Guardianship Alternatives

Guardianship is often unnecessary or limited thanks to guardianship alternatives which include appropriate estate planning.

Guardianship is the court process by which a Judge appoints a person to make decisions on behalf of someone who cannot make them for themselves.  Guardianship is a very involved process which removes or reduces the legal autonomy of the individual and appoints a decision maker for that person.  Guardianship can be invasive, time-consuming and costly.  Although guardianship is sometimes necessary and beneficiary to the individual, many clients seek to avoid guardianship and, in fact, Texas (and virtually every state’s) law directs you to use less restricting guardianship alternatives where available.  The best options require preplanning however, so if you want to avoid the need for guardianship, you should consider some of the following guardianship alternatives.  See the article entitled “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First” from Kiplinger for more. 

Durable Financial Powers of Attorney

Guardianship often is necessary when an elderly individual loses legal capacity due to dementia, Alzheimer’s or other conditions leading to cognitive decline.   In that case, the person cannot make their own financial decisions anymore, so a guardian would need to be appointed to manage their assets.

However, if an individual has a durable financial power of attorney (POA) in place, then this may not be necessary.  The POA names an individual to take financial action for you if you can’t yourself.  It is usually much better than guardianship as you are the person choosing who will act and you can set the rules as you want.  It is also substantially cheaper than guardianship litigation.  It is also one of the most important estate planning documents for this reason.

You can see here for a bit more on POAs:  https://www.galliganmanning.com/which-powers-should-a-power-of-attorney-include/

Trusts

Trusts are more than just will substitutes.  In this context, the trustee of the trust can control the assets owned by the trust.  So, if the person who created the trust becomes incapacitated, the successor trustee (again a person you choose) can take over and start controlling the assets.  This is often a major reason for clients who create revocable trusts later in life or who have concerns about long-term care or management of their assets.

Medical Powers of Attorney

This echoes the issues of the financial POA, namely that you can appoint a person to make medical decisions for you.  Now, the law does provide default decision makers for medical decisions makers, so this isn’t typically the reason for a guardian.  However, it too is a critical document for several reasons.  Among them, you may not want the default to be your decision-maker, it provides clarity of responsibility and lets the decision-maker know in advance what’s expected of them, and finally, avoids delay in a medical crisis when the documents have to figure out your family history to determine who a default decision-maker is.

Naming Fiduciaries for Minors

Another common guardianship scenario is leaving property to minors.  Although there are multiple state-based alternatives which might be helpful, such as creating UTMA/UGMA accounts (Uniform Trusts for Minors Act/Uniform Gifts to Minors Act), paying to a court registry or possibly to a parent of that child depending on the circumstance.  However, if these alternatives don’t work, you may need a guardian for the minor.

In any case where leaving property is intentional, such as in a will or trust, an easy solution is to establish a trust for the minor within your own documents.  This accomplishes several goals, but here, allows for an adult to hold the property for the child.  They can then spend the assets on their behalf, such as on education, daily living and so on,

Now, the above are mostly proactive steps, so these are what you can do now to avoid guardianship later.  However, if you or a loved one find yourself without sufficiently covering these concerns and contemplating guardianship, there are still some alternatives that might help or help reduce the scope of the guardianship.

Limited Guardianship

This a blog unto itself so this will be brief, but guardianship can be limited in nature.  Essentially, the powers of the guardian are limited so that the least autonomy is taking from the individual as possible.  This could mean that only assets are under the control of the guardian, or perhaps only to control some personal decisions such as medical decisions.

Joint Ownership

Some families take the step of making a family member a joint owner on a bank or other assets.  Now, I didn’t include this as a proactive measure because joint ownership has a litany of difficulties.  It includes the risk of creditor issues, potential concerns over gift making, disruption of the estate, plan, tax implications and lends to family disputes.  However, should you find yourself with the need for guardianship, this can be a less restrictive guardianship alternative.

Social Security Representative Payees

Social Security pays to an account with a designated rep payee for beneficiaries who can’t act for themselves.  So, on this particular account, the rep payee, which is typically a close family member, but could be someone else, is already authorized to control that particular asset.  So, this doesn’t typically completely avoid the need for a guardianship, but does mean that one account receiving income can be accessed and utilized for an individual without the intervention of a guardian.

Community Property Administration by a Spouse

This is distinctly a Texas solution, but we have community and separate property.  Community property is owned by the marriage, as opposed to the individual.  So, depending on the assets of the individual, her marital status and suitability of the spouse to do this, community administration might be a helpful guardianship alternative.

Guardianship Appointment

Although this isn’t a guardianship alternative, I’d be remiss if I didn’t mention it.  You have the power to name the person who you would want to be a guardian for you if guardianship is necessary.  We routinely prepare these for clients so that should guardianship be necessary, you’ve told the court who should do it.  They are very seldom necessary due to the estate planning we put in place, but it serves a belt and suspenders approach to ensure you have as much control over a guardianship process as possible.

Other Alternatives

There are other guardianship alternatives beyond what I included here, but key factor is that preplanning is the best guardianship alternative.  Talk with an experienced estate planning attorney to protect yourself or loved ones from having to pursue guardianship.

Reference: Kiplinger (July 7, 2022) “Guardianships Should Be a Last Resort–Consider These Less Draconian Options First”

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How Do I Store Estate Planning Documents?

It’s a common series of events: an elderly parent is rushed to the hospital and once children are notified, the frantic search for the estate planning documents starts. It’s easily avoided with planning and communication, according to an article from The News-Enterprise titled “Give thought to storing your estate papers.” However, just because the solution is simple doesn’t mean most people address it.

As a general rule, estate planning documents should be kept together in a fire and waterproof container in a location known to and accessible by fiduciaries, and copies of some documents should be given to the fiduciaries in advance.

Most people think of bank safety deposit boxes for storage. However, it’s not a good location for several reasons. Individuals may not have access to the contents of the safe deposit box unless they are named on the account. Often a court process is necessary for permission to open a safety deposit box if no one is named on the account.

Even with their names on the account, emergencies don’t follow bankers’ hours and access may be difficult. Further, what if the Power of Attorney giving the person the ability to access the safe deposit box is inside the safe deposit box or the principal has died and the Will is in the box.   Bank officials are not likely to be willing to open the box to an unknown person and proof of that person’s authority is in the box.  This is like locking the key in the safe.

Even further, COVID and the economy have led many banks to close or not offer safety deposit boxes.  Banks don’t want to maintain as many brick and mortar locations, so that means safety deposit boxes have to go.

When you store estate planning documents, a well-organized binder of documents in a fire and waterproof container at home makes the most sense.

Certain documents should be given in advance to certain organizations or individuals.  For instance, health care documents, like a Medical Power of Attorney, Directive to Physicians (Living Will) and HIPAA authorizations, may be given to your agents, as well as to your primary care physician or to the medical facility if you go in for a procedure.  This way, agents have the necessary documentation should an emergency occur, and medical systems can add the documents to their file for you.  This way everyone (especially medical providers) are on the same page about your wishes and who will speak on your behalf.

Mary touched on other items that shouldn’t be kept in a safety deposit box in this article.  https://www.galliganmanning.com/things-you-should-not-keep-in-your-safe-deposit-box/  

Financial Powers of Attorney should be given to each financial institution or agency in preparation for use, close in time to when you expect to need it.

This may feel onerous, however, imagine the same hours spent communicating with banks plus the immense stress if the need to use it is time sensitive. Banks often want to review POA’s in advance of their use before accepting them, and that may take several weeks.

If your estate plan includes a trust, you’ll want your trustees’ to have a copy when you are ready to give it to them, and the original can be kept safe with your documents.

Wills are treated differently than POA documents. Wills are usually kept at home and not filed anywhere until after death.

Also, with all documents, especially the Will, it is important to track and keep safe the originals.  You may sometimes be able to probate copies of Wills, but it’s better to keep the original secure and avoid the need to probate a copy.  This is less critical for other documents, but the same policy holds.

Having estate planning documents properly prepared by an experienced estate planning attorney is the first step. Step two is ensuring they are safely and properly stored, so they are ready for use when needed.

Reference: The Times-Enterprise (June 11, 2022) “Give thought to storing your estate papers”

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Do You Need Power of Attorney If You Have a Joint Account?

Clients often, sometimes at the suggestion of their bankers, add names onto accounts to make money accessible upon the incapacity or death of a parent.  This often leads them to assume they don’t need a Power of Attorney (POA), and they don’t realize that Powers of Attorney are designed to permit access to accounts upon incapacity of a parent. There are some pros and cons of doing this in either way, as discussed in the article “POAs vs. joint ownership” from NWI.com.

The POA permits the agent to access their parent’s bank accounts, make deposits and write checks.  However, it doesn’t create any ownership interest in the bank accounts. It allows access and signing authority.  This is usually what individuals are thinking of when they create these accounts.

If the person’s parent wants to add them to the account, they become a joint owner of the account. When this happens, the person has the same authority as the parent, accessing the account and making deposits and withdrawals.

However, there are downsides. Once the person is added to the account as a joint owner, their relationship changes. As a POA, they are a fiduciary, which means they have a legally enforceable responsibility to put their parent’s benefits above their own.  As an owner, they can treat the accounts as if they were their own and there’s no requirement to be held to a higher standard of financial care.  You can see the following article for more on this point.  https://www.galliganmanning.com/effect-of-adding-someone-to-your-bank-account/

Because the POA does not create an ownership interest in the account, when the owner dies, the account may pass to the surviving joint owners, Payable on Death (POD) beneficiaries or beneficiaries under the parent’s estate plan.

It also avoids the creation of a gift, which may have estate tax or Medicaid ramifications.

If the account is owned jointly, when one of the joint owners dies, the other person becomes the sole owner.

Another issue to consider is that becoming a joint owner means the account could be vulnerable to creditors for all owners. If the adult child has any debt issues, the parent’s account could be attached by creditors, before or after their passing.  I worked closing on a case with the opposite scenario, a creditor a parent collected money that otherwise would have gone to the children.

Most estate planning attorneys recommend the use of a POA rather than adding an owner to a joint account. If the intent of the owners is to give the child the proceeds of the bank account, they can name the child a POD on the account for when they pass and use a POA, so the child can access the account while they are living.

One last point: while the parent is still living, the child should contact the bank and provide them with a copy of the POA. This, allows the bank to enter the POA into the system and add the child as a signatory on the account. If there are any issues, they are best resolved before while the parent is still living.

Reference: NWI.com (Aug. 15, 2021) “POAs vs. joint ownership”

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