Acknowledging that it was deciding “an issue of first impression” under the 1999 Land Trust Fiduciary Duties Act in a nonprecedential Rule 23 order, the Illinois Appellate Court concluded that Curtis Prince — “the holder of the sole power of direction” for a land trust that held title to a three-unit apartment building — “was not permitted to sell the property or convey it out of the trust without the agreement of all the beneficiaries.” Prince v. Marquette Bank, 2019 IL App (1st) 180346-U (Dec. 6, 2019).

Zola May Smith conveyed the real estate to Marquette Bank under a trust agreement that designated her four children — Curtis Prince, Cornelius Smith Jr., Linda F. Smith-Buckner and Michael Anthoney Smith — as beneficiaries.

The agreement said the beneficiaries had “the power to manage, possess, use and control the property,” and that the power of direction “shall be in Curtis Prince.”

Smith-Buckner lived in one of the apartments her entire life. And Prince wanted to cash out, but he wasn’t entitled to the real estate remedy of partition — based on Breen v. Breen, 411 Ill. 206 (1951) — because beneficial interests in land trusts are personal property. So Prince sued for a declaratory judgment that he was authorized to order Marquette Bank to “to sell the property or to convey the property out of the trust without the consent of the beneficiaries.”

A Cook County judge granted Smith Jr.’s motion for summary judgment. Affirming, the 1st District explained that, “as the sole holder of the power of direction, plaintiff owes the other beneficiaries the fiduciary duties set forth in Section 15 of the [1999] act.” And because “the beneficiaries’ interests included possession and use of the property,” Prince would violate his fiduciary duty if he directed the bank to sell or convey the real estate without consent from the other beneficiaries.

Here are highlight of Justice Shelvin Louise Marie Hall’s opinion (with light editing and omissions not noted):

In 1999, the legislature expressed its concern that court decisions, both Illinois and federal, were unclear as to whether holders of the power of direction owed fiduciary duties to the holders of beneficial interests in land trusts. The legislature sought “to clarify that holders of the power of direction are accountable to the holders of the beneficial interest in land trusts.” 765 ILCS 435/5.

Section 15 of the act sets forth the fiduciary duties of holders of the power of direction as follows:

“The power of direction, unless provided otherwise in the land trust agreement, is conferred upon the holders thereof for the use and benefit of all of the holders of the beneficial interest in the land trust. In exercising the power of direction, the holders are presumed to act in a fiduciary capacity for the benefit of all holders of the beneficial interest in the trust, unless otherwise provided in the land trust agreement. The beneficial interest shall be indefeasible and the power of direction shall not be so exercised to alter, amend, revoke, terminate, defeat or otherwise affect or change the enjoyment of any beneficial interest.”

Section 20 states that the act “is declaratory of existing law and is intended to remove any possible conflicts or ambiguities, thereby confirming existing law pertinent to land trusts.”

Case law

Plaintiff relies on both preact and post-act cases in support of his argument that as the sole holder of the power of direction, he could direct the trustee to convey title to the property or remove the property from the land trust without the consent of his co-beneficiaries.

These preact and post-act cases recognize the general rule that the holder of the power of direction may enter into a contract in his capacity as beneficiary so long as the trust agreement vests in the holder the sole power of direction.

Those cases do not address the issue in this case, namely, whether the holder of the sole power of direction under a land trust agreement breaches his fiduciary duty to his co-beneficiaries by selling the property or conveying the property out of the trust without their consent. However, we find Wolfe v. Wolfe, 81 Ill.App.3d 833 (1980), instructive.

In Wolfe, James, Judith, James’ wife at the time and Margaret, James’ sister, were beneficiaries of a land trust; James was the sole holder of the power of direction. Subsequently, James directed the trustee to convey the entire res of the trust to Margaret.

Judith filed a complaint alleging wrongful conversion of her interest in the real estate and sought the imposition of a constructive trust.

The court noted that “Henry W. Kenoe, an authority on Illinois land trusts, discusses the situation where the power of direction is conferred upon one of several beneficiaries who is given no particular advantage under the terms of the trust. He concludes the person holding the power of direction acts in a fiduciary capacity and ‘will be required to observe the interests of all the beneficiaries.’” Wolfe, 81 Ill.App.3d at 837 (citing Kenoe, Illinois Land Trusts at 2–25) (Illinois Institute for Continuing Legal Education 1974)).

At the time of the creation of the land trust, the parties were still married. Judith alleged that she had reposed trust and confidence in James. The trust agreement gave James the sole power to direct the trustee in the handling and possible disposing of the trust. Judith, therefore, had entrusted the management of her interest in the trust to him.

Based on these factual allegations, the reviewing court held that Judith had sufficiently pleaded the existence of a fiduciary relationship and its breach to justify the imposition of a constructive trust.

In contrast to Wolfe is Estate of Bork, 145 Ill. App. 3d 920 (1986), relied on by plaintiff. In that case, the issue was whether Louis Bork’s sole power of direction under a land trust passed to his executor or administrator upon his death.

Ultimately, the reviewing court held that the trust must specifically provide that the sole power to direct passed to the deceased holder’s executor or administrator; otherwise, only the power to direct, shared by the other beneficiaries under the trust provisions, passed to the executor or administrator.

As part of its analysis, the court in Estate of Bork examined the pertinent language of the trust, which provided as follows:

“The trustee will deal with said real estate only when authorized to do so in writing and that the trustee will, … on the written direction of Louis G. Bork or on the written direction of such person or persons as may be beneficiary or beneficiaries at the time, make deeds for, or otherwise deal with the title to the real estate.” Estate of Bork, 145 Ill. App. 3d at 927.

The reviewing court held that “under the terms of that clause, deceased reserved to himself the power to direct the trustee solely, without the approval of the other beneficiaries.”

The contrasting decisions in Estate of Bork and Wolfe and the lack of reference in the case law to the fiduciary duty owed by the holder of the power of direction to his co-beneficiaries may explain the legislature’s decision to clarify that the holder of the power of direction owed a fiduciary duty to the beneficiaries of a land trust.

Fiduciary duty was not raised or discussed in Estate of Bork. In Wolfe, however, the reviewing court found that the sole holder of the power of direction violates his or her fiduciary duty by transferring the property out of the trust without the consent of and against the interest of a co-beneficiary.

The cases relied on by plaintiff as representative of “existing law,” do not support his position that as the sole holder of the power of direction he may direct the trustee to dispose of the property in a land trust without the consent of the beneficiaries. Rather, as the sole holder of the power of direction, plaintiff owes the other beneficiaries the fiduciary duties set forth in Section 15 of the act.

Section 15

Plaintiff submits that Section 15 of the [a]ct was only intended to make clear that the holder of the power of direction could not use that power to terminate or diminish the beneficial interests of the beneficiaries. He argues that since the beneficiaries’ interest in the property is personal property, selling the property and distributing the proceeds according to the provisions of the trust agreement would not diminish his co-beneficiaries’ interests because the co-beneficiaries would merely be exchanging one form of personal property for another.

Under the trust agreement, the beneficiaries’ interests included possession and use of the property.

Under the act, the holder of the power of direction may not exercise that power to “affect or change the enjoyment of” the beneficiaries’ interests. 765 ILCS 435/15. It is undisputed on this record that plaintiff’s exercise of his sole power of direction to sell the property or to convey or partition it, would affect or change his co-beneficiaries’ enjoyment of their right to possess and use the property. In Ms. Smith-Buckner’s case, she would be deprived of the home she had resided in for 55 years and which she does not wish to leave.

Absent his co-beneficiaries’ consent, plaintiff’s exercise of his power of direction to sell the property or to convey it out of the land trust so as to partition the property would violate his fiduciary duty to the co-beneficiaries in that it would affect or change their enjoyment of their beneficial interests of possession and use of the property.