Advisor Connections Newsletter™
March 29, 2016
Guardianships: a Living Probate or a Living Nightmare?
Guardianships: a Living Probate
or a Living Nightmare?
With individuals living longer than ever, mental illness becoming increasingly common, and long-term care costs rising to unprecedented levels, disability planning has become an essential part of any estate plan. This is true for families and individuals of all ages, even if the diseases we generally attribute to old age—such as Alzheimer’s and other forms of dementia—are not an immediate concern. The reality is no one is immune to accidents and catastrophic injury.
This oft-forgotten aspect of an estate plan can assure financial and medical decision-making is transitioned to trusted helpers without the involvement of a court through the dreaded “living probate.” More detailed, thoughtful plans can assure those decisions are consistent with the individual’s wishes and expectations.
The Guardianship Process
At a minimum, an estate plan should include the appropriate documents to designate someone to make health care and financial decisions during a disability. Generally, without the documents, the only recourse is to initiate a guardianship proceeding, otherwise known as a “living probate.”
The goals of the guardianship process are twofold: (1) to protect individuals who can no longer protect themselves by declaring them “legally incompetent;” and (2) to identify and appoint the persons (or entities) who are best suited to manage their finances and personal care. Although the theoretical goals of the guardianship process seem simple and principled, the reality of the process is anything but.
To initiate a guardianship proceeding, an interested party (usually a spouse, child, or relative) files an application to the local probate court requesting the appointment of a guardian of the person (health care decision-maker) and/or a guardian of the estate (financial decision-maker). If possible, the court will try to name the same person for both roles. Next, all interested parties (including all “next-of-kin” relatives) are given notice of the application and have an opportunity to contest the “incompetency determination” and who is appointed guardian. Notice must also be served on the “ward” (the alleged incompetent party), informing them of their right to be present at all hearings and right to be represented by an attorney to contest the alleged incompetence—essentially treating them as an adverse party.
Once the application is filed and proper notices are given, a mandatory hearing is scheduled by the court in order to examine medical evidence and testimony, determine if the ward is “legally incompetent,” and appoint a suitable and willing person to serve as guardian. If no family member or friend is willing or suitable, a professional guardian or entity is appointed. Often, the appointed guardian must file bond in a sum fixed by the probate court and based on the ward’s assets, income, and expenses. Every aspect of the guardianship process is a matter of public record.
In the years following the appointment, the guardian is required to seek written approval from the probate court for each expenditure, complete required training courses, and file with the court periodic inventories and accountings tracking every receipt and disbursement.
The guardianship process has been criticized on the grounds it is costly, slow, intrusive, conflict-inviting, and humiliating. It is difficult to think of a process that embodies the inefficiencies of the court system better than the guardianship process.
Disability Planning with a Revocable Living Trust
One of the major advantages of a trust is the Trustmaker can design the process for determining disability, decide who will make financial decisions, and provide detailed instructions on how to carry out that power, all without the intervention of a probate court.
In a trust, a Trustmaker can chose to have a disability determined by a panel of trusted family members and friends, as opposed to relying on a court determination or the opinion of a doctor they never met. This makes sense for individuals who prefer to have their affairs handled privately and determined by those who know them best.
Furthermore, a Trustmaker can identify who they want to be provided for out of the trust assets and how. Besides themselves, a Trustmaker may want a healthy spouse, dependent children, grandchildren, or siblings to be cared for during their disability. Many chose to have priority given to a healthy spouse. Some give the healthy spouse a right to use trust assets for their benefit and identify others as mere discretionary beneficiaries. As you can see, there are an infinite number of ways to structure the disability provisions in a revocable living trust, providing for maximum customization and flexibility in the estate plan.
Use of a General Financial Power of Attorney
For clients with will-based plans, a General Financial Durable Power of Attorney should be used for disability planning. This document gives someone (called an agent or attorney-in-fact) authority to make financial decisions during disability (the term “durable” means the power of attorney will still be binding during a disability).
A troubling, yet growing trend with the General Financial Durable Power of Attorney (or “POA”) is the growing reluctance of banks and financial institutions to accept them. In short, the more “general” the powers granted are, the less likely a bank or financial institution will honor the document. Some financial institutions require asset holders to sign their company-specific POA. A problematic situation arises if someone is disabled, a POA is submitted to a company on their behalf, and that POA is rejected because it is not the company-specific POA. The disabled asset owner is unable to sign any new POAs because their disability. In this scenario, the family faces the possibility of having to initiate a guardianship proceeding.
For more detail on the problems with General Financial Powers of Attorney, see our article from 2015, titled Powers of Attorney: Problem Solvers, or Problem Starters.
Health Care Power of Attorney & Living Will
The Health Care Power of Attorney is a document that gives someone else (referred to as a Health Care Agent) authority to make any and all health care decisions when a person is not able to communicate. The Living Will is a person’s final expression of their right to not be kept alive artificially if they are in a terminal condition, effectively taking the end-of-life decisions away from the Health Care Agent. All adults should have a Heath Care Power of Attorney, naming someone to make medical decisions in an emergency situation. A Living Will, on the other hand, may only be preferred by certain individuals.
The Importance of Leaving Guidance
One of the difficulties people face in making medical or financial decisions on behalf of a loved one is the lack of guidance they are given. Trusts, wills, powers of attorney, and the like are effective ways of giving people the power to do things, but generally do not give much guidance. Guidance can be given in different ways, including conversations and communication during life, or leaving behind detailed checklists and instructions on how decisions are to be made. Instructions should include wishes and preferences related to end-of-life care, medical records, choice of physicians, medical tests, medications, health care facilities, and long-term care. In our practice, there have been multiple occasions when family of deceased clients have thanked us for providing their loved one with an opportunity to leave behind detailed instructions. Those instructions provided guidance and assurance they were making the right decisions during a difficult and stressful time.