Guardianship

Every adult is assumed to be capable of making his or her own decisions unless a court determines otherwise. If an adult becomes incapable of making responsible decisions due to a mental disability, the court will appoint a substitute decision maker, often called a “guardian.”

• Guardianship - is a legal relationship between a competent adult (the “Guardian.”) and a person who because of incapacity is no longer able to take care of his or her own affairs (the “ward.”). The guardian can be authorized to make legal, financial, and healthcare decisions for the ward. Depending on the terms of the guardianship and state practices, the guardian may or may not have to seek court approval for various decisions. In many states, a person appointed only to handle finances and/or the ward’s property is called a “conservator”

Some incapacitated individuals can make responsible decisions in some areas of their lives but not others. In such cases, the court may give the guardian decision-making power over only those areas in which the incapacitated person is unable to make responsible decisions (a “limited guardianship” In other words, the guardian may exercise only those rights that have been removed from the ward and delegated to the guardian.

• Incapacity -The standard under which a person is deemed to require a guardian differs from state to state. In some states the standards are different, depending on whether a complete guardianship or a conservatorship over finances only is being sought. Generally, a person is judged to be in need of guardianship when he or she shows a lack of capacity to make responsible decisions. A person cannot be declared incompetent simply because he or she makes irresponsible or foolish decisions, but only if the person is shown to lack the capacity to make sound decisions. For example, a person may not be declared incompetent simply because he spends money in ways that seem odd to someone else. Also, a developmental disability or mental illness is not, by itself, enough to declare a person incompetent.

• Process - In most states, anyone interested in the proposed ward’s well-being can requesta guardianship. An attorney is usually retained to file a petition for a hearing in the probate court in the proposed ward’s county of residence. Protections for the proposed wards vary greatly from state to state, with some simply requiring that notice of the proceeding be provided and others requiring the proposed ward’s presence at the hearing. The proposed ward is usually entitled to legal representation at the hearing, and the court will appoint an attorney if the allegedly incapacitated person cannot afford a lawyer. At the hearing, the court attempts to determine if the proposed ward is incapacitated and, if so, to what extent the individual requires assistance. If the court determines that the proposed ward is indeed incapacitated, the court then decides if the person seeking the role of guardian will be a responsible guardian.

• A Guardian - can be any competent adult – the ward’s spouse, another family member, a friend, neighbor, or a professional guardian (an unrelated person who has received special training). A competent individual may nominate a proposed guardian through a durable power of attorney in case she/he ever needs a guardian. The guardian need not be a person at all – it can be a non-profit agency or a public or private corporation. If a person is found to be incapacitated and a suitable guardian cannot be found, courts in many states can appoint a public guardian, a publicly financed agency that serves this purpose. In naming someone to serve as a guardian, courts give first consideration to those who play a significant role in the ward’s life – people who are both aware of and sensitive to the ward’s needs and preferences. If two individualswish to share guardianship duties, courts can name co-guardians.

• Reporting Requirements - Courts often give guardians broad authority to manage the ward’s affairs. Guardians are expected to act in the best interests of the ward but given the Guardian’s often broad authority, there is the potential for abuse. For this reason, courts hold guardians accountable for their actions to ensure that they don’t take advantage of or neglect the ward. The guardian of the property inventories the ward’s property. Invests the ward’s funds so that they can be used for the ward’s support, and files regular, detailed reports with the court. A guardian of the property also must obtain court approval for certain financial transactions. Guardians must file an annual account of how they have handled the ward’s finances. In some states guardians must also give an annual report on the ward’s status, Guardians must offer proof that they made adequate residential arrangements for the ward, that they provided sufficient health care and treatment services, and that they made available educational and training programs, as needed. Guardians who cannot prove that they have adequately cared for the ward may be removed and replaced by another guardian.

• Alternatives to Guardianship - Because guardianship involves a profound loss of freedom and dignity, state laws require that guardianship be imposed only when less restrictive alternatives have been tried and proven to be ineffective. Less restrictive alternatives thatshould be considered before pursuing guardianship include:

• Power of Attorney A power of attorney is the grant of legal rights and powers by a person (the principal) to another (the agent or attorney-in-fact). The attorney-in-fact, in effect stands in the shoes of the principal and acts for him or her on financial, business or other matters. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used unless and until he or she becomes incapacitated.

• Representative or Protective Payee - This is a person appointed to manage Social Security. Veterans Administration, Railroad Retirement, welfare, or other state or federal benefits or entitlement program payments on behalf of an individual.

• Conservatorship - In some states, this proceeding can be voluntary, where the person needing assistance with finances/property petitions the probate court to appoint a specific person (the conservator) to manage his or her financial affairs. The court must determine that the conservatee is unable to manage his or her own financial affairs, but nevertheless has the capacity to make the decision to have a conservator appointed to handle his or her affairs.

• Revocable Trust - A revocable or “living” trust can be set up to hold a Person’s (settlor’s) assets, with a relative, friend, or financial institution serving as trustee. Alternatively, the settlor can be a trustee of the trust and can nominate another individual who will take over the duties of a trustee should the settlor ever become incapacitated.

• Beneficiary Designations - Many people periodically update their wills or other estate plans, but do not update who will receive distributions from their retirement plans (such as IRAs and 401(k)s) upon their deaths. Every year you should review your entire estate plan, and the review should include a retirement plan and Life Insurance “beneficiary designations” to make sure that they are not outdated.

The following are some tips for naming a plan beneficiary:

• It is important to name a beneficiary. Do not assume that your retirement plan will be distributed according to your will. If you don’t name a beneficiary, the distribution of benefits maybe controlled by state or federal law or according to your particular retirement plan or become part of your probate estate. Some plans automatically distribute money to a spouse or children. While others may leave it to the retirement plan holder’s estate, this could have negative tax consequences. The only way to control where the money goes is to name a beneficiary.

• You may want to designate a trust as your beneficiary. If your estate is more than the current estate tax exclusions and a large portion of it consists of retirement plans, it may make sense to direct that the plans be payable to a trust rather than to the surviving spouse. The trust must be properly drafted to avoid tax consequences, so consult with your attorney before doing this. If you want your money to go into a trust for your children, be sure to designate the trust as the beneficiary. If you name your children, the money will go directly to them.

• If you have major life changes, be sure to keep your plans updated.

• If you get married or have children, you may want to change your beneficiary. Also, if your spouse was your beneficiary and you get divorced, your former spouse will still be the beneficiary - divorce does not automatically remove an ex-spouse as a beneficiary. If you wish to remove a former spouse from the plan, you will have to fill out a new beneficiary designation form. Even if you don’t have big changes, you should review your beneficiary designation periodically. Your beneficiary may not be whom you remembered it to be, or it may be outdated. A Change of Beneficiary form can often be downloaded from the website of the firm holding the plan assets.