An agent pursuant to a power of attorney owes a fiduciary duty to the creator of the power of attorney (the “principal”) and is obligated to carry out the terms of the power of attorney with the highest degree of fidelity and good faith according to Illinois law. This fiduciary duty of power of attorney agents is extremely important. The fiduciary duties are as follows:
Duty to Account
An agent pursuant to a property power of attorney has a duty to maintain an accounting of the principal’s assets and accounts. The accounting does not need to follow any required form, as long as it fairly shows the true state of the assets and accounts. The accounting should show the value and kind of assets existing at the beginning of the accounting period, any accumulation of assets or income, any payments or distributions paid out and the current balance and inventory of assets. If the agent cannot provide a full accounting when requested, a presumption arises that the agent has breached his or her fiduciary duty.
Duty of Loyalty
An agent has a duty of absolute loyalty. That means that an agent must avoid all self dealing and to avoid actual conflicts of interest and even the appearance of a conflict of interest between the agent and the principal involving the principal’s assets and accounts. Even when a transaction between an agent and the principal appears to be reasonable, and even if the parties consent to the transaction, any benefit to the agent derived from dealing with the principal’s assets and accounts is presumed to be a violation of the fiduciary duty. An agent may not even put himself or herself in a position where his or her own interest will be in conflict with the principal’s interests. If an agent discovers a conflict, the agent must resign or take steps to remove the conflict. Good faith is not a defense to an agent’s self dealing. One exception is the agent’s right to fair compensation for acting as an agent pursuant to a power of attorney.
Duty to Protect, Preserve and Maintain
An agent pursuant to a power of attorney has a duty to protect the assets, which may include maintaining insurance thereon, and a duty to preserve and maintain the assets in good condition.
Duty to Disclose
A fiduciary has a duty to reveal material facts to people who have some interest in the principal’s affairs and to anyone who has a lawful right to information of the principal’s affairs.
Duty to Perform Tax Filings
An agent has a duty to file all income and estate tax returns and to pay all appropriate taxes owed by the principal.
Duty of Confidentiality
An agent has a duty to maintain confidentiality in regard to the principal and the principal’s affairs. Unauthorized disclosure of the principal’s information may a breach of that duty.
Duty to Properly Invest
If the principal has investment accounts, an agent has a duty to oversee those investments. The standard that applies is the “prudent investor” rule. The prudent investor rule obligates an agent to invest and manage the assets as a prudent investor would, considering the purposes, terms, distribution requirements and other circumstances of the assets. This duty requires the exercise of reasonable care, skill and caution in overseeing the investments, to minimize risk, and to maximize return on the investments. The duty includes an obligation to diversify unless there is some specific reason why diversification would not be prudent. It includes a duty to review the assets and make ongoing decisions regarding retention and disposition. It requires a strategy for investment considering production of income and safety of the capital, keeping in mind general economic conditions, possible effects of inflation, expected tax consequences, expected total return, and minimization of cost. (The prudent investor rule can be modified by the trust document).
There is duty not to delegate. An agent cannot delegate any powers requiring exercise of judgment or discretion. There are, however, two exceptions: (1) the investment decisions can be delegated; and (2) ministerial duties can be delegated. Even if an agent delegates investment and ministerial decisions, an agent still has an obligation to exercise reasonable care, skill and caution in selecting the agent to whom those tasks are delegated, to review the agent’s background, experience, etc. The bottom line is that an agent cannot simply delegate all administration and walk away from liability. The fiduciary duty of power of attorney agents is key.
In conclusion, an agent pursuant to a power of attorney owes the highest standard of care toward the principal that is recognized in the law. As a rule of thumb, an agent should exercise the same diligence, care and loyalty for the principal’s benefit that he/she would exercise in regard to the agent’s own assets and accounts. An agent has a duty to preserve, protect and maintain those assets and account. If some assets/accounts are investments, the agent must observe the Prudent Investor Rule. Above all, the agent must exercise the authority given for the benefit of only the principal and to refrain from any and all forms of self-dealing.
As a post script ~ a fiduciary duty applies any time a person stands in a position of trust in respect to another person who has placed trust in the fiduciary to act in their best interests. Fiduciary duties arise by operation of law with certain dealings (like attorney/client) but also arise from facts and circumstances, particularly when the person placing trust in another is elderly, infirm, of tender age, under disability or in a position of vulnerability.