Another Cautionary Tale for Power of Attorney Agents and Self-dealing

The Illinois Appellate Court 4th District case of Collins v. Noltensmeier provides an example of why power attorney agents need to tread very carefully when giving gifts to themselves.  After the principal (Billy) passed away, the case arose as a dispute between Billy's brother and niece (plaintiffs) and his long-term girlfriend/partner Patricia who also acted as his caretaker. Billy signed a will and power of attorney for property (using the statutory short form) about a week before he passed away, naming Patricia as his POA agent, executor and sole beneficiary in his will.

After Billy died and Defendant filed his will with the court, plaintiffs filed a will contest and a separate case against defendant for breach of fiduciary duty and wrongful conversion of Billy's IRA.  Apparently Patricia acting as POA agent for Billy had changed the beneficiary of his IRA, to herself. In court, Patricia defended herself by citing the wording of the Illinois statutory POA form, which includes "power to make gifts, exercise powers of appointment, name or change beneficiaries under any beneficiary form or contractual arrangement."

The trial court granted summary judgment for plaintiffs, ruling that the POA agent authority, despite that wording, did not include self-dealing.  The appellate court agreed.  Because a POA agent is a fiduciary role, a conveyance of the principal's property that materially benefits the agent is presumed fraudulent.  To overcome this presumption, the agent has the burden of showing by clear and convincing evidence that she acted in good faith and with due care for the benefit of the principal. In this case, Patricia had not presented any evidence to overcome the presumption.  Instead she had relied on the wording of the statutory form. The court ruled that was not good enough, because the POA form did not specifically say she could change beneficiaries to herself.

It's not at all unusual for a POA agent to legitimately receive a gift from their principal, for example an adult child serving as agent for her parent.  In even the apparently benign scenarios though, the agent needs to be aware of this legal presumption, and document the circumstances of the gift accordingly, at the time it is occurring, in case questions arise later.