A fiduciary is a manager entrusted to control property of another and to act on behalf of and for the benefit of that individual. Special fiduciaries include personal representative (sometimes still called the executor or executrix), agent under a durable power of attorney document, a custodian of a Uniform Gifts (or Transfers) to Minors Act account, an investment advisor providing discretionary investment management, or a trustee under a trust arrangement. You select all of these fiduciaries, and you hire and fire them at will.
But there is a situation when you do not get to select your own fiduciary. This occurs when you are adjudicated to not have the capacity to handle your own affairs and/or are a danger to yourself and/or others. In this situation, a judge in a court of law (generally called a probate court) appoints someone to manage and control your property and/or to act on your behalf. Some states call this special fiduciary a guardian; in others states they are known as conservators.
As we live in a collection of 50 states, we have 50 different state laws that control how and when a guardian or conservator can be appointed. In general, a guardian or conservator is appointed in the following way: Someone, such as a family member, friend, or a government worker (for example, a social worker working under Adult Protective Services or some other agency that deals with mental health, children, and others with developmental disabilities) files an action in a probate court (or the court of competent jurisdiction) to have someone placed under conservatorship or guardianship. Both the person who needs to be conserved and the person bringing the legal action are represented by attorneys.
A probate judge then hears the case, witnesses and experts give testimony, and the person who is being sued for guardianship is also heard. The judge then makes a decision about whether or not to place the person under the court’s supervision, and, if necessary, names a fiduciary to manage affairs and/or to make living and healthcare decisions for the ward (the person needing to be conserved or placed under guardianship). State laws define a lack of capacity to handle one's affairs differently than having competency, so you will need to read more about your own state’s laws and the laws of your family member’s state of residency as to how all of this works. No two states are alike.
Even with good estate planning, naming an agent under a power of attorney document and/or trustee of a living trust, a guardian, or a conservator may still be necessary. In situations involving large estates, there have been many instances when a perfectly competent person may have wanted to be placed under guardianship or conservatorship. We have heard of the public fights in the courts here in the U.S. and in other countries where very rich persons have someone exerting undue influence on them in business matters (where we are talking about Fortune 500 or similar companies). The adult may not be able to make complex decisions because of someone’s outside influence, or because they are too emotionally involved to be objective as a director of a publicly held corporation (who also has a fiduciary duty to the shareholders). Other examples of undue influence can come from clergy, cults, criminals, family members, and abusers.
Another situation that may require guardianship or conservatorship is in the case of severe mental illness that causes a person to be a danger to themselves or others. Remember, earlier I said that agents under durable power of attorneys, trustees under living trusts, and others like these can be hired or fired at will. Sometimes, guardianship proceedings are brought to undo changes made to a will, trust, or other business decisions which could have been made under duress or are a detriment to the individual’s estate or to his person.
As you now see, guardianship and conservatorships are very public, and they can be embarrassing and expensive. We can reduce the need for guardianship and conservatorships by doing good estate planning. However, as you can see above, there are situations when the need for a guardianship or conservatorship is unavoidable. Many estate planning attorneys recommend that you name someone to act as your guardian or conservator in your durable power of attorney documents, so at least you have made some indication to the judge in the probate court as to whom you would like to serve in this very special position.
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Chris Cooper, CFP®, is the owner of ElderCare Advocates, Inc. a geriatric care management and long-term-care consulting firm. He is also the owner and founder of Chris Cooper & Company, Inc., a fee-only financial planning firm that works with small business owner, persons preparing to retire, and the very elderly. Chris is a regular contributor to eCareDiary.com and was recently interviewed by eCareDiary’s co-founder, Susan Baida, regarding Empowering Family Caregivers. Chris has also on has appeared on CBS's Early Show, NBC's Today Show, and is a regularly featured guest on CNBC's Power Lunch. He is frequently quoted in The Wall Street Journal, USA Today, The New York Times, Kiplinger's Personal Finance, Money, and SmartMoney.
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