New Illinois Law Questions Bequests to Non-Family Caregivers

On August 26, 2014, Illinois Governor Pat Quinn signed into law a brand new section in the Illinois Probate Act, at 755 ILCS 5/4-a, entitled “Presumptively Void Transfers.”

While the intent of the new law is aimed squarely at non-family caregivers who may abuse their position by exercising undue influence, the law could have even wider reach. The new statute (read it here) is fairly short and straightforward, but is worth careful analysis and understanding.

The new law provides that if a “transfer instrument” is timely challenged, there is a presumption that the transfer instrument is void if the beneficiary is a “caregiver” and the transferred property exceeds $20,000.

Once the presumption kicks in, it can then be overcome if the caregiver-beneficiary proves by clear and convincing evidence that the transfer was not the product of fraud, duress or undue influence. Alternatively, the beneficiary can overcome the presumption by showing that the beneficiary’s share under the transfer instrument is not greater than the beneficiary’s share already in effect prior to becoming a caregiver.

The devil is in the details. Definitions are critical here, so I’ll highlight definitions and unpack some key points:

• Does not apply to “family members”.  Family members are specifically excluded from the definition of a caregiver under this statute. A “family member” is defined as a spouse, child, grandchild, sibling, aunt, uncle, niece, nephew, first cousin or parent of the person receiving assistance. While this statute does not apply to family members, nothing in the statute changes existing common law principles of fraud, duress and undue influence that can still apply to both family and non-family members. Note that individuals who may commonly be considered as family, such as non-married partners and stepchildren, are not actually family members under the law and would fall within the purview of this statute.

• Who is a “caregiver”?  A caregiver is defined as “a person who voluntarily, or in exchange for compensation, has assumed responsibility for all or a portion of the care of another person who needs assistance with activities of daily living.” This is a fairly broad definition. First, it makes clear that the law can apply to both paid and unpaid caregivers, so we’re not only looking at employed caregivers. Moreover, there is no requirement that the person receiving assistance be disabled or elderly, but merely that the individual needs assistance with activities of daily living. Neither the specific “activities” nor the extent of the “need” is further defined, so it will be left to the courts to grapple with those issues. It’s also worth noting that while the word “caregiver” is used repeatedly, there is no requirement that the person giving the assistance ever consider or label themselves as a caregiver — a helpful friend could very well be deemed a caregiver. The definition of caregiver further extends to include a spouse, cohabitant, child or employee of the covered caregiver.

• What is a “transfer instrument”?  A transfer instrument is any legal document intended to effectuate a transfer on or after death, including but not limited to a will, trust, deed, pay on death form, contract or other beneficiary designation form. While the law is contained within the probate act, the statute extends well beyond probate assets to include trusts, beneficiary designations, etc. I query whether and in what circumstances adding a joint tenant (e.g. to a bank account or to real property) could be included within the reach of the statute. Joint tenancy is not specifically included within the non-exhaustive list of transfer instruments, but at least in certain situations the intent of a joint tenancy could very well be to effectuate a transfer upon death. The law only applies to transfers intended to take effect after death, but not to lifetime gifts.

• The $20,000 threshold. The statute only kicks in when the fair market value of the transferred property exceeds $20,000. While the law speaks of challenging a transfer instrument (in the singular), the dollar threshold refers to “transferred property” (which is not otherwise defined). I don’t think it’s entirely clear, but I believe this is intended to aggregate the amounts passing to a caregiver under all challenged transfer instruments, and if the total exceeds $20,000 then all of the transfer instruments are presumptively void. This would include the first $20,000 as well. I suppose this leads to the potentially odd result of ignoring $19,999 worth of transfers while presumptively voiding a $20,001 transfer in its entirety, each under the same set of other facts.

• Challenging, defending and attorney fee shifting. The rebuttable presumption is not automatic, but only arises if a transfer instrument is actually challenged in a civil action. The statute refers only to a transfer instrument “being challenged”, but doesn’t specify who does the challenging. The challenger will probably be an interested person whose share under the instrument in question would be increased by a successful challenge. But what about a fiduciary (the executor or trustee)? The law clarifies that it does not create or impose an independent duty to challenge. The job of defending against a will or trust contest typically rests with the fiduciary, but the statute describes the caregiver attempting to overcome the presumption. More specifically, the law provides that if the caregiver attempts and fails to overcome the presumption, the caregiver must bear the costs of the proceedings, including reasonable attorney’s fees. This fee shifting provision gives the caregiver-beneficiary much to consider — not only would the caregiver need to pay his or her own attorney to attempt to overcome the presumption, the caregiver would also run the substantial risk of having to pay the fees of the challenger’s attorney as well (while receiving $0 as beneficiary).

• Effect of presumption and burden of proof. Presumptions and burdens of proof are very important. They often drive case results. In this case, the heavy “clear and convincing” burden is placed on the caregiver to prove the absence of fraud, duress or undue influence. I’ll have some further thoughts on this below in terms of estate planning considerations, but proving a negative (the absence of something), especially after the death of the person whose intent is in play, is always a tough task.

• Statute of limitations. Any civil action under this law must be brought within 2 years after the date of death, or sooner if required within a probate estate. If the challenged gift is in a will, then the shortened contest period would be within 6 months after admission of the will to probate. Likewise, if the gift is under a living trust that receives a gift from a pour-over will, then the shorter 6 month limitation period also applies.

• Effective date of statute. This statute applies only to transfer instruments executed on or after January 1, 2015. The cynic in me says that this gives the devious caregiver a short window to exert undue influence. It’s worth noting again though that existing common law principles of fraud, duress and undue influence can still apply (both before and after the effective date) to defeat such improper transfers.
  

So, how does this effect estate planning and administration in Illinois? What are the important takeaways to consider here?

• Estate Planning. The impetus for the new law certainly involved situations where a caregiver has swooped in and manipulated a susceptible individual to alter their estate plan. Yet, not all gifts to caregivers are improper or inappropriate. If you are planning your estate and you truly do want to leave a substantial gift to non-family who might fall within the definition of a caregiver, then you need to be very deliberate and thorough to document your intentions and the lack of fraud, duress or undue influence. California has a caregiver statute that requires an attorney’s “certificate of independent review.” The Illinois statute is not overt on this point, but working with an estate planning attorney to memorialize wishes and provide a shield against challenge is a must.

• Estate Administration. Fiduciaries and beneficiaries alike should be on the lookout for transfers to non-family who might be deemed a caregiver, including transfers hidden inside beneficiary designation forms. This statute provides an enhanced tool to combat caregiver fraud and undue influence. If applicable, specifically invoking the statute rather than relying solely on existing common law provides substantial benefit due to the statutory change in presumption, burden of proof and attorney fee shifting. The short limitations period, however, requires timely action.

UPDATE: I published a lead article in the Illinois Bar Journal based on this blog post: Article by Jeffrey R. Gottlieb Published in Illinois Bar Journal

Image via Flickr courtesy of 808MAGIC.