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When an Adult Needs a Guardian of Property
A guardianship is a legal arrangement in which a court appoints one person, the guardian, to look after another person, the ward. There are two types of guardianships: a guardianship of the person and a guardianship of the property (also known as a guardianship of the estate or a conservatorship). A guardian of the person is responsible for the ward’s physical safety and well being. A guardian of the property is responsible for the ward’s money and assets. A person may need one or both types of guardians. Usually, one person serves as both guardian of the person and guardian of the property, although a different person can be appointed for each role.
The court may appoint a guardian for an adult in two situations:
1) The proposed ward is mentally competent and requests the court to appoint a property guardian, usually a family member or close friend, to manage his or her finances. This arrangement is known as a voluntary guardianship. Typically, because of advanced age or physical infirmity, the proposed ward would like help with banking, bill paying, investment monitoring, and so forth. The ward retains the legal right to make all decisions regarding his or her person or property.
2) The proposed ward is not competent and needs a guardian of the person to make sure he is properly cared for or a guardian of the property to manage his or her finances or both. This arrangement is known as an involuntary guardianship. The person seeking the guardianship will need to present evidence to the court to establish the proposed ward’s incapacity and the proposed guardian’s suitability for the role. State law provides minimum requirements that a person must meet to be appointed as a guardian. These may vary somewhat from state to state. Typically, a prospective guardian must:
- Be a legally competent adult.
- Not have been convicted of a felony.
- Not have been convicted of domestic violence, abuse, abandonment, or neglect of a person.
- Not have filed for bankruptcy within a specified period.
- Not have been convicted of embezzlement, fraud, or other crimes of dishonesty.
- Have signed and filed an oath of guardian promising to faithfully perform the guardianship duties.
- Post a fiduciary bond, if required by the court.
- Have the mental capacity and ability to serve as guardian of the person or property on behalf of the ward.
When an adult has the capacity to conduct his or her legal affairs but wants another person to assume that responsibility, the adult may request the appointment of a property guardian. This procedure, a voluntary guardianship, usually occurs because the ward has difficulty with the practical aspects of money management due to advanced age or physical limitations.
Case Study: Fran and her neighbor Mary. Mary, at age 94, is mentally competent but is no longer able to walk and can sit upright only for short periods. Due to poor eyesight and severe arthritis in her hands, Mary is unable to review monthly bills and banking statements, sign checks to pay her bills, and manage her financial affairs. Mary asked her next-door neighbor, Fran, to serve as the “guardian of her property” and manage her finances. Mary had adequate monthly income and trusted Fran, a long-time friend and fellow church member, to oversee her finances. Fran was happy to assist Mary and agreed to be appointed as guardian of Mary’s property. Mary’s attorney prepared a petition for Fran’s voluntary appointment. Mary retained decision-making authority regarding her person and property but was pleased that Fran would handle the financial management. Fran met all the legal requirements to serve as a guardian and was appointed as guardian of Mary’s property.
A voluntary guardian of the property is a fiduciary obligated to undertake all actions in the ward’s best interest. The guardian will generally be required to do the following:
- File an initial inventory of the ward’s property (real property, personal property, financial and investment accounts, and any other property) listed at fair market value.
- Post bond in an amount sufficient to protect the ward’s estate from purposeful or grossly negligent waste, fraud or abuse, unless waived by the court.
- File a list of routine, anticipated monthly expenditures for the ward.
- Open and maintain a guardianship checking (and savings) account. The account number and statements can be furnished to the court to substantiate the guardian’s proper use of estate funds. (Financial institutions will require a certified copy of Letters of Guardianship issued by the court.)
- Prepare and file annual (or periodic) accounting reports with the court showing all income received and all expenditures made during the period and showing the ending balance.
- Petition the court for an order allowing any expenditure over a certain dollar amount as set by the court.
- Maintain and invest guardianship assets in reasonable investment vehicles adhering to the Prudent Investment Rule. The Prudent Investment Rule requires the fiduciary to manage and invest the guardian’s estate as if investing his or her own property considering the needs of the ward, preservation of the ward’s estate, and the ward’s need to generate income. High-risk investments are imprudent and are to be avoided. Loss due to imprudent investment, waste, theft or misuse, may be criminal and can becom the personal liability of the guardian.
Case Study: Fran and her neighbor Mary continued. Fran was required to attend a six-hour course presented by the probate court within 60 days after her appointment. The course was taught by a certified public accountant experienced in guardianships. During the course, Fran learned the guardianship accounting system and requirements set by the court. Fran learned she must account for every penny of expenditures made with Mary’s money and learned that a detailed financial report must be filed annually. The report would also be subject to review by the court’s probate auditor. Fran was then horrified to learn the court required her to post a bond in a minimal sum of $50,000.00. (The bond served to protect Mary’s assets.) Fortunately, Mary’s attorney filed a motion with the court and persuaded the judge to waive the requirement to post a bond. After several years serving as Mary’s property guardian, Fran had reservations about ever volunteering to serve in this capacity for another ward again. Accounting for every penny of expenditure was maddening. Nonetheless, Fran was good with numbers and had no irregularities. Despite the detailed nature of accounting, Fran felt a sense of accomplishment and reward for acting truly neighborly.