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://galligan-law.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”

Continue ReadingGuardianship Alternatives

What If You Don’t have a Will?

Studies suggest that a majority of adults do not have an estate plan of any kind, even a will.  The issue of what happens when a person doesn’t have a will comes up frequently in our practice.  The answer to the question, which is what I’ll discuss here, provide lots of reasons to have one.  You can see a recent article entitled “Placing the puzzle pieces of long-term care and planning a will” from the Pittsburgh Post-Gazette for a bit more background, although state processes vary.

First, a will is a written document stating wishes and directions for dealing with the property you own after your death, also known as your “estate.” When someone dies without a will, property is distributed according to their state’s intestacy laws.  Intestacy sets who your beneficiaries will be since you haven’t chosen them, and generally are next of kin (with some wrinkles). If your next of kin is someone you loathe, or even just dislike, they may become an heir, whether you or the rest of your family likes it or not. If you are part of an unmarried couple, your partner has no legal rights, unless you’ve created a will and an estate plan to provide for them.

Intestacy rules vary greatly from state to state, especially in a community property state like Texas.  In general, intestacy laws distribute property to a surviving spouse or certain descendants. A very common exception, which many people don’t know and are surprised to learn, is that if you have children from outside of the current marriage, not everything goes to that spouse.  I frequently encounter families who assume spouse gets everything, regardless of family makeup, and this often leads to conflicts with family.

While practicing in Pennsylvania I actually had a situation in which one spouse died young without children and with living parents.  Not everything goes to the spouse in that situation, but instead, partially to spouse and the rest would have been divided between the surviving spouse and parents.  The surviving spouse was not pleased to learn that.

This may also lead to a difficult result for the beneficiary.  If they have disabilities and are using government benefits, receiving the inheritance may cause them to lose those benefits, which may be critical for that person’s care.  Wills and other estate planning documents can prevent that outcome.

If you don’t have a will, at least in Texas, it may be necessary to have a proceeding to determine who the heirs even are.  This is called an heirship proceeding and can be quite expensive as the court appoints another attorney (who you pay) to look for unknown heirs.  This whole process also adds time and uncertainty to a process which is already difficult due to the loss of a loved one.

Additionally, a will designates a person to handle the estate, often called an executor, and typically names successors should the first named person be unable or unwilling to serve.  In the absence of these directions, the heirs will have to figure it out among themselves, hopefully amicably and without litigation.

Many states also have limited proceedings that may or may not be helpful when a person doesn’t have a will.  For example, Texas has affidavits of heirship which can address retitling of land interests, such as the residence.  However, that won’t help for bank accounts.  Pennsylvania actually has a rule permitting small bank accounts to be distributed to next of kin after the funeral is paid.  That too may help, unless the account is $10,000 and is useless for land.  Many states have small estate proceedings that can work, but in practice are often cumbersome.

A much better solution: speak with an experienced estate planning attorney to have a will and other estate planning documents prepared to protect yourself and those you love.

Start by determining your goals and speaking with family members. You may be surprised to learn an adult child doesn’t need or want what you want to leave them. If you have a vacation home you want to leave to the next generation, ask to see if they want it. It may reveal new information about your family and change how you distribute your estate. A grandchild who has already picked out a Ferrari, for instance, might make you consider setting up a trust with distributions over time, so they can’t blow their inheritance in one purchase.

Determining who will be your executor is another important decision for your will. They are a fiduciary, with a legal obligation to put the estate’s interest above their own. They need to be able to manage money, make sound decisions and equally important, stick to your wishes, even when your surviving loved ones have other opinions about “what you would have wanted.”  See this article for further ideas:  https://galligan-law.com/what-are-the-duties-of-an-executor/  

If there is no one suitable or willing, your estate planning attorney will have some suggestions. Depending on the size of the estate, a bank or trust company may be able to serve as executor.

The will is just the first step. An estate plan includes planning for incapacity. With a Will, a Power of Attorney, Medical Powers of Attorney and other documents appropriate for your state, you and your loved ones will be better positioned to address the inevitable events of life.

Reference: Pittsburgh Post-Gazette (April 24, 2022) “Placing the puzzle pieces of long-term care and planning a will”

Continue ReadingWhat If You Don’t have a Will?

What Is the HEMS Standard?

Many trusts for third parties reference “HEMS” language, namely health, education, maintenance and support.  The HEMS standard is used to inform trustees as to how and when funds should be released to a beneficiary, according to a recent article from Yahoo! News, “What is the HEMS Standard in Estate Planning.” Using HEMS language in a trust gives the trustee more control over how assets are distributed and spent. If a beneficiary is young and not financial savvy, this becomes extremely important to protecting both the beneficiary and the assets in the trust. Your estate planning attorney can set up a trust to include this feature, and it is commonly a feature in trusts we prepare.

When a trust includes HEMS language, the assets may only be used for specific needs. Health, education or living expenses can include college tuition, mortgage, and rent payments, medical care and health insurance premiums.

Medical treatment may include eye exams, dental care, health insurance, prescription drugs and some elective procedures.

Education may include college housing, tuition, technology needed for college, studying abroad and career training.

Maintenance and Support includes reasonable comforts, like paying for a gym membership, vacations and gifts for family members.  Many attorneys also expand upon this definition at the request of clients to expressly authorize money to be spent for business opportunities, vehicles, houses and so on.

The HEMS language provides guidance for the trustee.  However, ultimately the trustee is vested with the discretionary power to decide whether the assets are being used according to the directions of the trust.

In some cases, the HEMS standard is essential for asset protection.  For example, if I am the beneficiary of a trust and also my own trustee, it isn’t a good idea for me to have unfettered discretion on using the trust funds.  If I did, a creditor of mine could require me to use that discretion to pay them.  Instead, it would be better if the trust limited the ability to distribute to HEMS as the trust can still assist with my health, education, maintenance and support.  You’ll notice however, that HEMS does not include my creditors. See this article for a similar issue discussing creditors and divorces of beneficiaries. https://galligan-law.com/protecting-inheritance-from-childs-divorce/

Sometimes beneficiary requests are straightforward, like college tuition or health insurance bills. However, maintenance and support need to be considered in the context of the family’s wealth. If the family and the beneficiary are used to a lifestyle that includes three or four luxurious vacations every year, a request for funds used for a ski trip to Spain may not be out of line. For another family and trust, this would be a ludicrous request.

Having HEMS language in the trust limits distribution. It may also, depending on the situation, be beneficial to have distribution restrictions so that the trustee can reply “no” when a beneficiary becomes too used to using trust money.

Giving the trustee HEMS language narrows their discretionary authority enough to help them do a better job of managing assets and may limit challenges by beneficiaries.

HEMS language can be as broad or narrow as the grantor wishes. Just as a trust is crafted to meet the specific directions of the grantor for beneficiaries, the HEMS language can be created to establish a trust where the assets may only be used to pay for college tuition or career training.

Reference: Yahoo! News (Jan. 7, 2022) “What is the HEMS Standard in Estate Planning”

Continue ReadingWhat Is the HEMS Standard?