Disability and Accountability for Negligence (Illinois)

By Matthew A. Quick The court in Glavinskas v William L Dawson Nursing Center, Inc, held that a disabled person is not accountable for negligence of his representatives. The disabled person's guardian and attorney in a personal injury suit did not adequately protect the disabled person's interests and the court allowed the disabled person to pursue their claim regardless of the negligence of the guardian and attorney.

The Estate, Issue Nine

By Matthew A. Quick Probate

Probate is the legal process of settling the estate of a deceased person. Settling a decedent’s estate involves making claims on behalf of the estate (collecting money owed to the decedent, bringing medical malpractice claims, etc.), resolving all claims against the estate (paying creditors, responding to lawsuits, etc.), distributing the property in the estate after all claims are made and resolved (distributions are made pursuant to a Will or the statutory rules of intestate succession), and addressing the guardianship of any minor children or other dependents (guardians are appointed in a Will or determined by statutory rules of guardianship).

Probate can be costly and time consuming, but it is not the same process with all decedent’s estates. Some estates do not require probate if there is no property to be distributed. An estate can be left with no property to be distributed, thus avoid probate, if the decedent’s property is not owned solely by the decedent upon his or her passing. Instead of the deceased owning property solely, he or she could hold property in a trust, jointly with another person, or provide a pay-on-death (referred to as “P.O.D.”) or transfer-on-death (referred to as “T.O.D.”) designation.

To own property in a trust, the person setting up the trust (referred to as the “Settlor”) transfers ownership of property to a Trustee based upon certain terms and conditions that are listed in a Trust Declaration. The terms and conditions of a Trust Declaration are instructions that the Trustee is bound to follow in maintaining or investing the Trust Property. One of the terms of the Trust Declaration is how the property that is being held in the Trust is distributed after the Settlor’s passing. Since the Trustee, not the Settlor, owns the property when the Settlor passes, the Settlor will have no property to be distributed through probate, thus negating the need for probate.

Joint ownership is another effective way to avoid probate. Joint ownership occurs when more than one person owns property at the same time, but each has a right of survivorship. Therefore, when one of the owners passes the other owners continue to own the property without the need for probate. Typically, we see joint ownership with real estate and deposit accounts (checking accounts, savings account, etc.).

Probate can also be avoided by setting up P.O.D. or T.O.D. designations on bank accounts, shares of stock, brokerage accounts, 401ks, IRAs, automobiles and life insurance. Any property that has a P.O.D. or T.O.D. designation will pass automatically to designated beneficiaries upon the passing of the owner of the property. P.O.D and T.O.D. designations differ from joint ownership because once someone is made a joint owner they are an owner and have equal right to control the property. Conversely, if P.O.D. and T.O.D. designations are used, the owner of the property retains control of the property until the date of his or her demise, at which time the property is transferred.

If property is owned solely by the decedent upon his or her passing, then the property must be distributed through probate. Estates that must endure probate will follow one of three general processes: (1) that of a testate estate; (2) that of an intestate estate; or (3) that of a small estate. A testate estate is one that follows directions of a valid Will when being administered. An intestate estate is one that does not follow the directions of a Will, but follows statutory rules of administration. A small estate is one that the legislature considers small enough to administer through a summary proceeding, which typically involves very limited, if any, contact with a court. In Michigan, the threshold for a small estate is $15,000 remaining in the estate after debts and expenses have been paid. In Illinois, the threshold for a small estate is $100,000.

The first step to probate a testate estate is to start a case with the Probate Court, which has special jurisdiction over cases involving estates and guardianship. The Probate Court will determine the validity of the Will and appoint a Personal Representative for the estate. The Personal Representative is typically nominated in the Will (when dealing with a testate estate the personal representative is also called an executor (male) or executrix (female)). Through, and with the power of, the Probate Court, the Personal Representative collects and inventories all of the property in the estate, pays any debts, taxes and expenses, follows the instructions of the Will regarding guardianship of any dependents and distribution of property, and adjudicates the interests of interested parties who may have claims for or against the estate.

The first step to probate an intestate estate is to also start a case with the Probate Court, but instead of determining the validity of a Will (since there isn’t one) the Probate Court will nominate and appoint a Personal Representative for the estate (when dealing with an intestate estate the personal representative is also called an administrator (male) or administratrix (female)). Like testate estates, the Personal Representative will act through and with the power of the Probate Court, however, rather than following the instructions of a Will, the Personal Representative must administer the estate in accordance with the laws of the state where the decedent resided at his or her death. This means that the estate must be distributed to the heirs named by the laws regardless of their relationship or kinship to the decedent. In sum, the intestate process takes all control out of the hands of the decedent’s family to distribute property or decide which person should be named guardian of minor children.

After all of the claims against the estate are paid, the claims for the estate are made, and the property that made up the estate is distributed, the case involving the estate is closed. From opening the case to closing the case, probate generally lasts several months, in some instances over a year, and incurs substantial court and attorney costs. To avoid the time, cost and publicity involved with probate it is imperative to organize an estate in a manner that will not require a lengthy court case, but will allow for a seamless transfer of ownership.

Powers of Attorney and Living Wills (Illinois)

By Matthew A. Quick A health care power of attorney appoints an agent to act on a patient's behalf when he or she is unable, pursuant to a list of directives. On the other hand, a living will sets out a list of wishes, but does not give anyone the power to act on a patient's behalf (akin to a note to the doctor). Pursuant to Illinois law, if an agent is acting under a health care power of attorney, a living will is rendered inoperative. 755 ILCS 45/4-11.

Court Revoking Real Estate Contract for Disabled Person (Illinois)

By Matthew A. Quick In light of the recent holding in Perry v The Estate of Irene Carpenter, equitable considerations are a proper basis for a court to set aside a contract for sale of a disabled person's home, especially where circumstances indicate fraud and unfairness. As held in previous cases, “Courts are under a duty to protect the interests of a minor or a disabled person who is party to the judicial proceedings before it.” Valdovinos v Luna-Manalac Medical Center, Ltd, 328 Ill App 3d 255, 272; 764 NE 2d 1264, 1277 (2002). “Gross inadequacy of price is not of itself sufficient to set aside a judicial sale, yet when such inadequacy is shown, coupled with slight circumstances indicating unfairness or fraud, either upon the part of the officer, the purchaser or the party to the record benefitted by the sale, it will be sufficient for equitable intervention.” Milner v Denman, 21 Ill 2d 182, 190; 171 NE2d 654, 658 (1961); quoting Rogers v Barton, 386 Ill 244, 250; 53 NE2d 862, 865 (1944).

Convenience Accounts (Illinois)

By Matthew A. Quick Public Act 96-123 creates the Banking Convenience Account for Depositors Act, which permits a convenience account holder (or someone to accommodate the transfer of funds) to be added to a deposit account. In practice, this means the financial institution may pay out of an account to the convenience account holder without affecting the title of the deposits (the convenience account holder is not considered to be a joint owner in the deposit account). This Act is effect January 1, 2010, but is automatically repealed January 1, 2015.

Do-Not-Resuscitate Orders (Illinois)

By Matthew A. Quick The Health Care Surrogate Act with regard to a Do-Not-Resuscitate Order (also known as a "DNR"), to wit, Chapter 755 of the Illinois Compiled Statutes, Act 40, Section 65, now only requires one witness to the signing of the Do-Not-Resuscitate Order instead of two witnesses; but requires the witness to attest that the person executing the Do-Not-Resuscitate Order had the opportunity to read the Do-Not-Resuscitate Order. These changes shall become effective January 1, 2010.

The Prudent Investor Rule (Michigan)

By Matthew A. Quick The actions of a personal representative, guardian, conservator or trustee, or a successor of them, are governed by the Michigan Prudent Investor Rule, unless specifically excepted or restricted. MCL 700.1501, et seq; MCL 700.1104(e); MCL 700.1502. The Michigan Prudent Investor Rule, to wit, MCL 700.1502(1), provides:

A fiduciary shall invest and manage assets held in a fiduciary capacity as a prudent investor would, taking into account the purposes, terms, distribution requirements expressed in the governing instrument, and other circumstances of the fiduciary estate. To satisfy this standard, the fiduciary must exercise reasonable care, skill, and caution.

The Michigan Prudent Investor Rule continues:

A fiduciary's investment and management decisions with respect to individual assets shall be evaluated not in isolation, but rather in the context of the fiduciary estate portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the fiduciary estate. MCL 700.1503(1).

To achieve this goal, the following considerations are encouraged: (1) The present general economic conditions; (2) Any possible effect of inflation or deflation; (3) The expected tax consequences of an investment decision or strategy; (4) The role that each investment or course of action plays within the overall portfolio, which may include financial assets, interests in closely-held enterprises, tangible and intangible personal property and real property; (5) The expected total return from income and the appreciation of capital; (6) Other resources of the beneficiaries; (7) The need for liquidity, regularity of income, and preservation or appreciation of capital; and (8) An asset's special relationship or special value, if any, to the purposes of the fiduciary estate or to one or more of the beneficiaries. MCL 700.1503(2). In light of these considerations, a person who is subject to the Michigan Prudent Investor Rule must (1) Make a reasonable effort to verify facts relevant to the investment and management of fiduciary assets; and (2) Invest in any kind of property or type of investment consistent with the standards of the Michigan Prudent Investor Rule. MCL 700.1503(3) and (4). In addition, those with a special skill or expertise, or those that are appointed to act because they represented a special skill or expertise, must use that special skill or expertise when investing or managing assets. MCL 700.1503(5).

Once appointed as a personal representative, guardian, conservator or trustee, or a successor of them, one must inventory the assets over which he or she has control and implement a plan to bring the assets into compliance with the wishes of the owner of the property, or court order, as well as any other requirements of the Michigan Prudent Investor Rule concerning the retention and disposition of the assets. MCL 700.1505. In implementing a plan, one must invest and manage the assets solely in the interest of the beneficiaries. MCL 700.1506. This requires diversification of the assets (unless it is determined that, because of special circumstances, the purposes of the fiduciary estate are better served without diversifying) and, in the event there are two or more beneficiaries, impartiality between the beneficiaries (the investment and management of the assets must reflect any differing interests of the beneficiaries). MCL 700.1504 and MCL 700.1507.

The prudence of a particular investment is not inherent. MCL 700.1503(4). Compliance with the Michigan Prudent Investor Rule is determined in light of the facts and circumstances that exist at the time of the decision or action, and not by hindsight. The Michigan Prudent Investor Rule requires a standard of conduct, not outcome or performance. MCL 700.1509.

One that has been appointed a personal representative, guardian, conservator or trustee, or a successor them, may delegate the power to invest and manage the assets, so long as delegation has not been restricted. In the event one wishes to delegate his or her appointed duties, he or she must exercise reasonable care, skill, and caution in all of the following: (1) Selecting an agent; (2) Establishing the scope and terms of the delegation, consistent with the purposes and terms of the property owner's wishes or court order; and (3) Periodically reviewing the actions of the person that received the power to monitor his or her performance and compliance with the terms of the delegation. MCL 700.1510. If one who delegates his or her appointed power does so with the required care, skill and caution, he or she is not liable to the beneficiaries, or to the owner of the property, for a poor decision or action of the person who received the delegated power.

Please note: If a question arises regarding whether a contemplated investment decision is permissible under the Michigan Prudent Investor Rule, a petition to the Probate Court for authorization may be made.

Guardian v Conservator of an Adult (Michigan)

By Matthew A. Quick When people cannot care for themselves, others are required to help. If Powers of Attorney, Patient Advocate Designations or Living Wills have not been executed (meaning no one has been appointed to help) then people must rely upon a Court to select someone. A Court will choose anyone who is suitable and willing to serve and will designate them a Guardian or a Conservator, or both (a Guardian and a Conservator could be the same person or entity, or different people or entities). MCL 700.5313 and MCL 700.5409.

A Guardian is a person who has been qualified and appointed by the Probate Court to act on behalf of a ward with respect to personal care and custody. A ward, in most adult instances, means an incapacitated individual. An incapacitated individual is a person who, by definition, “is impaired by reason of mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, or other cause, not including minority, to the extent of lacking sufficient understanding or capacity to make or communicate informed decisions.” MCL 700.1105.

A Conservator is a person who has been qualified and appointed by the Probate Court to act on behalf of another person with regard to their property and financial affairs. The appointment of a Conservator is appropriate if both of the following exist: (i) The person for whom a conservatorship is sought is unable to manage their property and financial affairs due to mental illness, mental deficiency, physical illness or disability, chronic use of drugs, chronic intoxication, confinement, detention by a foreign power or disappearance; and (ii) The person for whom a conservatorship is sought has property that will be wasted without proper management, requires financial support or welfare or has a dependent that requires financial support or welfare. MCL 700.5401.

In sum, a Conservator does not have the power to consent to personal care and custody; and, if a Conservator is appointed, a Guardian does not have the power to consent to the care of property and finances.

As a practical note, to avoid the time and expense of guardianship and conservatorship proceedings, advanced directives, such as Powers of Attorney, Patient Advocate Designations and Living Wills, should be executed prior to incapacity. Not only do these documents allow someone the power to designate their own caretakers, but they also allow for instructions to be given as to care.