Illinois Fourth District Appellate Court Affirms Judgment Against Agent Appointed as P.O.A. for Changing I.R.A. Beneficiary Without Explicit Permission; Approves 1/3 Contingency Fee Award, Collins v. Noltensmeier, 2018 IL App (4th) 170443 (April 5, 2018)
The Illinois Appellate Court recently re-enforced the danger of self-dealing and personal benefit when handling the assets of another under a statutory power of attorney for property. A terminally ill man appointed his longtime girlfriend as P.O.A. January 16, 2011, one week before his death. The recently appointed agent and long term romantic partner then designated herself as the beneficiary of an I.R.A. valued at approximately $45,000.00.
The decedent’s brother and niece filed a complaint alleging that the re-designation was a breach of her fiduciary duty, and constituted conversion worthy of punitive damages. The central issue on appeal was whether the longtime girlfriend acted within the scope of her authority when the beneficiary was changed.
The court first discussed the burden of proof where an agent acting under a P.O.A. takes an action benefiting that agent, a/k/a “self-dealing.” Any transfer of property that benefits the person acting under a P.O.A. is presumed to be fraudulent. Where self-dealing has occurred, the agent must prove by clear and convincing evidence that the transaction was fair and did not result from their considerable power over the party granting them authority to act.
Clearly the change of beneficiary benefitted the agent here. It was then her burden to show that either the P.O.A. explicitly gave her the authority to self-deal, or that the terminally ill man intended for her to take that action. The girlfriend in this case argued that the following language in the POA permitted her to designate herself as the beneficiary: “power to make gifts, exercise powers of appointment, name or change beneficiaries under any beneficiary form or contractual arrangement.” The court rejected this argument, and found the language insufficient to overcome the presumption of fraud.
Essentially, regardless of any authority granted in a P.O.A., an agent cannot rely upon broad language to self-deal. When permitted, self-dealing must be is specifically and explicitly authorized in the document. Because nothing in the P.O.A. authorized the change of beneficiary, and no other evidence of his intent to allow the change was in the record, the presumption of fraud was not rebutted. For that reason, the agent was required to repay the value of the I.R.A. to the estate.
The Illinois Power of Attorney Act provides that where an agent has abused their authority, the agent must repay the value of anything taken. In addition, the agent must reimburse the principal (or the principal’s successor, here the brother and niece) for attorney’s fees paid to correct the harm. 755 ILCS 45/2-7(f). Here the Plaintiff’s attorneys were hired on a contingency basis, to be paid 1/3 of the recovery.
The trial court awarded 1/3 of the total value of the IRA as fees, plus costs. The Appellate Court affirmed, finding that while the existence of a contingency is only one factor to consider is determining a reasonable fee, here it was appropriate. One major factor was likely that the attorneys representing the Plaintiffs invested 134.5 hours in the case, putting their hourly rate slightly over $100.00 for a $15,000.00 fee.
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