The Illinois Power of Attorney Act was recently amended. The Act requires an agent to maintain an accounting of everything the agent does with the assets and the funds over which the agent has control, and the new amendment puts some teeth in that requirement.
In a previous blog piece, A Word of Warning About Powers of Attorney, I cautioned that, “Powers of Attorney are a very useful tool, but they can be abused in the wrong hands. Powers of Attorney can also cause some very difficult issues to address for the agent who isn’t aware of or careful about the observance of the fiduciary requirements that the law imposes.” The new amendment heightens the need to be careful.
I have met with people on multiple occasions who have been charged with a breach of fiduciary duty for failing to maintain receipts and an accounting of how they have spent the funds as a power of attorney agent. Two of those situations involved their own parents.
In one case, criminal charges were leveled against a child who was the agent of her mother’s assets. Let’s call her Mary. Mary’s mother lived with her and her husband, and Mary took care of her mother. Mary’s mother was arguably capable of managing her own affairs, but she was used to her husband, who was deceased, paying all the bills. Mary’s mother wanted Mary to do it, and Mary was willing. The charges were alleged by another family member.
Mary didn’t realize that she was required to keep receipts and maintain an accounting. The Power of Attorney form has instructions in it that emphasis these requirements, but Mary didn’t read it closely enough to understand what she was getting in to when she agreed to be her mother’s agent.
As a consequence, when the police investigated, Mary had no records and, therefore, no proof of how she spent the funds withdrawn from her mother’s accounts.
To make matters worse, mom would often tell Mary or her husband to pay for their own meals when they dined out or to pay for gas from her account when they went on trips together. This is a problem because an agent authorized by a power of attorney is a fiduciary, and fiduciaries have a legal duty to refrain from “self-dealing”. That means an agent cannot benefit herself while exercising the authority given her in the power of attorney.
This is a very common scenario. People don’t appreciate the fiduciary duty that goes with being an agent for another person. There is danger associated with being an agent under a Power of Attorney without realizing and understanding fiduciary duty that goes with it. The fiduciary duty requires an agent to keep an accounting, to refrain from self-dealing, to be loyal to the interests of the principle, to be careful with the assets and to protect them and to use them only for the benefit of the principle.
The recent amendment to the Illinois Power of Attorney Act now provides more ammunition to family members who suspect wrongdoing and breach of fiduciary duty. If a family member asks for an accounting and receipts of expenditures, an agent must produce them within twenty-one (21) days. If the agent fails to produce them (or doesn’t have them), the family member can file a lawsuit. If a court finds that the agent failed to provide those records without good cause, the court can assess costs, attorneys’ fees and other relief against the agent.
These changes to the Power of Attorney Act up the ante for agents pursuant to Powers of Attorney. While these changes should give some comfort to family members who are concerned about financial abuse of their elderly loved ones, it greatly increases the liability for a well-meaning, but uninformed, agent who doesn’t know, understand and appreciate the gravity of the agency. It provides greater accountability, but it’s also a trap for the unwary.
The lesson here is not to take the legal authority created in a Power of Attorney lightly. Agency is a weighty legal responsibility. It requires some knowledge and understanding of the fiduciaries duties involved in being an agent (a fiduciary). If in doubt about what that in duty entails, seek the advice of an attorney who deals with Powers of Attorney.Kevin G. Drendel Drendel & Jansons Law Group 111 Flinn Street Batavia, IL 60510 (630) 406-5440 (630) 406-6179 fax [email protected] foxvalleyestateplanning.com