duty of care owed by successor agents.
Justice Carter dissented in part from the Court’s reversal in the wife’s estate case. Justice Schmidt dissented from the affirmance of the trial court’s dismissal of the amended estate citation.
We expect Shelton to be decided in the fall of 2017.