Presumptions and powers of attorney

By Patrick M. Kinnally & Cindy G. Buys

July 2018

Recently, the appellate court filed an opinion that, on first reading, seems innocuous. It hardly is. The facts of Collins and Richard v. Noltensmeie? are not complicated.

married or had a civil union. Billy had a terminal illness in 2011. A week before he died, he appointed Patricia as his agent under an Illinois Statutory Short Form Power of Attorney for Property ("POA"), and as his sole beneficiary under his will. Under the POA, Patricia had the "power to make gifts, exercise powers of appointment, name or change beneficiaries under any beneficiary form or contractual agreement." This provision would appear to imbue Patricia with broad powers. It would seem to be what Billy wanted Patricia to be able to do with his property. Yet, this is not what happened in Collins. 

After Billy died, his brother, Ken Collins ("Ken") filed a will contest in Cass County, claiming Billy was of unsound mind when he signed his will, was under the undue influence of Patricia, and did not know the document he was signing was a will. Also, Ken and Billy's niece, Linda Richard ("Linda"), filed a complaint against Patricia claiming she: (1) breached her fiduciary duty to Billy by wrongfully converted Billy's individual retirement account (IRA) to herself, and did so intentionally, willfully, and wantonly, so that punitive damages should be awarded. Ken and Linda's motion for summary judgment alleging Patricia's self-dealing was granted. They specifically averred that the POA Billy signed did not authorize Patricia to
make the change of beneficiary in the IRA to herself. Plaintiffs relied on Bienash v. Mille,:2 a South Dakota Supreme Court opinion that allegedly supported their argument.

The trial court, as matter of law, found plaintiffs were entitled to a judgment. No testimony was adduced. The trial court said: 

*** the power of self-dealing, i.e., to change the beneficiary to herself, was not included in paragraph
[three] and defendant was therefore not entitled to make such a change, the original designation of beneficiary form *** remains valid and [plaintiffs] are each 50% beneficiaries of that [IRA] at Petefish, Skiles and Company Bank*** .

The observation by the trial court seems true. But is it entirely accurate? The power of attorney did not limit Patricia from designating herself as a beneficiary of Billy's IRA. Would a layperson using a pre-printed form understand there was such a limitation as a matter of law? Probably not.

Also, the trial court awarded Ken and Linda attorney's fees in prosecuting their claim against Patricia. It did so based on a statutory provision 755 ILCS 45/2-7(f), which says:

An agent that violates this Act is liable to the principal's successors in interest for the amount required if (I) to restore the value of the principal's property to what it would have been had the violation not occurred, and (ii) to reimburse the principal or the principal's successors in interest for the attorney's fees and costs paid on the agent's behalf. This subsection does not limit any other applicable legal or equitable remedies.

Because Patricia was a tortfeasor, Ken and Linda's claim for such fees was based on a statutory right. The amount of the fees, a contingency contract, based on the result reached was found to be reasonable. The Col/ins tribunal found this decision appropriate and affirmed the trial court.

The defendant asked the trial court to reconsider its decision since there was no limitation in paragraph three of the POA as to whom gifts could be made by the agent for Billy. The trial court rejected this argument, concluding, the POA granted "**authority to make gifts and to change beneficiaries, but there was no specific authority for [defendant] to self-deal." In the trial court's opinion, relying on Bienash, the act of self-dealing in and of itself results in a presumption Patricia's conduct was fraudulent. And, since Patricia produced no evidence, by a clear and convincing measure, summary judgment for the plaintiffs was proper.

The issue presented on appeal was whether the language of Billy's POA permitted Patricia to change the IRA beneficiary designation to herself. If it did not, then the presumption in Illinois is that Patricia engaged in self-dealing. And, unless Patricia could present evidence to rebut the presumption of fraud, designating herself as beneficiary failed.

The appellate court agreed with the trial court, but not because of Bienash. It found the relevant Illinois Power of Attorney Act, and the Short Form Power of Attorney for Property Law4 to be the starting point for its opinion. It found §§3-4 to be insightful, which said:

*** the agent will not have the power under any of the statutory categories (a) through (o) to make gifts of the principal's property, to exercise powers to appoint to others or to change any beneficiary whom the principal has designated to take the principal's interest at death under any will, trust, joint tenancy, beneficiary form or contractual agreement ***.

The court found the power of attorney naming Patricia as agent created a fiduciary relationship as a matter of law. Because of that relationship where the agent obtains a benefit, the transaction is presumed to be fraudulent. And, when such a claim is made, the burden then shifts to the agent to prove by clear and convincing evidence that the transaction was fair and not the result of undue influence by the agent over the principal.

A presumption is a rule relating to evidence: it creates a presumed fact. In other words, it permits a trier of fact to acknowledge a prima facie case exists as to the particular issue in question. In Collins, that issue was whether Patricia sought to benefit herself, a fact inimical to the interest of Ken and Linda in Billy's IRA. It required Patricia to come forward with evidence to rebut the presumption of self-dealing. It was Patricia's burden to produce evidence to obviate the risk of not doing so. When she did not, the presumed fact-i.e., fraud-was accepted as true. If she had produced evidence to rebut the presumption the latter would cease to operate and the burden of proof, as well as persuasion, would have remained with Ken and Linda to be decided by the trier of fact.

A presumption is not evidence: It is a rule of law. In Collins, the basic fact that was established was that Patricia was Billy's agent, imposing upon her a fiduciary duty. The presumed fact that she breached her duty to Billy by self-dealing is taken as established until Patricia introduced evidence that the presumption was overcome. This is true regardless of whether the proposition is believed.8

Also, a presumption is not an inference. The latter is a conclusion as to the existence of a particular fact based on the consideration of other facts in the usual course of human reasoning. An inference is based on deduction. For example, a fact finder is entitled to infer the driver of an automobile was acting as an agent of the owner. In other words, the fact the operator was driving the car permits the inference the driver had the authority to do so. An inference is a logical construct based on circumstances or conduct so strong that no other result can be drawn. It is factual. A presumption, unlike an inference, as a rule of law requires the conclusion to be accepted.10

The upshot of Collins has various facets. First, Ken abandoned his claim on the will contest, thereby conceding the fact Billy's will was valid. As expressed in that device, Billy left everything to Patricia, his long time partner. This written expression was an indication of his testamentary intent.

Of course, an IRA designation is contractual in nature, not testamentary. It is reasonable to assume that most lay people, like Billy, do not appreciate such a difference. Furthermore, because Billy's will was unchallenged, it is equally likely to assume that it was a true expression of his intent of whom he wanted to receive his property, namely, Patricia. This fact was ignored by the court in Collins as evidence to rebut the presumption of self-dealing.

Next, the POA Billy signed did not limit Patricia in making a gift of the IRA to herself. Through statutory construction, the trial and appellate court found the Power of Attorney Act found that it did. In the do-it­yourself world we live in, it may be unlikely that Billy was conversant with that act. Notwithstanding, the opinion in Collins seems accurate. Patricia's status created a fiduciary duty, which the act required her to observe, so the presumption prevailed. When she presented no evidence to rebut the presumption of self­dealing, the presumed fact became legally actual.

Attorneys who draft POAs should make clear in the documents they draft that agents have the ability to make gifts to themselves of a principal's assets, if that is what a principal desires. Otherwise, the holding in Collins will require clear and convincing evidence to overcome the presumption of fraud, and perhaps, not effectuate what a person like Billy Collins wanted to achieve. 

1⯑ Collins and Richard v. Noltensmeiet; 2018 Ill. App. 170443.
2⯑ Bienash v. M!Yler, 721 N.W. 2d 431 (2006).
3. 755 ILCS 43/1-1 to 4-12.
4. 755 ILCS 45/3-1 to 3-3-5 (2010).
5ll In re: Estate of Shelton, 2017 IL 121199.
6. See also Spring Valley Nursing Center L.P. v. Allen, 2012 Ill. App. (3d) 110915.
7. In re: Estate of Paw!inski, 40711/. App. 3d. 957(1 st Dist. 2011 ).
8. Michael H. Graham, Handbook of Illinois Evidence (Wolters Kluwer 2018).
9. Illinois Patterned Jury Instructions, Civil, No. 50.07 (2018).
.0. Graham, supra note 8.