APRIL 11, 2011 VOLUME 18 NUMBER 13
The Montana Supreme Court identifies him as “J.R.” to protect him from public identification, but it is possible to get quite a feeling for him, his family and the two different conservators appointed to handle his finances. In 2006, when the legal proceedings started, J.R. was 78 years old. His wife had died three years earlier, and J.R. had become confused and vulnerable. He had five children (and three step-children); one of them, his daughter Marsha, had filed a petition asking the court to appoint a conservator to handle her father’s assets.
Just before the hearing on the petition another daughter, Robin, arrived from her home in Massachusetts and took J.R. back to live with her. She did not tell either the lawyer representing Marsha or the lawyer appointed to represent J.R. himself. It would not be her final failure to cooperate with the Montana courts.
A probate judge in Helena appointed a local private case manager as J.R.’s conservator. Seven months later she asked the judge to relieve her from the role. She could not discharge her obligations, she told the judge, because persistent family interference and undermining of her actions made it impossible to protect J.R. or his estate.
The new conservator was a Helena CPA, Joseph Shevlin. The judge chose Shevlin partly because he had a long career and excellent reputation in the accounting practice, and he was known for his estate planning expertise.
J.R.’s assets included a Helena condominium filled with his personal property, plus a brokerage and a bank account. Mr. Shevlin was instructed to sell the condo and to use J.R.’s money to help pay for his care. The judge specifically instructed Mr. Shevlin not to provide any of J.R.’s money to his family members unless it was for his direct care.
Two years later several of J.R.’s family members (and J.R. himself) filed petitions seeking to transfer the conservatorship to Massachusetts, to direct Mr. Shevlin to create a trust and transfer J.R.’s assets to the trust, to remove Mr. Shevlin as conservator, and to order him to return fees he had collected during his tenure. The probate judge held three days of hearings on those requests (and Mr. Shevlin’s objections), and ultimately entered orders removing Mr. Shevlin as conservator, appointing J.R.’s brother as successor, approving Mr. Shevlin’s accountings and dismissing claims of breach of fiduciary duty.
J.R. appealed to the state Supreme Court, which affirmed the probate judge’s orders. The appeal raised several legal issues:
J.R.’s attorneys’ failure to call an expert witness to testify about Mr. Shevlin’s standard of care. Although every fiduciary is held to a high standard, professionals serving as fiduciaries are required to use any specialized skills. Mr. Shevlin argued that this meant a challenge to a conservator who is also a CPA meant that an expert witness was required to provide testimony as to the standard of care and any breach. The trial judge agreed, but the Supreme Court did not. No expert testimony was required when the complaints, as here, did not touch on specialized skills. Still, the high court noted that J.R. had not met the standard of proof required anyway — and so the probate judge’s misreading of the law was of no moment in his case.
The probate judge had removed Mr. Shevlin as conservator, and J.R. argued that by itself demonstrated that he had acted inappropriately. Not so, ruled the appellate court — in this case, the removal was clearly because it was in the best interests of all parties and not because of any wrongdoing by Mr. Shevlin.
J.R. complained that Mr. Shevlin had not provided funds for his care; that the condo had been held for too long before sale and ultimately sold at too low a price; that Mr. Shevlin should have agreed to transfer J.R.’s assets to a trust in Massachusetts (to be managed by his daughter Robin and a Massachusetts lawyer retained to help get J.R. qualified for public benefits). The trial judge considered each of those allegations and determined that there were good explanations for Mr. Shevlin’s actions, and that his work was made incalculably more difficult by J.R.’s family’s refusal to recognize the conservatorship or cooperate with him. None of them merited requiring Mr. Shevlin to return his fees, and they were not the basis for his removal. The Supreme Court agreed.
More significantly, Mr. Shevlin (a) did not file an inventory, as every conservator is supposed to do within 90 days, and (b) did not file his first annual accounting until 19 months after his appointment, and (c) sold some of J.R.’s personal property (apparently furniture from his condo) to himself. The trial court had disapproved of each of these actions, but ultimately decided that they did not harm J.R. The first conservator had filed an inventory (though it did not include personal property in the condominium) and J.R.’s daughter Robin had demonstrated that she was very familiar with the condo’s contents. The accounting was late, but it included voluminous explanations and backup. The sale of personal property to himself clearly violated a conservator’s duty not to permit conflicts of interest, but the items had been identified as things that might be abandoned or sold rather than shipped to Massachusetts, and Mr. Shevlin did pay full value. All in all, agreed the Supreme Court, these lapses did not rise to the level that would authorize ordering Mr. Shevlin to return his fees or to remove him for cause.
J.R. objected both to Mr. Shevlin’s fees and those of the attorney he hired to represent him in the dispute. As to the former fees, the probate judge ruled that his rates were reasonable, the amount of work and time necessary, and his actions appropriate. As to the latter, the probate judge found that it was necessary to retain counsel to deal with a contentious proceeding and that those fees should be paid from J.R.’s estate. The Supreme Court agreed on both counts, noting that “a large number of Shevlin’s fees and those of his counsel were attributable to the failure of some of J.R.’s children to cooperate with or even recognize the existence of the conservatorship.”
In the Matter of the Conservatorship of J.R., 2011 MT 62 (April 5, 2011).
MARCH 21, 2011 VOLUME 18 NUMBER 10
Rebecca Susan Blair had practiced law in Cleveland, Ohio, since 1986. When the local probate court appointed her to take over as a successor guardian (of the estate — what we in Arizona would call a conservator) early in 2005, she had a good reputation and seemed to be responsible.
In most jurisdictions lawyers are required to maintain a separate bank account to hold client funds, usually only for short periods of time. Sometimes it does not make economic sense to set up a separate account for the client’s funds, and the interest earned for the client in a separate account would likely not even cover the costs of opening and monitoring the account. Those accounts are usually called “client trust” accounts; in some jurisdictions, any interest earned on such an account is paid to a charitable foundation set up by the state bar association. That is the case in Ohio, where Ms. Blair practiced, and in Arizona.
Client trust accounts are not a substitute for separate fiduciary accounts for money managed by a guardian or conservator who happens to be a lawyer. And client trust accounts have scrupulous management and accounting requirements — it is impermissible, for instance, to mix the lawyer’s own funds with the client trust account funds. It is also a violation of ethical rules to ever allow a client trust account to be overdrawn — or even to fall below the level necessary to protect each and every client deposit in the account. As just two examples, even a stop-payment fee, or the charges for new checks, must be paid out of the lawyer’s operating account and never out of the client trust account.
Ms. Blair seems to have started out fine with her ward’s funds. She took in $30,000, placing it temporarily in her client trust account. She had already earned fees from the estate, and she promptly wrote herself a check for those fees. Then she left the money in her client trust account for two months (mistake #1) until she began writing checks out of the account to herself (mistake #2) totaling $33,150, which left her client trust account overdrawn (mistake #3). Within eight months of her initial appointment she had used all of her ward’s money for herself.
It took the probate court two years to begin demanding an accounting from Ms. Blair. She kept putting the probate judge off, filing eight separate requests for one-month extensions of her reporting requirements rather than confessing to her misdeeds (mistake #4). Near the end of that cycle, one of her employees prepared a falsified document indicating that the ward’s share of her client trust account was about $5,000 less than it really was; the employee forged Ms. Blair’s signature, secured a notarization and filed it with the court. Ms. Blair was ultimately held responsible for failure to supervise her staff closely enough to prevent the forgery (mistake #5).
Ms. Blair continued to practice law, and by the end of that final year (three years after her initial appointment) she had accumulated over $20,000 of earned fees on other cases in her client trust account. She repaid her ward $16,972.83 plus an additional $2,000 to compensate the ward for the interest that might have been earned if the funds had been properly held in a separate account.
Not surprisingly, a complaint was filed alleging that Ms. Blair had violated her ethical duties as a lawyer. She acknowledged that she had, and agreed that sanctions should be imposed. She and the Disciplinary Counsel (responsible in Ohio for maintaining lawyer discipline cases) agreed to submit her case on stipulated facts and with an agreed-upon sanction.
How severe should Ms. Blair’s discipline be? The stipulation called for a one-year suspension from the practice of law, but with six months of that suspension “stayed.” That would mean that Ms. Blair would be unable to practice law at all for six months, and for another six months she would be monitored by the bar while practicing.
Ms. Blair acknowledged that she had been diagnosed as suffering from a major depressive disorder, and she also was alcohol-dependent. Her probationary period would require her to maintain her mental health and alcohol treatment programs, take continuing legal education classes on office management and avoid any further disciplinary actions.
When the stipulated suspension was submitted for formal approval, however, the disciplinary authorities ruled that Ms. Blair’s one-year suspension with a six-month stay was too mild. They insisted on a two-year suspension — though with an 18-month stay. The practical effect: Ms. Blair will be unable to practice law for the same six months, but her probationary period thereafter will last for a year and a half rather than just another six months. Disciplinary Counsel v. Blair, Ohio Supreme Court, February 24, 2011.
Ms. Blair’s legal troubles (and bar discipline) points out a related issue. Although her problems were known in 2007 and the formal disciplinary proceedings were begun in 2009, as of this writing (at least two years into the disciplinary process and a month after the formal order suspending her), Ms. Blair continues to appear in internet-based evaluations as actively practicing and strongly rated by her peers. She is shown as having an “AV” rating by Martindale-Hubbell, the oldest and best-known lawyer rating service. Interestingly, her client ratings are a much-lower 1.0 out of 5.0 (that may be the lowest possible rating), though without any explanation. Martindale.com cheerfully provides a link to Ms. Blair’s website, which (in turn) advises the reader “New Web Site Coming Very Soon!”
But on Avvo, another lawyer rating system, Ms. Blair already appears as having been “cited for professional misconduct.” Her rating, if she had one prior to the suspension, does not appear as of this writing. Instead a red icon flags it for “!Attention”. No link appears to her individual web address.
What is our point? That it can be very difficult to get complete, up-to-date and accurate information about lawyers. We suggest checking multiple online listings, looking at the lawyer’s online presence, checking state bar websites and asking friends and colleagues for their personal experiences.
APRIL 26, 2010 VOLUME 17, NUMBER 14 A power of attorney is one of the most important, powerful and dangerous documents you will ever sign. Why is it important? Because your family has no inherent right or power to handle your finances in the event that you become incapacitated. Why is it dangerous? Because it is literally a license to steal.
Of course the agent named in your durable power of attorney is not supposed to steal from you. In fact, he or she can go to jail for doing so. But the whole point of the power of attorney is to make it easier for someone to handle your finances without court oversight, and without having to answer to banks or others. Too often agents abuse those powers of attorney.
So why is it important for you to sign a power of attorney? Because the alternative is, for most people, even more disturbing. Your family members and even your most trusted advisers are not able to handle your bank accounts, pay your bills, buy or sell property or protect against abuses by others — unless you have given them authority to do so in an appropriate document. That usually means a power of attorney.
There are alternatives, of course. You could create a living trust, name a successor trustee and transfer your assets into the trust. That may make it a little bit easier for your successor to handle your assets, but it does not provide any additional protection. You could simply add a trusted person to the title on each of your accounts — but that provides even fewer safeguards, and exposes your property to claims leveled against the now-joint owner of your assets.
Or you could simply hope never to need anyone to act on your behalf. Then when someone needs to act they will have to go through the process of securing a conservatorship over your estate (what some states call a guardianship of your estate). That provides better protection, but perhaps at a greater cost than you want to incur — and it means the court, rather than your family member or trusted adviser, having the ultimate authority.
That is why almost everyone we counsel ends up signing a durable power of attorney. That is also why it is so critical to make sure you have selected your agent carefully, warned them about the limitations on their authority, and provided them enough information so that they can act appropriately.
When the courts appoint a guardian or conservator to handle an individual’s personal and/or financial affairs, the subject of those proceedings loses virtually all of his or her autonomy and independence. At least that’s the way things have worked for centuries. In recent years, however, the guardianship system in this country has seen a small but detectable shift toward the use of “limited” guardianship and conservatorship.
Missouri law, for example, encourages a finding of “partial” incapacity rather than requiring a determination that a ward is completely incapacitated. To the extent that the ward is able to handle his or her own affairs, a finding of partial incapacity permits the court to limit the powers and responsibilities of the guardian or conservator.
That was the approach taken by the court with Elliott Scott Rogers, whose stepdaughter Donna Gardner sought appointment as guardian and conservator after Mr. Rogers had a stroke. By the time of the hearing Mr. Rogers had improved considerably. The court appointed Ms. Gardner as limited guardian and conservator, and spelled out some of the limitations on her powers. Ms. Gardner was to help transport Mr. Rogers to medical appointments, admit him to the hospital if necessary, and to assist in paying bills, writing checks and managing finances.
Over the next six months Mr. Rogers arranged for the purchase of an annuity naming Ms. Gardner as beneficiary, and hired a lawyer to prepare a new will leaving the bulk of his estate to Ms. Gardner. The checks paying for both of those items, as well as a number of personal bills of Ms. Gardner’s paid from Mr. Roger’s funds, were signed by Ms. Gardner, who was listed as a joint owner on Mr. Roger’s bank account.
When Mr. Rogers died his daughters objected to the payments for Ms. Gardner’s benefit, and the guardianship court ultimately ordered that all the money should be returned. The court also invalidated the will naming Ms. Gardner, on the theory that she had exceeded her authority when she paid the lawyer’s fee for preparation of the will.
The Missouri Court of Appeals disagreed. The whole purpose of limited guardianship and conservatorship, said the appellate court, is to encourage the ward’s autonomy and self-determination. The evidence was that Mr. Rogers understood what he was doing and wanted to benefit Ms. Gardner. It was not a breach of her fiduciary duty for her to help him achieve his goals, and she should not be ordered to return the funds. Even if Ms. Gardner’s actions had breached her fiduciary duty as conservator, said the appellate court, it would have been improper to invalidate Mr. Rogers’ will just because she wrote the check to pay for its preparation. Estate of Rogers, January 13, 2003.
The logic of the Missouri court is, frankly, a little unorthodox, but the result is unassailable. The purpose of a guardianship or conservatorship proceeding should be to protect the ward from exploitation or abuse, but to do so with the least invasive or limiting mechanism available. The court’s decision recognizes that Mr. Rogers’ level of functioning was high enough to permit him to make many of the decisions about his own finances, and the result validates those decisions.
The issue facing Florida guardian Barbara Keithly was simple: should she have her bank return the original canceled checks on the guardianship account, or would it acceptable to receive only copies with her monthly statement? Although the question seems simple enough, it provides an opportunity to consider the level of responsibility imposed on guardians and conservators.
Ms. Keithly had been appointed as guardian of the estate (in Arizona and some other states she would have been called “conservator”) of Donald Crosley, a Florida resident, in 1994. At the time Florida (like Arizona and all the other states) had a fairly lax system of checks on the actual work of guardians. A few years later, in the face of mounting controversies and amid news reports of abuses by guardians, Florida (again like Arizona and a number of other states) began to crack down on guardians, imposing new requirements for accounting and creating new offices for monitoring at least some of the cases.
In 2001, the Florida court appointed a “Special Monitor” to review Ms. Keithly’s actions as guardian. The judge ordered her to produce the original canceled checks on the account, so that she could show that the numbers on her accounting actually added up.
Ms. Keithly explained to the judge that she did not have the original checks. Like millions of Americans, she had opted to have the bank return only copies of the fronts of her checks, and the originals had been destroyed. Although it would have only cost $2.00 each month to have the bank send the checks back to her, it would now cost $3,300 to have the bank produce copies of front and back of each check for the accounting period in question.
The court ordered Ms. Keithly to produce the front-and-back copies, and to do so at her own expense. She appealed, but the Florida Court of Appeal upheld the order. Noting that Florida law expressly requires guardians to “obtain a receipt or canceled check for all expenditures,” and that Ms. Keithly (as a professional guardian) presumably knew that rule, the appellate court made clear that producing the copies would be her obligation. Keithly v. Vance, July 25, 2003.
The moral of Ms. Keithly’s story is simple but important: a fiduciary is held to a higher level of responsibility than he or she might reasonably be expected to exercise in handling his or her own affairs. As New York Justice Benjamin Cardozo famously wrote in 1928, “not honesty alone, but the punctilio of an honor the most sensitive, is the standard of behavior.”
The Montana Supreme court has words to the wise for drafting and following a trust’s terms in upholding a lower court denial of a request to remove a corporate trustee. In the Matter of the Estate of Mildred I. Berthot, December 5, 2002. The Berthot case demonstrates the importance of including details about the settlor’s intentions in a trust document.
Ellen Collins and JoAnn Barrett, current beneficiaries of the Mildred Berthot trust, claimed that trustee Norwest Trust breached its fiduciary duty when it refused to increase their trust distributions beyond the annual net income payments it had made for years. Ms. Collins and Ms. Barrett sought to name a family friend as successor trustee.
The Montana high court reiterated the basic principle of trust law—that a trust should be managed to carry out the testator’s intent. It relied on Mrs. Berthot’s own words giving the trustee authority to act in the “best interest of the trust estate.” There was no provision for any distribution beyond the net income until the end of the trust. The Justices underscored the importance of the testator’s words: “While both the majority and the dissent can speculate all day as to Mildred’s reasons for setting up the trust in the way she did, the simple fact is that no one knows why. We can only go by the wording of the document itself…”
Mrs. Berthot’s testamentary trust went into effect on her death in 1962. Ms. Collins and Ms. Barrett, Berthot’s granddaughters, became the last income beneficiaries of the Berthot trust when their mother died in 1994. The Berthot trust will end after the death of both Ms. Collins and Ms. Barrett. At that point all proceeds are to be distributed equally among Ms. Collins’ and Ms. Barretts’ children, the “remainder beneficiaries” in trust parlance. Interestingly, all but one of the remainder beneficiaries supported the income beneficiaries in seeking more income. The remaining beneficiary sought to “stay neutral” by taking no position.
Ms. Collins and Ms. Barrett argued that Norwest’s breach of fiduciary duty was illustrated by the fact that it took $8,000 per year in fees when trust income was $13,000 for each beneficiary on trust capital of $1.4 million. They took issue with the trust’s overall performance, even though the court calculated that the principal assets of the trust increased 835% and the income increased by 605% under Norwest’s management.
One dissenting Justice would have allowed the change of trustee, based largely on the consent of essentially all the beneficiaries. Without help from the trust language, however, that argument failed.
Antonia Quevillon, then age 70 and in poor health, consulted attorney Carl Baylis about her estate plan. Mr. Baylis prepared a living trust for her, and arranged transfer of apartment buildings she owned into the trust’s name. The trust named Mr. Baylis himself as co-trustee—to serve along with Ms. Quevillon’s daughter Estelle Ballard.
Ms. Quevillon died shortly after the trust was executed. For the next twenty years Mr. Baylis and Ms. Ballard acted as co-trustees, managing the trust’s property.
A dispute arose between the trustees and the beneficiaries (other than Ms. Ballard) over whether the apartment buildings should be sold. Ms. Ballard resisted efforts to sell the buildings, probably at least partly because she lived in one of the apartments rent-free, and most of her living expenses were paid by the trust.
Although Ms. Ballard eventually agreed to sale of the properties, she did not cooperate with actual sales. Finally the other beneficiaries sued both trutees for breach of their fiduciary duties. The lawsuit ultimately resulted in a judgment against Mr. Baylis personally for almost $1 million; in addition, Mr. Baylis was ordered to repay the trust $27,000 he had used to defend and settle an earlier lawsuit against him by the beneficiaries.
Mr. Baylis responded to the judgment by filing bankruptcy. If successful, the bankruptcy proceedings would result in discharge of all his debts, including those owed to the beneficiaries of Ms. Quevillon’s trust.
Bankruptcy rules, however, permit the court to refuse to discharge debts for breach of fiduciary duty—without specifying precisely how to apply the exception. Mr. Baylis argued that his behavior was not a “defalcation,” the term actually used by the bankruptcy code, and the Bankruptcy Court agreed. It permitted his debt to the trust to be discharged.
The Massachusetts Federal District Court next heard the case, and it reversed the Bankruptcy Court determination, thereby denying Mr. Baylis relief from his debt to the trust and its beneficiaries. Mr. Baylis appealed again, and the First Circuit Court of Appeals permitted most of the debt to be discharged.
The appellate court distinguishes between non-dischargeable debts based on bad acts by the debtor (like embezzlement, or injuries from driving while drunk) and those based on public policy (like taxes and student loans). Finding that defalcation as a fiduciary is more like the former category, the court looked for evidence of either specific intent or recklessness on the part of Mr. Baylis. Finding none, it authorized discharge of most of his debt. Mr. Baylis, however, must still repay the $27,000 spent in defending the lawsuit against him. In re: Baylis, December 10, 2002.
When a trustee charges fees in excess of what is due, how much should it have to repay to the trusts? That was the question posed and decided recently by the U.S. Court of Appeals for the Ninth Circuit, sitting in California.
Security Pacific National Bank merged into Bank of America in 1992. Before the merger, Security Pacific operated a trust department which was handled thousands of trusts. In over 2500 of those trusts, the bank had signed fee agreements with the individuals whose funds had established the trusts.
In each of the trusts in question, Security Pacific’s fee agreement set out a percentage fee and committed the bank not to raise that percentage unless the trusts’ settlors agreed or the probate court ordered the higher fee. Despite those agreements, the bank raised its fees a total of nine times between 1975 and 1990.
When Bank of America took over Security Pacific’s trust department it discovered that fees had been collected illegally. The improper fees amounted to more than small change—Bank of America calculated the overcharge at $24 million, which it refunded in 1994. It also calculated that it owed interest totaling $17.8 million, and refunded that amount as well.
Late in 1994 Carol F. Nickel sued the Bank of America on behalf of one of the trusts and asked that her lawsuit be certified as a class action. She argued that the bank should at least have compounded the interest it paid when it reimbursed the trusts, and that it really should have paid a portion of bank earnings during each of the years of the overcharges. The case ended up in federal court and ultimately in the Circuit Court of Appeals.
California law expressly provides the remedy for a breach of a trustee’s fiduciary duty, but the statute gives the court several options as to how to calculate the damages. One way—the one chosen by the District Court—is to calculate the damage plus simple interest at the legal rate. Another would have been to calculate the amount that each trust would have earned had it been allowed to retain the fees wrongfully collected, but the District Court found that approach to be impossible to implement in 2500 individual cases, and the Court of Appeals agreed.
The third method of calculating damages, rejected by the District Court, was the Court of Appeals’ favorite, however. Saying that “the elementary rule of restitution is that if you take my money and make money with it, your profit belongs to me,” the Court of Appeals ruled (by a 2-1 vote) that the proper measure of damages was to calculate the share of the bank’s profit in each year attributable to the overcharges, and to have that amount paid to the trusts. Nickel v. Bank of America National Trust and Savings Association, May 17, 2002.
In 1997 a rural Arizona county Public Fiduciary stunned the state’s advocacy community when he acknowledged taking hundreds of thousands of dollars from his ward’s estates (“Mohave Public Fiduciary Pleads Guilty, Faces Certain Jail Time“). Thefts by private fiduciaries (and lawyers representing fiduciaries) are all too common, but everyone blithely assumed that public officials would be more closely monitored, and unlikely to steal.
Now an Arizona Auditor General’s report charges that another Public Fiduciary methodically stole from her wards’ estates. This time the subject of investigation is Rita Riell-Corbin, who served as Gila County Public Fiduciary until December, 1999.
According to the Auditor General’s report Ms. Riell-Corbin began taking money from estates entrusted to her as early as 1994. Over the next six years she converted at least $1,177,884 to her own benefit, the report charges.
Ms. Riell-Corbin was the Public Fiduciary in rural Gila County (county seat Globe, Arizona) from 1986 until her removal from the position. She oversaw a staff of 4 other employees and managed a caseload of something less than 100 wards and decedents. Her financial misdeeds affected at least 40 of her wards. Not surprisingly, she targeted those cases in which there were no family members likely to challenge her expenditures. In some of the decedent’s estates she took money that would otherwise have gone to one of her living wards.
During the six-year period investigated by the Auditor General’s office Ms. Riell-Corbin used her wards’ money to pay for improvement of homes she owned, for her own insurance and telephone bills, and to make monthly payments on credit cards used extensively for personal and family purposes. She personally wrote checks for those types of expenditures in excess of $750,000.
The Auditor General’s report charges that Ms. Riell-Corbin is not the only person culpable in this latest fiduciary abuse. County officials supervising the Public Fiduciary’s office, the attorney representing the office, and the Superior Court (which must approve all fiduciary accountings) also breached their fiduciary duties, according to the report. The report alleges that all “failed to act when they knew, or should have known, of the Public Fiduciary’s improper activities.”
Ms. Riell-Corbin has been charged with eight counts of theft, fraudulent schemes, misuse of public money, conflict of interest and perjury. Those charges were finally leveled April 26, 2001, sixteen months after her schemes were first discovered. Sorting through bank records and reviewing account information (Ms. Riell-Corbin apparently routinely destroyed copies of checks issued for her own and her family’s benefit) was a massive and complicated undertaking, substantially slowing the investigation.
If an individual becomes incapacitated someone must take responsibility for his or her business affairs. That may mean the appointment of a conservator (in some states, “guardian of the estate”) by the court. Sometimes the individual will have had the foresight to establish a trust, or at least name an agent in a durable power of attorney, before becoming incapacitated. Whatever the title, the person who handles financial matters for an incapacitated individual does so in a “fiduciary” capacity, and is held to very strict standards.
One of the central principles governing fiduciaries is that they are not permitted to “self-deal.” In other words, a fiduciary may not personally profit from the position of trust, except by charging a reasonable fee for services.
Bessie Jordan, a retired school teacher, lived in Ida County, Iowa. Ms. Jordan’s principal asset was a 79% interest in the farm she inherited from her family, consisting of 423 acres. When she became incapacitated it seemed logical to appoint her nephew George Remer as her guardian and conservator. After all, he was already managing the family farm for Ms. Jordan, and he was a licensed attorney.
For several years Mr. Remer continued to rent the family farm. His annual rent payment to Ms. Jordan amounted to a little over $20,000. By late 1988, however, Ms. Jordan had moved to a nursing home and the cost of her care was escalating; Mr. Remer decided it was time to sell her interest in the farm. He proposed to sell it to a corporation owned by his wife.
While such a sale would normally be forbidden, the court can approve a transaction between the fiduciary and his ward if stringent guidelines are met. The fiduciary must demonstrate that the sale is necessary, that the price is fair, and that the fiduciary is not taking any advantage of the position of trust. To help protect against abuses, notice of the proposed transaction must be given to all interested persons.
Mr. Remer obtained two appraisals of the farm property, and he proposed to sell it to his wife’s corporation at the higher of those two figures. He disclosed to the court that his wife was the buyer, and he argued that Ms. Jordan’s nursing home bills would require the liquidation of the property. The court approved the sale.
Four years later Bessie Jordan died, and four years after that her estate filed an action to set aside the transaction. The probate court, noting that it had been approved at the time, declined to cancel the sale, and the estate appealed to the Iowa Supreme Court. The state’s highest court pointed out that no notice of the sale had been given to Ms. Jordan herself, and that the sale could therefore be invalidated. Furthermore, said the Justices, the terms of the sale were not in Ms. Jordan’s best interests; because of the structure of payments, her total annual income was actually lowered from the lease payments she had been receiving from Mr. Remer. The Supreme Court directed that the transaction be set aside, and Mr. Remer ordered to pay the difference between the annual payments and what would have been collected under the lease agreement.
The Supreme Court also approved most of the probate judge’s determination that Mr. Remer owed another $87,731 to Ms. Jordan’s estate (although the figures were adjusted in various small ways). It also left standing an additional $20,000 punitive damage award against Mr. Remer, agreeing with the probate judge that “Mr. Remer’s course of self-dealing was persistent, extreme and pervasive. It continued over a long period of time and affected almost every aspect of Ms. Jordan’s financial affairs.” In the Matter of Jordan, September 7, 2000.
