Provided by Carol Anderson, Anderson Wealth Advisors

What is guardianship?

A guardianship can help you manage your property if you are unable to care for your possessions yourself. A court proceeding to appoint a guardian occurs after you have become incapacitated. Someone, usually a relative or friend, must petition the court for guardianship. The court hears the facts and, if it finds that you are physically or mentally unable to manage your own financial affairs, it will appoint a guardian of the estate. (Guardianship of the person refers to making personal and medical decisions for that person. Guardianship can also refer to the legal care of children.)

Technical Note: A guardian may also be referred to as a conservator, committee, fiduciary, tutor, or curator, depending on the state involved. In Louisiana, guardianship is referred to as interdiction. Incapacitated persons are also called wards.

Tip: Some states allow limited forms of guardianship, tailoring the guardian's powers to the ward's needs.

For example, California allows a guardian to be appointed to take the necessary steps for Medicaid qualification only, and Maine and Washington allow a guardian to do only certain tasks such as banking or check writing. This may be desirable if the ward only needs special help. Some states also allow temporary or emergency guardians (sometimes called a standby conservatorship) in cases of a medical emergency to an otherwise nonincapacitated person. Check with an attorney to find out what your state allows.

Tip: Who can petition the court for guardianship varies from state to state. Generally, any interested person may file. An interested person is defined by state law. In practice, it is usually a spouse, parent, or child who files the petition. Additionally, the proper court in which to file varies from state to state, though generally it is the probate court. Check with an attorney or contact the clerk of courts at the court nearest you to find out how and who may file a petition.

What does a guardian do?

Takes possession of your property and uses it for your benefit

A guardian's duties are to take possession of your real and personal property and use it for your benefit. Although the guardian generally acts independently, your property should be protected from being wasted or abused because the guardian has a legal duty to act in your best interest. Some states require financial reporting by the guardian and/or require the guardian to post a bond.

Spends your estate for your necessary care and support

The guardian may spend your estate for your necessary care and support, such as:

  • Pay for the maintenance of your house
  • Pay your medical bills
  • Buy your groceries
  • Pay for in-home nursing care

Productively invests your assets

The guardian must not waste your assets. While in possession of them, the guardian must productively invest your assets.

Depending on state law, the guardian may be able to make gifts

Though not a duty, the guardian may be able to make gifts on your behalf if permitted to do so in your state. This power may be important because it allows the guardian to continue your estate and tax planning (by taking advantage of the annual gift tax exclusion or by Medicaid planning, for example).

Tip: The guardian cannot execute or modify your will and, in some states, the guardian cannot change the beneficiary you have named on life insurance policies.

What else should you know about guardianship?

You may be allowed to name a guardian in advance

Some states allow you to name a guardian in advance, either through a durable power of attorney or other legal document. Check with an attorney to find out what your state allows.

You may have to pay the guardian

Once appointed by the court and carrying out the necessary duties, the guardian is entitled to a fee. The guardian (usually a family member), however, is not obligated to take payment.

Guardianship will terminate upon your death or other occurrence

Guardianship ends when you either die or regain capacity, or when the guardian resigns or is removed by the court.

Why is advance planning better than court-ordered guardianship?

The guardianship process can be difficult and carries some of the following disadvantages.

  • Court procedures are time-consuming
  • Legal fees can be expensive
  • Your incapacity and financial affairs become open to public view
  • The process can be emotionally draining for you and your family
  • The powers given to the guardian are limited and, in some cases, must have prior approval from the court before they can be exercised
  • A stranger may be appointed

A professional guardian (that is, a stranger who may not have a personal interest in you or your affairs) will be appointed if you have no relatives who qualify.

  • There is the potential for abuse--Although the guardian is supposed to use a high degree of integrity, there is the potential for abuse. Generally, a guardian acts independently. Some states do not require any financial reporting and other states do not enforce the financial reporting rules. Also, the bond posted by the guardian may be inadequate to cover any losses sustained because of the guardian's misconduct.

Tip: There are procedures for removing a guardian for misconduct or incompetence. Generally, any interested person can initiate a removal proceeding. An interested person is defined by state law.

Tip: A durable power of attorney, joint ownership, standby trust, or living trust may be desirable planning alternatives to guardianship.

Example of pitfalls of not planning guardianship in advance

Example(s): Hal is 80 years old. When he was younger, Hal was a big star on the silver screen and made millions of dollars. Lately, Hal hasn't been thinking clearly. He's made some unusual financial decisions and lost a great deal of money as a result.

Example(s): Five years ago, Hal married Jane. She's worried that Hal is no longer able to manage his money and will lose even more. Jane calls Hal's attorney and discovers that Hal never made plans for someone else to take over his finances in case he should ever become incapacitated. Jane feels she has no choice but to ask the court to appoint her as guardian for Hal.

Example(s): After several weeks preparing for the court hearing, during which Hal loses more money, Jane and Hal finally appear at the first court hearing. Hal feels humiliated listening to people tell the judge why they think he is incompetent. Hal is further embarrassed when the press shows up to air all his dirty laundry. Pretty soon, the whole world knows all about his personal and financial business.

Example(s): But now it seems everyone wants to be Hal's guardian, especially Hal's children, and a battle begins.

Example(s): After a few more exhausting trips to the courthouse, Hal is declared incompetent by the judge and Jane is appointed guardian. Hal is beaten, Jane is happy, and Hal's children are angry.