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Estate Planning
Topics Covered:
Why Plan Your Estate?
Your Durable Power of Attorney
Your Will
Your Medical Directive
Trusts
Capacity Requirements
Estate Taxation
Estate Administration
Guardianship and Conservatorship
FAQs
Links
Why Plan Your Estate?
The knowledge that we will eventually die is one of
the things that seems to distinguish humans from
other living beings. At the same time, no one likes
to dwell on the prospect of his or her own death.
But if you postpone planning for your demise until
it is too late, you run the risk that your intended
beneficiaries -- those you love the most -- may not
receive what you would want them to receive whether
due to extra administration costs, unnecessary taxes
or squabbling among your heirs.
This is why estate planning is so important, no
matter how small your estate may be. It allows you,
while you are still living, to ensure that your
property will go to the people you want, in the way
you want, and when you want. It permits you to save
as much as possible on taxes, court costs and
attorneys' fees; and it affords the comfort that
your loved ones can mourn your loss without being
simultaneously burdened with unnecessary red tape
and financial confusion.
All estate plans should include, at minimum, two
important estate planning instruments: a durable
power of attorney and a will. The first is for
managing your property during your life, in case you
are ever unable to do so yourself. The second is for
the management and distribution of your property
after death. In addition, more and more, Americans
also are using revocable (or "living")
trusts to avoid probate and to manage their estates
both during their lives and after they' gone.
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Your Durable Power of
Attorney
For most people, the durable power of attorney is
the most important estate planning instrument
available--even more useful than a will. A power of
attorney allows a person you appoint -- your
"attorney-in-fact" -- to act in your place
for financial purposes when and if you ever become
incapacitated.
In that case, the person you choose will be able to
step in and take care of your financial affairs.
Without a durable power of attorney, no one can
represent you unless a court appoints a conservator
or guardian. That court process takes time, costs
money, and the judge may not choose the person you
would prefer. In addition, under a guardianship or
conservatorship, your representative may have to
seek court permission to take planning steps that
she could implement immediately under a simple
durable power of attorney.
A power of attorney may be limited or general. A
limited power of attorney may give someone the right
to sign a deed to property on a day when you are out
of town. Or it may allow someone to sign checks for
you. A general power is comprehensive and gives your
attorney-in-fact all the powers and rights that you
have yourself.
A power of attorney may also be either current or
"springing." Most powers of attorney take
effect immediately upon their execution, even if the
understanding is that they will not be used until
and unless the grantor becomes incapacitated.
However, the document can also be written so that it
does not become effective until such incapacity
occurs. In such cases, it is very important that the
standard for determining incapacity and triggering
the power of attorney be clearly laid out in the
document itself.
However, attorneys report that their clients are
experiencing increasing difficulty in getting banks
or other financial institutions to recognize the
authority of an agent under a durable power of
attorney. A certain amount of caution on the part of
financial institutions is understandable: When
someone steps forward claiming to represent the
account holder, the financial institution wants to
verify that the attorney-in-fact indeed has the
authority to act for the principal. Still, some
institutions go overboard, for example requiring
that the attorney-in-fact indemnify them against any
loss. Many banks or other financial institutions
have their own standard power of attorney forms. To
avoid problems, you may want to execute such forms
offered by the institutions with which you have
accounts. In addition, many attorneys counsel their
clients to create
living trusts in part to avoid this sort of
problem with powers of attorney.
While you should seriously consider executing a
durable power of attorney, if you do not have
someone you trust to appoint it may be more
appropriate to have the probate court looking over
the shoulder of the person who is handling your
affairs through a guardianship or conservatorship.
In that case, you may execute a limited durable
power of attorney simply nominating the person you
want to serve as your conservator or guardian. Most
states require the court to respect your nomination
"except for good cause or
disqualification."
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Your Will
Your will is a legally-binding statement directing
who will receive your property at your death. It
also appoints a legal representative to carry out
your wishes. However, the will covers only probate
property. Many types of property or forms of
ownership pass outside of probate. Jointly-owned
property, property in trust, life insurance proceeds
and property with a named beneficiary, such as IRAs
or 401(k) plans, all pass outside of probate.
Why should you have a will? Here are some reasons:
First, with a will you can direct where and to whom
your estate (what you own) will go after your death.
If you died intestate (without a will), your estate
would be distributed according to your state'
law. Such distribution may or may not accord with
your wishes.
Many people try to avoid probate and the need for a
will by holding all of their property jointly with
their children. This can work, but often people
spend unnecessary effort trying to make sure all the
joint accounts remain equally distributed among
their children. These efforts can be defeated by a
long-term illness of the parent or the death of a
child. A will can be a much simpler means of
effecting one' wishes about how assets should be
distributed.
The second reason to have a will is to make the
administration of your estate run smoothly. Often
the probate process can be completed more quickly
and at less expense to your estate if there is a
will. With a clear expression of your wishes, there
are unlikely to be any costly, time-consuming
disputes over who gets what.
Third, only with a will can you choose the person to
administer your estate and distribute it according
to your instructions. This person is called your
"executor" (or "executrix" if
you appoint a woman) or "personal
representative," depending on your state'
statute. If you do not have a will naming him or
her, the court will make the choice for you. Usually
the court appoints the first person to ask for the
post, whoever that may be.
Fourth, for larger estates, a well-planned will can
help reduce estate taxes.
Fifth, and most important, through a will you can
appoint who will take your place as guardian of your
minor children should both you and their other
parent both pass away.
Filling out a worksheet will help you make decisions
about what to put in your will. Bring it and any
additional notes to your lawyer and he or she will
be able to efficiently prepare a will that meets
your needs and desires. Use the worksheet provided
under the Resources tab above.
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Your Medical Directive
Any complete estate plan should include a medical
directive. This term may encompass a number of
different documents, including a health care proxy,
a durable power of attorney for health care, a
living will, and medical instructions. The exact
document or documents will depend on your state'
laws and the choices you make.
Both a health care proxy and a durable power of
attorney for health care designate someone you
choose to make health care decisions for you if you
are unable to do so yourself. A living will
instructs your health care provider to withdraw life
support if you are terminally ill or in a vegetative
state. A broader medical directive may include the
terms of a living will, but will also provide
instructions if you are in a less severe state of
health, but are still unable to direct your health
care yourself.
For more information, see
Medical Directives.
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Trusts
A trust is a legal arrangement through which one person
(or an institution, such as a bank or law firm), called
a “trustee,” holds legal title to property
for another person, called a “beneficiary.”
The rules or instructions under which the trustee
operates are set out in the trust instrument. Trusts
have one set of beneficiaries during their lives and
another set -- often their children -- who begin to
benefit only after the first group has died. The first
are often called "life beneficiaries" and the
second "remaindermen." (For an overview of a
trustee' duties,
click here.)
Uses of Trusts
There can be several advantages to establishing a
trust, depending on your situation. Best-known is
the advantage of avoiding probate. In a trust that
terminates with the death of the donor, any property
in the trust prior to the donor' death passes
immediately to the beneficiaries by the terms of the
trust without requiring probate. This can save time
and money for the beneficiaries. Certain trusts can
also result in tax advantages both for the donor and
the beneficiary. These are often referred to as
"credit shelter" or "life
insurance" trusts. Other trusts may be used to
protect property from creditors or to help the donor
qualify for Medicaid. Unlike wills, trusts are
private documents and only those individuals with a
direct interest in the trust need know of trust
assets and distribution. Provided they are
well-drafted, another advantage of trusts is their
continuing effectiveness even if the donor dies or
becomes incapacitated.
Kinds of Trusts
Trusts fall into two basic categories: testamentary
and inter vivos.
A testamentary trust is one created by your will,
and it does not come into existence until you die.
In contrast, an inter vivos trust starts during your
lifetime. You create it now and it exists during
your life.
There are two kinds of inter vivos trusts: revocable
and irrevocable.
Revocable Trusts
Revocable trusts are often referred to as
"living" trusts. With a revocable trust,
the donor maintains complete control over the trust
and may amend, revoke or terminate the trust at any
time. This means that you, the donor, can take back
the funds you put in the trust or change the
trust' terms. Thus, the donor is able to reap
the benefits of the trust arrangement while
maintaining the ability to change the trust at any
time prior to death.
Revocable trusts are generally used for the
following purposes:
-
Asset management. They permit the named
trustee to administer and invest the trust
property for the benefit of one or more
beneficiaries.
-
Probate avoidance. At the death of the
person who created the trust, the
"grantor" or "donor," the
trust property passes to whoever is named in the
trust. It does not come under the jurisdiction of
the probate court and its distribution need not
be held up by the probate process. However, the
property of a revocable trust will be included in
the grantor’s estate for tax purposes.
-
Tax planning. While the assets of a
revocable trust will be included in the
grantor’s taxable estate, the trust can be
drafted so that the assets will not be included
in the estates of the beneficiaries, thus
avoiding taxes when the beneficiaries die.
Irrevocable Trusts
An irrevocable trust cannot be changed or amended by
the donor. Any property placed into the trust may
only be distributed by the trustee as provided for
in the trust document itself. For instance, the
donor may set up a trust under which he or she will
receive income earned on the trust property, but
that bars access to the trust principal. This type
of irrevocable trust is a popular tool for Medicaid
planning.
Testamentary Trusts
As noted above, a testamentary trust is a trust
created by a will. Such a trust has no power or
effect until the will of the donor is probated.
Although a testamentary trust will not avoid the
need for probate and will become a public document
as it is a part of the will, it can be useful in
accomplishing other estate planning goals. For
instance, the testamentary trust can be used to
reduce estate taxes on the death of a spouse or
provide for the care of a disabled child.
Supplemental Needs Trusts
The purpose of a supplemental needs trust is to
enable the donor to provide for the continuing care
of a disabled spouse, child, relative or friend. The
beneficiary of a well-drafted supplemental needs
trust will have access to the trust assets for
purposes other than those provided by public
benefits programs. In this way, the beneficiary will
not lose eligibility for benefits such as
Supplemental Security Income, Medicaid and
low-income housing. A supplemental needs trust can
be created by the donor during life or be part of a
will.
Credit Shelter Trusts
Credit shelter trusts are a way to take full
advantage of the estate tax exemption. The first $2
million (in 2006) of an estate are exempt from
taxes, so theoretically a husband and wife would
have no estate tax if their estate is less than $4
million. However, if one spouse dies and leaves
everything to the surviving spouse, the surviving
spouse may have an estate that is greater than $2
million. When the surviving spouse dies, any part of
the estate over $2 million will be subject to estate
tax.
To avoid this problem, the spouses can create a
credit shelter trust as part of their estate plan.
When one spouse passes away, the first $2 million of
that spouse' estate is put in to a trust. The
surviving spouse can receive income from the trust,
but as long as he or she does not control the
principal, the money will not be included in the
surviving spouse' estate when he or she passes
away.
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Capacity Requirements
Proper execution of a legal instrument requires that
the person signing have sufficient mental
"capacity" to understand the implications
of the document. While most people speak of legal
"capacity" or "competence" as a
rigid black line--either the person has it or
doesn' fact it can be quite variable depending
on the person' abilities and the function for
which capacity is required.
One side of the capacity equation involves the
client' abilities, which may change from day to
day (or even during the day), depending on the
course of the illness, fatigue and the effects of
medication. On the other side, greater understanding
is required for some legal activities than for
others. For instance, the capacity required for
entering into a contract is higher than that
required to execute a will.
The standard definition of capacity for wills has
been aptly summed up by the Massachusetts Supreme
Judicial Court:
Testamentary capacity requires ability on the
part of the testator to understand and carry in
mind, in a general way, the nature and situation
of his property and his relations to those
persons who would naturally have some claim to
his remembrance. It requires freedom from
delusion which is the effect of disease or
weakness and which might influence the
disposition of his property. And it requires
ability at the time of execution of the alleged
will to comprehend the nature of the act of
making a will.
This is a relatively "low threshold,"
meaning that signing a will does not require a great
deal of capacity. The fact that the next day the
testator does not remember the will signing and is
not sufficiently "with it" to execute a
will then does not invalidate the will if he
understood it when he signed it.
The standard of capacity with respect to durable
powers of attorney varies from jurisdiction to
jurisdiction. Some courts and practitioners argue
that this threshold can be quite low. The client
need only know that he trusts the attorney-in-fact
to manage his financial affairs. Others argue that
since the attorney-in-fact generally has the right
to enter into contracts on behalf of the principal,
the principal should have capacity to enter into
contracts as well. The threshold for entering into
contracts is fairly high.
The standards for entering into a contract are
different because the individual must know not only
the nature of her property and the person with whom
she is dealing, but also the broader context of the
market in which she is agreeing to buy or sell
services or property. In Farnum v. Silvano in
1989, the Massachusetts Appeals Court reversed the
sale of a home by a 90-year-old woman suffering from
organic brain disease. The sale was for half of the
house' market value. The court contrasted
competency to sell property with the capacity to
make a will, the latter requiring only understanding
at the time of executing the will:
Competency to enter into a contract presupposes
something more than a transient surge of
lucidity. It requires the ability to comprehend
the nature and quality of the transaction,
together with an understanding of what is
"going on," but an ability to
comprehend the nature and quality of the
transaction, together with an understanding of
its significance and consequences.
As a practical matter, in assessing a client'
capacity to execute a legal document, attorneys
generally ask the question, "Is anyone going to
challenge this transaction?" If a client of
questionable capacity executes a will giving her
estate to her husband, and then to her children if
her husband does not survive her, it' unlikely
to be challenged. If, on the other hand, she
executes a will giving her estate entirely to one
daughter with nothing passing to her other children,
the attorney must be more certain of being able to
prove the client' capacity.
While the standards may seem clear, applying them to
particular clients may be difficult. The fact that a
client does not know the year or the name of the
President may mean she does not have capacity to
enter into a contract, but not necessarily that she
can' execute a will or durable power of
attorney. The determination mixes medical,
psychological and legal judgments. It must be made
by the attorney (or a judge, in the case of
guardianship and conservatorship determinations)
based on information gleaned by the attorney in
interactions with the client, from other sources
such as family members and social workers, and, if
necessary, from medical personnel. Doctors and
psychiatrists cannot themselves make a determination
as to whether an individual has capacity to
undertake a legal commitment. But they can provide a
professional evaluation of the person that will help
an attorney make this decision.
Because you need a third party to assess capacity
and because you need to be certain that the formal
legal requirements are followed, it can be risky to
prepare and execute legal documents on your own
without representation by an attorney.
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Estate Taxation
Under the tax law enacted in 2001, whatever you own
is subject to the federal estate tax upon your
death, until 2010. For the year 2010, estates will
be entirely free from federal taxation. However, the
law that includes this provision expires at the end
of 2010. Thus, unless Congress acts in the interim,
the estate tax rules will then revert to those
prevailing in 2001.
For 2006, the tax rate on estates is 46 percent.
Between 2006 and 2009, the top tax rate will
gradually be lowered to 45 percent (see box below).
That said, not all estates will be taxed while the
estate tax is in effect. First, spouses can leave
any amount of property to their spouses, if the
spouses are U.S. citizens, free of federal estate
tax. Second, the estate tax applies only to estates
valued at more than $2 million in 2006 and this
threshold will increase incrementally until it
reaches $3.5 million in 2009 (see box). The federal
government allows you this tax credit for gifts made
during your life or for your estate upon your death.
Third, gifts to charities are not taxed.
Most states also have an estate or inheritance tax.
But more and more have moved to a so-called
"sponge" tax, which ultimately doesn'
cost your estate. The way this works is that the
states take advantage of a provision in the federal
estate tax permitting a deduction for taxes paid to
the state up to certain limits. The states simply
take the full amount of what you are allowed to
deduct off the federal taxes. However, under the
2001 tax law the allowable state deduction was
phased out and disappeared in 2005. This means that
many states are changing their estate tax laws to
make up the difference. These changes may call for a
restructuring of your estate plan; check with your
attorney.
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Tax Year
|
Tax Rate
|
Exemption Equivalent
|
|
2001
|
37-55%
|
675,000
|
|
2002
|
41-50%
|
1,000,000
|
|
2003
|
41-49%
|
1,000,000
|
|
2004
|
45-48%
|
1,500,000
|
|
2005
|
45-47%
|
1,500,000
|
|
2006
|
46%
|
2,000,000
|
|
2007
|
45%
|
2,000,000
|
|
2008
|
45%
|
2,000,000
|
|
2009
|
45%
|
3,500,000
|
|
2010
|
N/A
|
N/A
|
Making Gifts: The $12,000 Rule
One simple way you can reduce estate taxes or
shelter assets in order to achieve Medicaid
eligibility is to give some or all of your estate to
your children (or anyone else) during their lives in
the form of gifts. Certain rules apply, however.
There is no actual limit on how much you may give
during your lifetime. But if you give any individual
more than $12,000 (in 2006), you must file a gift
tax return reporting the gift to the IRS. Also, the
amount above $12,000 will be counted against a $1
million lifetime tax exclusion for gifts. Each
dollar of gift above $1 million reduces the amount
that can be transferred tax-free in your estate.
The $12,000 figure is an exclusion from the gift tax
reporting requirement. You may give $12,000 to each
of your children, their spouses, and your
grandchildren (or to anyone else you choose) each
year without reporting these gifts to the IRS. In
addition, if you' married, your spouse can
duplicate these gifts. For example, a married couple
with four children can give away up to $96,000 in
2006 with no gift tax implications. In addition, the
gifts will not count as taxable income to your
children (although the earnings on the gifts if they
are invested will be taxed). For more on gifting,
see Gifts to
Grandchildren.
Charitable Gift Annuities
Another way to remove assets from an estate is to
make a contribution to a charitable gift annuity, or
CGA. A CGA enables you to transfer cash or
marketable securities to a charitable organization
or foundation in exchange for an income tax
deduction and the organization' promise to make
fixed annual payments to you (and to a second
beneficiary, if you choose) for life. A portion of
the income will be tax-free. For more on CGAs,
click here.
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Estate Administration
Probate is the process by which a deceased
person' property, known as the
"estate," is passed to his or her heirs
and legatees (people named in the will). The entire
process, supervised by the probate court, usually
takes about a year. However, substantial
distributions from the estate can be made in the
interim.
The emotional trauma brought on by the death of a
close family member often is accompanied by
bewilderment about the financial and legal steps the
survivors must take. The spouse who passed away may
have handled all of the couple' finances. Or
perhaps a child must begin taking care of probating
an estate about which he or she knows little. And
this task may come on top of commitments to family
and work that can' be set aside. Finally, the
estate itself may be in disarray or scattered among
many accounts, which is not unusual with a
generation that saw banks collapse during the
Depression.
Here we set out the steps the surviving family
members should take. These responsibilities
ultimately fall on whoever was appointed executor or
personal representative in the deceased family
member' will. Matters can be a bit more
complicated in the absence of a will, because it may
not be clear who has the responsibility of carrying
out these steps.
First, secure the tangible property. This means
anything you can touch, such as silverware, dishes,
furniture, or artwork. You will need to determine
accurate values of each piece of property, which may
require appraisals, and then distribute the property
as the deceased directed. If property is passed
around to family members before you have the
opportunity to take an inventory, this will become a
difficult, if not impossible, task. Of course, this
does not apply to gifts the deceased may have made
during life, which will not be part of his or her
estate.
Second, take your time. You do not need to take any
other steps immediately. While bills do need to be
paid, they can wait a month or two without adverse
repercussions. It' more important that you and
your family have time to grieve. Financial matters
can wait. (One exception: Social Security should be
notified within a month of death. If checks are
issued following death, you could be in for a
battle. For more on Social Security' death
procedures, click on http://www.ssa.gov/pubs/deathbenefits.htm)
When you' ready, but not a day sooner, meet with
an attorney to review the steps necessary to
administer the deceased' estate. Bring as much
information as possible about finances, taxes and
debts. Don' worry about putting the papers in
order first; the lawyer will have experience in
organizing and understanding confusing financial
statements.
The exact rules of estate administration differ from
state to state. In general, they include the
following steps:
1. Filing the will and petition at the probate court
in order to be appointed executor or personal
representative. In the absence of a will, heirs must
petition the court to be appointed
"administrator" of the estate.
2. Marshaling, or collecting, the assets. This means
that you have to find out everything the deceased
owned. You need to file a list, known as an
"inventory," with the probate court.
It' generally best to consolidate all the estate
funds to the extent possible. Bills and bequests
should be paid from a single checking account,
either one you establish or one set up by your
attorney, so that you can keep track of all
expenditures.
3. Paying bills and taxes. If an estate tax return
is needed---generally if the estate exceeds $1
million in value---it must be filed within nine
months of the date of death. If you miss this
deadline and the estate is taxable, severe penalties
and interest may apply. If you do not have all the
information available in time, you can file for an
extension and pay your best estimate of the tax due.
4. Filing tax returns. You must also file a final
income tax return for the decedent and, if the
estate holds any assets and earns interest or
dividends, an income tax return for the estate. If
the estate does earn income during the
administration process, it will have to obtain its
own tax identification number in order to keep track
of such earnings.
5. Distributing property to the heirs and legatees.
Generally, executors do not pay out all of the
estate assets until the period runs out for
creditors to make claims, which can be as long as a
year after the date of death. But once the executor
understands the estate and the likely claims, he or
she can distribute most of the assets, retaining a
reserve for unanticipated claims and the costs of
closing out the estate.
6. Filing a final account. The executor must file an
account with the probate court listing any income to
the estate since the date of death and all expenses
and estate distributions. Once the court approves
this final account, the executor can distribute
whatever is left in the closing reserve, and finish
his or her work.
Some of these steps can be eliminated by avoiding
probate through joint ownership or trusts. But
whoever is left in charge still has to pay all
debts, file tax returns, and distribute the property
to the rightful heirs. You can make it easier for
your heirs by keeping good records of your assets
and liabilities. This will shorten the process and
reduce the legal bill.
Health and Elder Law Programs (H.E.L.P.), a
non-profit organization started by a California
elder law attorney, offers a checklist to help
survivors sort out and keep track of the things that
need to be handled after a person has died. For
more, click on
http://www.help4srs.org/end_of_life/death_checklist.htm.
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Guardianship and
Conservatorship
Introduction
Every adult is assumed to be capable of making her
own decisions unless a court determines otherwise.
If an adult becomes incapable of making responsible
decisions due to a mental disability, the court will
appoint a substitute decision maker, often called a
"guardian," but in some states called a
"conservator" or other term. Guardianship
is a legal relationship between a competent adult
(the "guardian") and a person who because
of incapacity is no longer able to take care of his
or her own affairs (the "ward").
The guardian is authorized to make legal, financial,
and health care decisions for the ward. Depending on
the terms of the guardianship and state practices,
the guardian may or may not have to seek court
approval for various decisions. In many states, a
person appointed only to handle finances is called a
"conservator."
Some incapacitated individuals can make responsible
decisions in some areas of their lives but not
others. In such cases, the court may give the
guardian decision making power over only those areas
in which the incapacitated person is unable to make
responsible decisions (a so-called "limited
guardianship"). In other words, the guardian
may exercise only those rights that have been
removed from the ward and delegated to the guardian.
Incapacity
The standard under which a person is deemed to
require a guardian differs from state to state. In
some states the standards are different, depending
on whether a complete guardianship or a
conservatorship over finances only is being sought.
Generally a person is judged to be in need of
guardianship when he or she shows a lack of capacity
to make responsible decisions. A person cannot be
declared incompetent simply because he or she makes
irresponsible or foolish decisions, but only if the
person is shown to lack the capacity to make
sound decisions. For example, a person may not be
declared incompetent simply because he or she spends
money in ways that seem odd to someone else. Also, a
developmental disability or mental illness is not,
by itself, enough to declare a person incompetent.
Process
In most states, anyone interested in the proposed
ward’s well-being can request a guardianship.
An attorney is usually retained to file a petition
for a hearing in the probate court in the proposed
ward’s county of residence. Protections for
the proposed ward vary greatly with from state to
state, with some simply requiring that notice of the
proceeding be provided and others requiring the
proposed ward’s presence at the hearing. The
proposed ward is usually entitled to legal
representation at the hearing, and the court will
appoint an attorney if the allegedly incapacitated
person cannot afford a lawyer.
At the hearing, the court attempts to determine if
the proposed ward is incapacitated and, if so, to
what extent the individual requires assistance. If
the court determines that the proposed ward is
indeed incapacitated, the court then decides if the
person seeking the role of guardian will be a
responsible guardian.
A guardian can be any competent adult -- the
ward’s spouse, another family member, a
friend, a neighbor, or a professional guardian (an
unrelated person who has received special training).
A competent individual may nominate a proposed
guardian through a durable power of attorney in case
she ever needs a guardian.
The guardian need not be a person at all -- it can
be a non-profit agency or a public or private
corporation. If a person is found to be
incapacitated and a suitable guardian cannot be
found, courts in many states can appoint a public
guardian, a publicly financed agency that serves
this purpose. In naming someone to serve as a
guardian, courts give first consideration to those
who play a significant role in the ward’s life
-- people who are both aware of and sensitive to the
ward’s needs and preferences. If two
individuals wish to share guardianship duties,
courts can name co-guardians.
Reporting Requirements
Courts often give guardians broad authority to
manage the ward’s affairs. In addition to
lacking the power to decide how money is spent or
managed, where to live and what medical care he or
she should receive, wards also may not have the
right to vote, marry or divorce, or carry a
driver' license. Guardians are expected to act
in the best interests of the ward, but given the
guardian’s often broad authority, there is the
potential for abuse. For this reason, courts hold
guardians accountable for their actions to ensure
that they don’t take advantage of or neglect
the ward.
The guardian of the property inventories the
ward' property, invests the ward’s funds
so that they can be used for the ward' support,
and files regular, detailed reports with the court.
A guardian of the property also must obtain court
approval for certain financial transactions.
Guardians must file an annual account of how they
have handled the ward’s finances. In some
states guardians must also give an annual report on
the ward’s status. Guardians must offer proof
that they made adequate residential arrangements for
the ward, that they provided sufficient health care
and treatment services, and that they made available
educational and training programs, as needed.
Guardians who cannot prove that they have adequately
cared for the ward may be removed and replaced by
another guardian.
Alternatives
Because guardianship involves a profound loss of
freedom and dignity, state laws require that
guardianship be imposed only when less restrictive
alternatives have been tried and proven to be
ineffective. Less restrictive alternatives that
should be considered before pursuing guardianship
include:
Power of Attorney. A power of attorney is the
grant of legal rights and powers by a person (the
principal) to another (the agent or
attorney-in-fact). The attorney-in-fact, in effect,
stands in the shoes of the principal and acts for
him or her on financial, business or other matters.
In most cases, even when the power of attorney is
immediately effective, the principal does not intend
for it to be used unless and until he or she becomes
incapacitated. For more on the power of attorney,
click here.
Representative or Protective Payee. This is a
person appointed to manage Social Security,
Veterans’ Administration, Railroad Retirement,
welfare or other state or federal benefits or
entitlement program payments on behalf of an
individual.
Conservatorship. In some states this
proceeding can be voluntary, where the person
needing assistance with finances petitions the
probate court to appoint a specific person (the
conservator) to manage his or her financial affairs.
The court must determine that the conservatee is
unable to manage his or her own financial affairs,
but nevertheless has the capacity to make the
decision to have a conservator appointed to handle
his or her affairs.
Revocable trust. A revocable or
"living" trust can be set up to hold an
older person’s assets, with a relative, friend
or financial institution serving as trustee.
Alternatively, the older person can be a co-trustee
of the trust with another individual who will take
over the duties of trustee should the older person
become incapacitated.
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