© 2016 Joan E. Emery
Drafting legislation can be difficult. Often, once a bill becomes a law, it takes several amendments to produce a law which is reasonably satisfactory. Although Article IVa of the Illinois Probate Act became effective on January 1, 2015, there are problems with this Article which should be addressed by the Illinois legislature.
When evaluating a law, it’s often helpful to ask, What have other states done? At least 3 other states have laws regarding financial abuse of elders by caregivers (and sometimes by others). California enacted a prohibition against gifts to people in fiduciary relationships with elders in 1993 and that prohibition has been expanded in several respects since 1993. The California statutory plan now protects dependent adults, not just elders. Nevada’s statutory plan also protects dependent adults. Maine has a statutory plan which only protects elderly, dependent persons. Each state has unique aspects to that state’s statutory plan to limit and, ideally, to prevent financial abuse of those who are not able to adequately protect their own financial interests.
Two key aspects of the California, Nevada and Maine statutes will be considered. The first aspect is, Does the statutory plan provide a specific way to negate the presumption of wrongdoing by the presumed financial abuser?
California has the most elaborate statutory plan for dealing with presumptively void transfers. Section 21382 of the California Probate Code excludes transfers to certain persons or entities and certain types of property transfers. A significant exception to presumption of wrongdoing is contained in Section 21384 of the California Probate Act, which provides that presumption does not apply if the transfer instrument is reviewed by an independent attorney who counsels the transferor regarding various aspects of the proposed transfer, attempts to determine if the proposed transfer is the result of fraud or undue influence, and completes and delivers to the transferor a Certificate of Independent Review.
Section 155.0975 of the Nevada Revised Statutes exempts transfers to certain persons or entities, certain types of transfers, and transfers which are determined by a court to be permitted transfers. Section 155.0975 also has a specific exception to the presumption if an independent attorney counsels the transferor about the proposed transfer, attempts to determine if the proposed transfer is the result of fraud, duress, or undue influence, and completes and delivers to the transferor a Certificate of Independent Review.
In contrast, section 1022 of Title 33 of the Maine Revised Statues requires the elderly dependent person (or that person’s representative) to raise the presumption of undue influence by a preponderance of the evidence. Apparently this means that the elderly dependent person must establish that there was a transfer of real estate or a major transfer of personal property for less than full consideration by an elderly dependent person to a person with whom the elderly dependent person had a confidential or fiduciary relationship. Section 1022 then provides that the presumption of undue influence arises, unless the elderly dependent person was represented in the transfer or execution by independent counsel.
It’s clear that each of these 3 statutory plans creates an exception to the presumption if the transferor was represented by independent counsel. The statutes do vary regarding what independent counsel is required to do in order to meet the requirements of the statutory exception.
As discussed in one of my earlier blogs, Senate Amendment 001 to Illinois Senate Bill 1048 contained a provision which stated that the presumption of void transfer did not apply if an independent attorney reviewed the transfer instrument and then certified that he or she was not associated with the interest of the transferee and had 1) reviewed the transfer instrument prior to it being signed, 2) counseled the transferor on the nature and consequences of the transfer, and 3) concluded that the transfer instrument was valid because it was not the product of fraud, duress, or undue influence. In my opinion, the attorney certification contained in Senate Amendment 001 went too far.
In California and Nevada, the independent attorney must 1) counsel the transferor about the nature and consequences of the potential transfer, 2) attempt to determine if the potential transfer is the result of fraud or undue influence (Nevada adds duress), and 3) execute the certificate of review (and California adds that the original certificate of review must be delivered to the transferor). In my opinion, a certificate of review by an independent attorney should be added to Public Act 98-1093, but the attorney should only be required to attempt to determine if the proposed transfer is the result of fraud, duress, or undue influence, not to state conclusively that the proposed transfer was not the result of the previously mentioned wrongful acts. The language of Senate Amendment 001 placed an almost impossible burden on an attorney to know conclusively that the transferee did not engage in wrongdoing.
Another significant problem with the Illinois statute is that if the presumption of void transfer is not rebutted, the entire transfer document is void. For example, under the current Illinois statute, if a will contains a gift to a caregiver, the presumption applies, and the presumption is not overcome, the entire will is void, not just the provision making the gift to the caregiver. In the other three states that have similar statutory plans, the language of these statutes is directed against the specific transfer and generally not against the entire transfer document. The Illinois provision should be amended to presume only that the gift to the caregiver is void and not the entire transfer document.
Illinois House Bill 3325, introduced on February 26, 2015, attempted to address this second problem. This bill substituted the word “transfer” in every place where the words “transfer instrument” appeared. House Bill 3325 also made some additional minor changes in P. A. 98-1093, but did not address the attorney certification problem. On the day that it was introduced, House Bill 3325 was referred to the Rules Committee and it never emerged from that committee. Since the Illinois legislature will deal almost exclusively with vetoed bills when the two houses reconvene after the election, it is virtually guaranteed that House Bill 3325 will not be voted on and will “die” in the Rules Committee. This bill may be reintroduced in the next general assembly, a substantially different bill may be introduced, or there may be no further attempts to change P. A. 98-1093 when the 100th General Assembly convenes in 2017. We can only wait and wonder.
Next time I will discuss the Illinois Fiduciary Access to Digital Assets Act. Do you have a topic you would like to see discussed in a future blog? If so, please put any appropriate topics in the Comments section provided below.
© 2016 Joan E. Emery
Article IVa is titled “Presumptively Void Transfers” and contains 7 sections. Article IVa includes the following sections: definitions; a presumption of void transfer; exceptions; effect on the common law; attorney’s fees and costs; a limit regarding the duty of financial institutions and others; and an applicability section. Article IVa was intended to protect persons receiving care from financial overreaching by certain caregivers.
Section 5/4a-5 defines the following 5 terms: caregiver; family member; transfer instrument; transferee; and transferor. “Caregiver” is defined broadly to include a person who has assumed responsibility for all or a portion of the care of another person who needs assistance with daily living activities. The caregiver may be paid or unpaid. Caregiver does not include a family member. “Family member” is defined as a spouse, child, grandchild, sibling, aunt, uncle, niece, nephew, first cousin, or parent. “Transfer instrument” is limited to a legal document which is intended to transfer property on or after the transferor’s death. It’s important to note that the concept of presumptively void transfers only applies to transfers intended to take effect on or after the death of the person who makes the property transfer to the caregiver. Thus, transfers which take effect during the lifetime of the transferor, although subject to other legal challenges, would not be subject to the rules imposed by Article IVa.
Article IVa’s presumption of void transfer is contained in section 5/4a-10. This section provides that, in a civil action challenging the transfer instrument, unless the exceptions of section 5/4a-15 apply, there is a rebuttable presumption that the transfer instrument is void if the transferee is a caregiver and the value of the transferred property exceeds $20,000. There are 4 requirements in order for the rebuttable presumption to apply: 1) the transferee must be a caregiver; 2) the value of the property must exceed $20,000; 3) there is a civil action challenging the transfer instrument; and 4) neither of the two section 5/4a-15 exceptions applies. A rebuttable presumption generally means that sufficient facts to prove a factual issue are presumed to have been proven without the need to produce any evidence. Since the presumption is rebuttable, the Article IVa presumption that the transfer instrument is void can be overcome if the caregiver produces sufficient evidence. But how much evidence is sufficient? Section 5/4a-15 provides some answers to that question.
Section 5/4a-15 states that the rebuttable presumption can be overcome if the caregiver proves to the court: 1) by a preponderance of the evidence that the caregiver’s share under the transfer instrument is not greater than the share the caregiver was entitled to under a transfer instrument in effect before the caregiver became the caregiver; or 2) by clear and convincing evidence that the transfer was not the product of fraud, duress, or undue influence. It is important to note that section 5/4a-15 presents two different standards of proof. If the caregiver received the same share under a transfer document in effect before the caregiver became the caregiver, then the standard is a preponderance of the evidence. A preponderance of the evidence standard would generally require the caregiver to present some evidence, which when viewed favorably to the caregiver’s position, would allow a reasonable trier of fact to conclude that the required factual element was proven. For example, proof of a prior will dated before the date when the caregiver became the caregiver should be sufficient proof. In contrast, the standard of proof required to overcome the presumption that the transfer is void due to fraud, duress, or undue influence is clear and convincing evidence, which is a higher standard of proof and requires the presentation of more relevant evidence in order to meet that standard.
If a person receiving care, who has sufficient mental capacity and is not subject to fraud, duress or undue influence, wishes to provide for a gift to a caregiver in excess of $20,000 which will take effect at or after death, then an effective way for the person to do so is for that person to meet with his or her independent legal counsel and express his or her wishes in regard to the caregiver. The client and his or her attorney can then decide how best to move forward to implement the plan. The presence of independent legal counsel who actively interviews his or her client, assesses competence, discusses options, memorializes the client’s wishes and motivations, and assists in implementing a plan, etc. will go a long way toward creating the proof needed to rebut the presumption that the transfer instrument is void. The attorney for the person who wishes to make the transfer must also consider the impact of various evidentiary issues.
Section 5/4a-20 provides that “nothing in this Article precludes any action against any individual under the common law, or any other applicable law, regardless of the individual’s familial relationship with the person receiving assistance.” Some of the common law actions which were and continue to be available are actions for fraud, duress, and undue influence.
It is relatively uncommon for an Illinois statute to provide for the payment of attorney’s fees and costs, but section 5/4a-25 specifically provides that if the caregiver is not successful in overcoming the presumption of void transfer, then the caregiver pays the costs of the proceeding, including reasonable attorney’s fees. This means that if the caregiver fails to overcome the presumption, the caregiver pays his or her attorney’s fees and costs and also the attorney’s fees and costs of the person who challenged the transfer instrument. As a practical matter, this section alone may be enough to cause most caregivers to give up and not seek to overcome the presumption. This may happen because the caregiver may think, “Litigation is uncertain. If I lose, I will pay all attorneys’ fees and costs and I will receive no funds with which to pay these potentially substantial costs.”
Section 5/4a-30 states that the rebuttable presumption (of section 5/4a-10) does not impose a duty on a financial institution, trust company, trustee or similar entity related to any transfer instrument. This language probably means that, for example, a bank does not have an affirmative duty to take some action simply because a payable on death account is established. The final section of Article IVa is section 5/4a-35 and this section limits the applicability of Public Act 98-1093 to transfer documents executed after the effective date of the Act, which was January 1, 2015.
For those who challenge property transfers to caregivers which take effect at or after the death of the person receiving care, new Article IVa of the Illinois Probate Act is a helpful asset protection tool. However, there are many situations that are not covered by Article IVa. For example, section 5/4a-5(2) excludes most family members from the presumption created by the Article and section 5/4a-5(3) excludes transfers which take effect during the lifetime of the transferor. A significant percentage of such improper transfers are “gifts” which take effect during the lifetime of the transferor and many improper transfers are to family members. If this is the case, then Article IVa will have no impact on many types of improper transfers.
Next time I will discuss some additional potential problems with Article IVa and how a pending Illinois House Bill addresses some of these additional potential problems.
© 2016 Joan E. Emery
On January 1, 2015, Article IVa was added to the Illinois Probate Act by Public Act 98-1093. Article IVa is titled “Presumptively Void Transfers” and contains 7 sections. Article IVa includes the following sections: definitions; a presumption of void transfer; exceptions; effect on the common law; attorney’s fees and costs; a limit regarding the duty of financial institutions and others; and an applicability section. Two of the most important sections of Article IVa are the presumption of void transfer (section 5/4a-10) and the exceptions (section 5/4a-15). In order to fully understand P. A. 98-1093, it is helpful to review some of the legislative history of this Act.
What problems were intended to be prevented by the passage of P. A. 98-1093? It’s very clear that P. A. 98-1093 was intended to protect disabled adults from financial fraud or undue influence by caregivers. Senate Bill 1048 was introduced on January 24, 2013 and it was actually a “shell bill” or “placeholder bill” because it contained one line of text and that line of text did not change anything. Shell or placeholder bills are introduced in order to satisfy the filing deadlines for new bills and the actual text of the bill is added at a later date.
Senate Amendment 001 was introduced on April 4, 2014. This amendment presented the concept of presumptively void transfers and contained 89 lines of text. Senate Amendment 001 modified the Probate Act definition of disabled adult. The existing definition of adult with a disability (section 11a-2 of the Probate Act) includes an adult with mental deterioration, physical incapacity, mental illness, developmental disability, and other specified health issues who is not able to manage his or her person or estate. Senate Amendment 001 broadened the definition of disabled adult to include an adult with mental deterioration, physical incapacity, mental illness, or developmental disability who is not able to manage his or her person or estate or is not able to resist fraud or undue influence. Additionally, Senate Amendment 001 defined “caregiver” very broadly and excluded from that definition only the spouse, and not other family members. Senate Amendment 001 also included a subsection which would have allowed the attorney for the person making the property transfer to certify that he or she had determined that property transfer document was not the product of fraud, duress, or undue influence. Although the text of these three provisions was not included in P. A. 98-1093, these provisions provide some clear guidance as to the original intent of the legislation.
Senate Amendment 002 was introduced on May 6, 2014 and it fine-tuned the original draft of Article IVa. For example, the definition of caregiver was changed to exclude most family members, the attorney certification option was deleted, and the definition of disabled person was deleted.
The final adjustments to Senate Bill 1048 were made by House Amendment 001, which was introduced on May 12, 2014. House Amendment 001 (1) deleted a provision which would have provided broad protection to asset holders such as financial institutions, trust companies and trustees who transferred assets in accordance with a transfer instrument, (2) deleted a provision which prevented the caregiver from overcoming the rebuttable presumption that the transfer was the product of fraud, duress or undue influence solely based on the testimony of that caregiver, (3) added language stating that the provisions of Article IVa were in addition to any other principle or rule of law, and (4) provided that the rebuttable presumption of section 4a-10 did not impose an independent duty on any financial institution, trust company, trustee or similar entity regarding any transfer instrument.
The main focus of P. A. 98-1093 is clearly on caregivers who take financial advantage of disabled adults. Although the some of the original concepts contained in Senate Amendment 001 were later modified by Senate Amendment 002 and House Amendment 001, the fundamental concept of Senate Amendment 001 remained the same – the goal was to prevent caregivers from improperly receiving the assets of adults who were not able to protect themselves from fraud or undue influence by their caregivers.
How does P. A. 98-1093 seek to prevent caregivers from improperly receiving the assets of adults they care for? Next time I will discuss the specific provisions of P. A. 98-1093.
I am an attorney practicing in the Chicago area.