In re Estate of Shelton, 2017 IL 121199

Background

Thomas and Doris Shelton executed nearly identical durable powers of attorney (POAs) naming each other as primary agents and their son Rodney as successor agent, with daughter Ruth Ann as successive successor.
POAs authorized an agent to sell principal's property after the principal became disabled; paragraph 8 made a successor effective “if and while” the primary agent was adjudicated incompetent, disabled, or certified by a physician as unable to handle business.
On December 1, 2011, Thomas executed two quitclaim deeds transferring farmland to Rodney and his wife; one deed conveyed Doris’s interest and was signed by Thomas individually and by Thomas as attorney-in-fact for Doris.
No adjudication of incompetence or contemporaneous physician certification for Doris existed on December 1, 2011. Later, a 2014 physician report opined Doris was incompetent as of December 1, 2011.
After both principals died in 2012, Ruth Ann (executor) sued Rodney on two theories: (1) Thomas’s estate sought relief under probate to set aside the conveyances as presumptively fraudulent because Rodney was Thomas’s agent; (2) Doris’s estate alleged Rodney violated section 2-10.3(b) of the Power of Attorney Act by failing to notify or protect Doris when Thomas (as her agent) breached his fiduciary duty.
Trial court dismissed both actions; appellate court split (affirming dismissal re Thomas’s estate, reversing re Doris’s estate). Supreme Court consolidated appeals.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a person named only as a successor agent owes a common-law fiduciary duty to the principal (Thomas’s estate)	Ruth Ann: Rodney was effectively Thomas’s agent because Doris was incompetent, so Rodney owed fiduciary duties and the transfers are presumptively fraudulent	Rodney: Successor agents have no authority or fiduciary duties until they become actual agents; he owed no duty on Dec. 1, 2011	Held: Successor agent owes no fiduciary duty until authorized to act; Rodney was not Thomas’s agent on Dec. 1, 2011, so no presumption of fraud on that basis
Whether a post hoc physician certification can retroactively establish that a primary agent was incompetent on the date of the transactions (Thomas’s estate)	Ruth Ann: The 2014 physician report shows Doris was incompetent on Dec. 1, 2011, triggering Rodney’s succession then	Rodney: POA language requires physician certification contemporaneous to or before the triggering date; later certification cannot retroactively activate succession	Held: POA’s “if and while … as certified by a licensed physician” is unambiguous; retroactive certification years later does not establish incompetence on the earlier date
Whether section 2-10.3(b) of the Power of Attorney Act imposes duties on a successor agent who has not yet become an authorized agent (Doris’s estate)	Ruth Ann: Statute appears in “Successor agents” section and should impose a limited statutory duty on successor agents to notify or act when they know of another agent’s breach	Rodney: Statute speaks of an "agent" (defined elsewhere); a successor who has not yet assumed authority is not an "agent" and thus not subject to 2-10.3(b) duties	Held: Section 2-10.3(b) applies to persons who are agents (i.e., authorized to act); it does not impose duties on mere successor agents before they become agents; complaint failed to state claim

Key Cases Cited

Clark v. Clark, 398 Ill. 592 (establishes that an attorney-in-fact under a POA is a fiduciary as a matter of law)
In re Estate of DeJarnette, 286 Ill. App. 3d 1082 (presumption of fraud when fiduciary benefits from principal’s conveyance)
In re Estate of Miller, 334 Ill. App. 3d 692 (burden shifts to agent to prove fairness by clear and convincing evidence)
In re Estate of Pawlinski, 407 Ill. App. 3d 957 (discusses transfers to agents and presumption of fraud)
Fort Dearborn Life Ins. Co. v. Holcomb, 316 Ill. App. 3d 485 (POA must be strictly construed to effectuate parties’ clear intent)