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a.  Bank Liability / Reliance on Authority of Guardian or Agent

Guardianship of Darrell Clark Jr., A Minor, Ohio Appellate Court, 2000 Ohio App. Lexis 4596 (2000). When a minor’s mother was murdered, a crime victims fund paid a guardian $47,500 for the minor’s benefit. The minor’s guardian was ordered to deposit the money in one bank, but placed it in a guardianship account in another bank, National City Bank. Although the Appellate Court found National City to be negligent in its release of all but a few hundred dollars to the guardian for inappropriate expenditures, the Court ruled that there was no actual bad faith on the part of the bank. The bank had authorized the initial deposit and subsequent withdrawals without having demanded a copy of the court’s judgment order or a copy of the documentation for the guardianship court appointment. In the absence of bad faith, the court held the bank to be without liability under the terms of the Uniform Fiduciary Act provisions adopted in Ohio law. Accordingly, the trial court’s finding of 75% liability on the part of the bank was overturned.

Rinehart v. Bank One, Ohio Appellate Court, 125 Ohio App. 3d 719, 709 N.E.2d 559 (1998). In a guardianship case, Glenn Parks was appointed guardian of the person and estate over his mother, and filed a guardian’s bond issued by Ohio Farmers for $245,000. With the appointment, the court issued letters of guardianship to Parks that contained the following language.

“The above-named Guardian (Parks) has the power conferred by law to do and perform all the duties of Guardian except as limited above; however no expenditures shall be made without prior Court authorization.”

The letters of guardianship also contained the following notice:

“Funds being held in the name of the within named ward shall not be released to the Guardian without a Court Order directing release of a specific fund and amounts thereof.”

After the appointment, Parks opened a guardianship checking account with Bank One, which included a debit card allowing the guardian to make purchases or obtain cash advances against the guardianship account. Over $73,000 was subsequently withdrawn without court authorization. Parks also withdrew nearly $30,000 from a separate account with another bank. After the court removed Parks and appointed attorney Rinehart as successor guardian, Ohio Farmers reimbursed the estate for over $100,000.

After obtaining a default judgment against Parks, who was judgment proof, Ohio Farmers turned to the bank for recovery. After debating whether Ohio Farmers had standing to pursue the claim, the court affirmed the probate court’s ruling that Bank One had no duty to exercise control over Parks’ spending of the Bank One account.

The appellate court agreed with the probate court’s view that “Bank One had every legal right to disburse the funds at issue without the (probate) court’s prior approval.” The probate court, with the approval of the appellate court, drew a distinction between the bank’s release of funds held in the name of the ward and funds held in the name of the guardianship. The real restriction on the guardian’s use of the funds was the probate court itself, through the Ohio guardianship statute’s annual reporting requirement and through the court’s authority to order an accounting at any time.

In Re Thomas Estate, Michigan Appellate Court, 536 N.W.2d 579, 211 Mich.App. 594 (1995). A Michigan bank was held to be jointly and severally liable to a ward's estate for misappropriation of funds by a guardian that occurred after the bank released money in estate accounts when the guardian presented a court order from a Vermont court directing release of the funds. The bank was on notice that a Michigan guardianship had been established, and the funds were on deposit in relation to the Michigan guardianship, which had not been terminated. The appellate court noted that there should have been a final accounting and resignation in the Michigan guardianship case before the assets were turned over pursuant to the Vermont guardianship case. The bank was surcharged for the loss, but the appellate court overturned the trial court's award of attorney fees against the bank.

b.  Bank’s Reliance on Purported Agency Agreement

In re Estate of Addie Davis v.Citicorp Savings n/k/a Citibank, Appellate Court of Illinois, 632 N.E.2d 64, 260 Ill.App.3d 525, 198 Ill.Dec. 5 (1994). A bank is not entitled to rely on provision of Power of Attorney Law that protects from liability persons who rely on an agency in good faith where the agency agreement in question was forged. As no real agency existed, the bank's reliance was unavailing.

Johnson v. Edwardsville National Bank & Trust Co., et. al, Appellate Court of Illinois, 594 N.E.2d 342, 229 Ill.App.3d 835, 171 Ill.Dec. 490 (1992). A bank may not rely on provision of Power of Attorney Law that protects from liability persons who rely on an agency in good faith where the agency agreement in question was forged. Banks still had a duty to use reasonable diligence to verify both fact and extent of agents' authority.

c.  Other Power of Attorney Issues

James R. Deason, Guardian of the Estate of Pauline Crider, a Disabled Adult, v. Sherry Gutzler, Robert W. Crider, and Estate of Robert E. Crider, Deceased, Appellate Court of Illinois, 622 N.E.2d 1276, 251 Ill.App.3d 630, 190 Ill.Dec. 959 (1993). When an agent enters into a transaction between the agent and the principal that benefits the agent, the transaction is presumptively fraudulent. To rebut the presumption, the agent must prove by clear and convincing evidence that the transfer was a gift. No presumption of a gift exists in a parent-child relationship or in a marital relationship. To determine the legitimacy of the gift, the intent of the principal should be examined, along with evidence of the benefit received by the principal.

d.  Management of Real Property

Guardianship and Protective Placement of Carl F. S., Wisconsin Appellate Court, 2001 WI App 97, 242 Wis. 2d 605, 626 N.W. 2d 330, 2001 Wisc. App. Lexis 209 (2001). Carl and his wife deeded their home to three of their children and a grandchild. The deed was contemporaneous with a lease, allowing Carl and his wife to pay annual rent of one dollar plus taxes, insurance, utilities and repairs for the duration of their lives. The lease could be assigned or sublet by Carl or his wife, without the consent of his ‘landlords.’ Carl’s wife died, and Carl became incapacitated. His guardian successfully petitioned the probate court for an order authorizing the abandonment of Carl’s leasehold interest, effectively giving the property to the children and grandchild, arguing that the estate could not afford the taxes and Carl was unlikely to go home. Carla, Carl’s daughter objected, and the appellate court reversed the trial court, finding that the trial court had failed to consider the alternative of renting the home for an amount at least equal to the amount of taxes, insurance, utilities, and upkeep. As the court held, “tenants almost always pay far more than that.” Before deciding the substantive issue, the court also noted that Carla had standing to pursue the appeal, over the objections of the guardian, because “without an interested party’s ability to protest a guardian’s gift of a ward’s property, often there would be no check on a guardian’s failure to follow the law.”

Olga Freeman, Incapacitated Person, vs. Wozniak, Michigan Appellate Court, 2000 Mich. App. Lexis 162 (2000). A trial court set aside a mortgage foreclosure sale and canceling a sheriff’s deed of sale. The appellate court overturned the trial court, finding that the ward, although incompetent due to dementia at the time of the foreclosure proceeding, could not allege fraud, accident or mistake, consistent with the terms of Michigan law. The ward’s conservator argued that it would be inequitable to allow the sale because the service of the foreclosure action on the ward was tainted, due to the ward’s disability, but the appellate court rejected the argument.

In the Matter of the Guardianship of Myrtle E. Mabry, Illinois Appellate Court, 666 N.E.2d 16, 216 Ill.Dec. 848 (1996). In planning for needs of a ward, transfer of wards' home should not be the first alternative considered. The ward's wishes should be considered, along with input from the guardian of the person, in determining what may be in the ward's best interest. Factors could include whether the ward would live in the home, sentimental value, reasonableness of the transaction from a financial standpoint, and the availability of other assets that could be used for the ward's care and support. While the estate guardian is charged with conducting the ward's litigation, its responsibilities generally go to the preservation of the ward's estate and not to his or her comfort, self-reliance, or independence. The legislature has decided the latter interests merit a separate guardian for their protection, and the courts must give them careful consideration.

In re Guardianship of McPheter, Ohio Appellate Court, 642 N.E. 2d 690, 95 OhioApp.3d 440 (1994). Guardian was held liable for damages of $16,800 for failure to rent or sell the residence of a ward who was in a nursing home with no reasonable prospect of returning home, even though guardian relied on the advice of legal counsel.

In re Estate of William A. Murphy, a/k/a Willard Murphy, Illinois Appellate Court, 514 N.E.2d 1225, 162 Ill.App.3d 222, 113 Ill.Dec. 214 (1987). Where guardian/son failed to properly account for the conveyance of a farm to himself and other siblings during court accounting, guardian has not fulfilled his duty to the ward to protect and manage the estate. Guardian must both explain the transaction and show that it was just and proper; a determination should have been made of the ward's capacity to make the conveyance, and whether the conveyance was beneficial to the estate.

e.  Testamentary Capacity

Estate of Helen Verdi, Deceased v. Toland, Indiana Appellate Court, 733 N.E.2d 25, 2000 Ind. App. Lexis 1147 (2000). Peggy Toland served as guardian of the person of Cecil Toon, who had executed a will before being adjudicated disabled that left his estate to his sister-in-law. One month after being adjudicated disabled, the ward was examined by a physician who found him to lack capacity concerning financial matters, and because of his dementia was easily influenced. Two months later, the ward executed a new will that left his estate in equal shares to his sister-in-law and niece/guardian. The appropriateness of the second will was upheld on summary judgment by the trial court. The appellate court overturned the trial court, and found that the trial court should have considered the material issues concerning the ward’s soundness of mind and testamentary capacity.

Estate of Gilbert Dokken, Deceased, South Dakota Supreme Court, 2000 SD 9, 604 N.W.2d 487, 2000 S.D. Lexis 8 (2000). Gilbert Dokken was under a Veteran’s Administration guardianship for most of his adult life, until his death in 1997 at age of 82. In 1985, he executed a will that left his entire estate to Myrtle Cross, his sister. His grandnephew, Lee Thomas, challenged the will, claiming undue influence and lack of testamentary capacity. He stood to inherit one half of an estate worth over $400,000.

Both the trial court and the Supreme Court agreed that testamentary capacity was established. Using principles of forensic psychiatry, a psychiatrist found that Dokken had not suffered from psychiatric symptoms during the years of 1978 to 1990, although he was still schizophrenic. His schizophrenia made him withdrawn and complicated his ability to have interpersonal affairs, but based on interviews with those who knew him, the Doctor concluded that Dokken had abilities consistent with testamentary capacity at the time of executing the will.

f.  Guardian/Conservator’s Right to Modify Trust Agreement or Engage In Trust Planning

In Re Guardianship of Ida Garcia, An Incapacitated Person, Nebraska Supreme Court, 262 Neb. 205, 631 N.W. 2d 464, 2001 Lexis 122 (2001). An attorney-conservator sought approval from a probate court to amend the terms of a trust agreement, to move the trust assets to a bank that would be more convenient for him. Although the trial court allowed the modification and the Supreme Court agreed that the trial court had the legal authority to do so, the Supreme Court reversed the trial court’s decision. The Supreme Court held that any modification should be based on clear and convincing evidence that the modification was necessary.

Estate of Naymat Ahmed, A Disabled Person, Illinois Appellate Court, 322 Ill. App. 3d 741, 750 N.E. 2d 278, 2001 Ill. App Lexis 370, 225 Ill. Dec. 697 (2001). Northern Trust Bank, as Guardian of the Estate of an Adult Disabled Ward with an estate in excess of $17 million dollars, sought approval of the Probate Court to transfer the corpus of the guardianship estate into a trust that would have been administered by Northern Trust. The Probate Court authorized only a partial transfer of funds, to establish a trust accessible to the ward’s family in an amount equal to the then applicable $675,000 federal estate tax exemption. An amendment to the Illinois Probate Act authorized a court to approve a guardian’s efforts to engage in tax planning to benefit the estate, or the application of funds not required for the ward’s current and future maintenance and support, or the execution of any or all powers over the estate and business affairs of the ward that the ward could exercise if present and not under disability. However, the statute made each of these options conditional on the approval of the court, and gave the court discretion in agreeing to such transactions. The appellate court upheld the Probate Court judges’ decision, finding it to be consistent with public policy, the legislative history and principles of statutory construction.

g.  Charitable and Other Giving to Reduce Estate Taxes

Estate of Lucille R. Devlin, Deceased United States Tax Court, Tax Court Memo Lexis 559 (1999). Decedent/ward’s guardian, while the ward was living, obtained authorization from a Nebraska probate court to make over $58,000 in cash gifts to the ward’s daughter-in-law and grandchildren. At the time of the ward’s death, the estate lacked sufficient assets to make the gifts, but after the death, other assets were liquidated and the gifts were made. The court found that the gifts were not completed in time, and that the gifts were subject to estate tax limitations, and a part of the gross estate for tax purposes. The court, citing authorities, noted that where the gift is one made out of an incompetent’s estate by court decree, the gift is not complete until delivery of the thing or money to the donee. The decree (court order) by itself does not pass title or give the donee anything.

In re Estate of Berry, Missouri Appellate Court, 972 S.W.2d 324, 19988 Mo. App. LEXIS 671 (1998). After Marion Berry was adjudicated disabled, a guardian was appointed for her person, and a conservator was appointed for her estate, valued at over two million dollars. When the conservator sought court permission to make charitable gifts on behalf of the estate in order to reduce estate taxes, the appellate court affirmed the trial court’s denial. The appellate court found that “a conservator may be allowed to continue an established pattern, or take reasonable steps to maximize the after-tax estate, but there is no authority for the representative to initiate a course of action which depletes assets to which others may become entitled for the sole purpose of reducing the tax collector’s share.

h.  Initiation of Cause of Action on Behalf of Estate; Statutes of Limitations

Gina Trimble Parks v. Raymond Konacki, et al., Illinois Supreme Court, 2000 Ill. Lexis 1212 (2000). Plaintiff alleged that she had been repeatedly raped and abused by her parish priest. She sued both the priest and the Catholic Diocese in a negligence action. Among other arguments made by the plaintiff was a claim that she was under a legal disability caused by the repeated actions of the defendant, and that the purported disability prevented her from taking legal action and should have tolled the statute of limitations. The Supreme Court rejected this argument, stating that the only manifestation of her alleged “legal disability” consists of an inability to file a civil complaint. Citing authorities, the court noted that one need not be adjudicated disabled to have a legal disability, but must have some argument that the disability is one contemplated by the legislature. With no legally sustainable disability status, plaintiff could not argue that the statute of limitations should be tolled.

Lindsey v. Harper Hospital, Michigan Supreme Court, 564 N.W.2d 861, 455 Mich. 56 (1997). A Michigan medical practice statute of limitations suspended the tolling period for claims where a person was incapacitated, until such time as a personal representative of the estate was appointed. The statute began to toll with the appointment of a temporary personal representative of the patient's estate, rather than when she was later appointed personal representative.

i. Guardian Liability – Accountings Held Not to Be Binding on Devisees Who Were Not Provided Notice

Guardianship and Conservatorship of Leo Borowiak, An Incapacitated and Protected Person, Nebraska Appellate Court, 10 Neb. App. 22, 624 N. W. 2d 72, 2001 Neb. App. Lexis 62 (2001). Devisees of deceased incapacitated person demanded of guardian/conservator financial records for over six years of conservatorship activity. The information demanded went well beyond the information presented in court accountings, which was presumably available to the devisees. The conservator had presented annual accountings over this period, but without notice to the devisees. The trial court denied the demand, finding that they were not interested parties in the conservatorship estate, as the ward had died, and that the accountings had been approved over the years and the conservatorship closed. The appellate court overruled the trial court, finding the devisees to be “interested persons” who were entitled to receive suitable records of the conservator’s administration from the beginning of the conservatorship. Since the devisees had not received notice of the accountings, they had no opportunity to appear and object, and make their demands in a timely manner. Accordingly, the accountings were held not to be binding on the devisees. The appellate court vacated the trial court order and remanded with instructions to order the conservator to provide the devisees with suitable records of the administration of the case from the time of its inception.

j. Liability of Estate for Ward’s Damages to Others/ Duty of Care to Others of An Institutionalized Person with Disability

Creasy v. Rusk, Indiana Appellate Court, 696 N.E.2d 442, (1998). In a case where a nursing assistant brought suit against a patient with a primary diagnosis of Alzheimer’s Disease for personal injuries sustained when the nursing assistant attempted to put the patient to bed. The reviewing court held that the trial court should consider the extent to which a patient with Alzheimer’s disease lacked capacity, to determine patient’s relative degree of fault. The trial court should also weigh the extent to which a caregiver knowingly incurred risk of personal injury, and whether the caregiver’s comparative fault exceeded that of the patient.

The public policy implications of imposing a duty on an institutionalized mentally disabled patient are dependent upon the degree of the patient’s incapacity. The greater the patient’s degree of impairment, the more the public policy concerns weigh against imposing a duty on him for the reasons set forth in Gould v. American Family Mutual Insurance Co., below. Whether a person is a child or an adult, that person’s mental capacity must be factored into the determination of negligence and the determination of whether a legal duty exists.

Gould v. American Family Mutual Insurance Co., Wisconsin Supreme Court, 543 N.W.2d 282, 198 Wis.2d 450 (1996). An Alzheimer's disease patient was not liable in negligence case to nurse for injuries from patients' pushing or striking nurse. In this case, the ward could not appreciate the consequences of his behavior, or have the capacity to control it. In addition, the court gave weight to the fact that a care giver in such a setting should be on notice as to the risk involved with providing care, noting that “when a mentally disabled person injures an employed caretaker, the injured party can reasonably foresee the danger and is not ‘innocent’ of the risk involved.” 543 N.W.2d at 287.

Burch v. American Family Mutual Insurance Co., Wisconsin Supreme Court, 543 N.W.2d 277, 198 Wis.2d 465 (1996). A 15-year-old who functioned at the intellectual and physical level of an average preschooler aged three to six was capable of negligence unless she was so functionally incapacitated that she was incapable of negligence as a matter of law. The tort-feasor-ward's mental capacity, without more, cannot be invoked to bar civil liability for negligence.

k. Insurance Issues

State Farm v. Burton Ewing, Jr., U.S. Court of Appeals, District of Minnesota, Case # 00-3380 (2001). Burton Ewing suffered from a bipolar affective disorder and schizoaffective disorder, with a history of mental illness dating to 1988. He was not under guardianship. During a psychotic episode, he killed his sister, who had visited him at the cabin where he lived, which was owned by his mother. The cabin was insured through a policy purchased by his mother through State Farm. The insurer declined coverage under a standard exclusion for intentional acts caused by an insured and also argued that Ewing was not an insured because he was not a part of the mother’s household. The District Court found that Ewing was a member of his mother’s household owing to his longstanding familial ties and high degree of dependence. The court also held that the conduct of a person with a mental illness may be considered to be unexpected and unintended for purposes of defeating the intentional acts exclusion in the mother’s homeowner policy. The Court of Appeals affirmed.

l. Duty to Protect Assets: Public Aid Spend Down and Burial Trusts

In re Estate of Dawn Calhoun, Illinois Appellate Court, 684 N.E.2d 842, 291 Ill.App.3d 839, 225 Ill.Dec. 851 (1997). Guardians must allow for having to pay off any Medicaid liens owed to the state before the balance can go into an OBRA payback trust, in order to shelter assets from a personal injury settlement.

In re Guardianship of Mary Jane Connor, Appellate Court of Illinois, 525 N.E.2d 214, 170 Ill.App.3d 759, 121 Ill.Dec. 408 (1988). Guardian had a fiduciary duty to ward to expeditiously obtain public aid; guardians' duty is similar to that of a trustee to a beneficiary; where guardians' failure to apply for benefits in a timely way resulted in loss to the estate and impoverishment of the ward, guardian could be required to reimburse estate up to the limit allowed under public aid.

m. Applications for Public Benefits; Medicaid Trusts

Wagner v. Ohio Dep't of Human Serves., Ohio Appellate Court, 2000 Ohio App. LEXIS 4545 (2000). Denial of Medicaid benefits for incompetent man was upheld as he was the beneficiary of a trust that was an available asset. He had a legal interest in the trust, a legal right to access the trust, and no restrictions for support use.

Carnahan v. Ohio Dep't of Human Serves., Ohio Appellate Court, 2000 Ohio App. LEXIS 4571, (2000). A retarded woman's mother established an irrevocable trust in excess of $500,000 that was funded solely with the mother’s assets. In an administrative hearing, the State of Ohio cancelled the retarded woman’s eligibility for Medicaid. The appellate court found that the trust should not have been treated as an available asset in determining her eligibility for Medicaid. Since the daughter was not the trustee, and she could not have revoked the trust and used the funds for her own benefit, and no payments had been made for health care.

n. Dependent Child Awards

Estate of Warren W. Degner, Deceased, Illinois Appellate Court, 518 N.E.2d 400, 164 Ill.App.3d 959, 115 Ill.Dec. 875 (1987). An adult disabled ward has a statutory right to money under the terms of Illinois statute providing for an award to all adult dependent children of a deceased with no surviving spouse, so long as the child can show an inability to maintain herself and the likelihood of becoming a public charge. Here, the ward was already supported by the Illinois Department of Public Aid, and had never shown an ability to support herself, having spent much of her life in institutions, dependent on public aid and the Social Security Administration to pay her care. According to the opinion, A(t)he ward was known to be retarded by the time she was six or seven. She also suffered a severe head injury while in elementary school. Apparently she was mistreated by her parents, beaten and scorned, and at the age of 20...thrown out of her parents' home.

o. Use of Totten Trust Funds

In re Estate of Peterson, Illinois Appellate Court, 431 N.E.2d 748, 103 Ill App.3d 481, 59 Ill.Dec. 247 (1982). Interest from Totten Trust assets could be used for care and support of the ward, as approved by the court, without defeating intent of settlor/ward or affecting the interest of a named beneficiary.