For those of us with older parents, it's natural to wonder when it might be necessary to become more involved in their day-to-day care. Whether they are simply becoming less able with age or are beginning to show signs of cognitive decline, there may come a time when they are no longer capable of caring for themselves on an ongoing basis.
You may also be concerned about whether their decline might eventually lead to the appointment of a court-appointed guardian or conservator to make key decisions for them.
Generally, if your loved one is of sound mind and has employed some basic estate planning techniques (see below), then a guardianship or conservatorship is not likely in your future. But it's advisable that you be informed about these options to care for loved ones, in case the need arises.
Guardianships and conservatorships confer wide-ranging power over an individual and their assets to a third party. An estimated 1.5 million people in the US are currently under guardianships: 85% of them over 65. Another 150,000+ are added each year.1 It's estimated that some $300 billion is under the control of guardians/conservators.2
The role of a guardian/conservator
The terms guardianship and conservatorship are sometimes used interchangeably. Generally, a guardian is a court-appointed fiduciary responsible for the health, care, and well-being of someone incapable of caring for themselves due to a lack of mental capacity. In some states, a guardian is also responsible for managing the incapacitated person's finances, while in other states the roles are separate and a conservator is appointed to manage the finances when a person is unable to manage them on their own. In California, a conservatorship refers to a court-appointed fiduciary responsible for managing the health (conservator of the person) and finances (conservator of the estate) of an incapacitated adult.
A guardianship or conservatorship exists until the adult regains the ability for self-care and the court terminates the guardianship or conservatorship, or until they pass away. Guardians and conservators can be family members, friends, or nonrelated professionals appointed by a court.
Guardians and conservators are granted either full or limited authority. A full guardianship or conservatorship gives someone complete authority to manage health care, housing, and finances for the protected individual. A limited guardianship or conservatorship is intended to honor the protected person's wishes to the extent they are able to express them and give the protected person authority to make as many decisions about their own lives as they can. The extent of the guardian's or conservator's authority is spelled out in the court's decree of appointment.
There are risks in seeking a guardianship or conservatorship. Fights between family members and guardians leave the protected person caught in the middle and with their resources paying the bills for resolution. There are cases of scams involving individuals applying to be guardian or conservator simply to take control of the money, raiding bank accounts with unnecessary, fake, or inflated service costs while abandoning a standard of care and keeping loved ones away.
From the guardian's or conservator's perspective, it can be extremely demanding emotionally to serve in this role and time-consuming as well.
Financial planning considerations
As we move beyond the pandemic, you'll likely be spending more time with aging family and loved ones. If you are the family decision-maker, people will seek your help. So you should be aware of a few safeguards that can be put in place now, along with actions that can be taken to avoid the need for guardianship/conservatorship and to help prevent financial abuse.
- Durable financial power of attorney: By having a financial power of attorney in place, a guardianship or conservatorship can potentially be avoided. A financial power of attorney names an agent who has the power to act regarding financial matters. A durable financial power of attorney stays in effect if the creator becomes unable to handle their own financial affairs due to a lack of capacity. In addition, the creator of the power of attorney can name their choice of who is to serve as guardian or conservator should those proceedings become necessary down the line, thus giving them an opportunity to control the selection. There are various options to choose from in selecting a guardian or a conservator including government-run social service departments, non-profit social services agencies, for-profit companies, trust companies and attorneys. Choosing a potential future guardian or conservator, particularly an institutional guardian or conservator, should involve proper due diligence to ensure you are dealing with a reputable fiduciary.
- Health care power of attorney: A durable health care power of attorney or health care proxy is a document that grants an agent authority to make health care decisions for an individual who is unable to make those decisions on their own behalf. Health care decisions can include those related to medical treatment, facility placement, hospital admittance, or hiring health care aides.
- Trusts: A trust allows a trustee to hold property or assets for the benefit of a third party, the beneficiary. The terms of the trust are dictated by a trust instrument, which can include a provision specifying that if the grantor is determined to be incapacitated, the successor trustee can assume control and administration of trust assets to make sure they are protected. The trustee's authority does not extend to assets not titled in the name of the trust. An important tip: When it's time to choose a trustee, avoid siblings and other family members. Ideally, there is a separation between the trustee position and emotional support systems, so that financial decisions do not impact important personal relationships, and vice versa. Sometimes naming a professional trustee (such as a trust company officer) can be a prudent move and help remove that stress from the family. An individual co-trustee could also be selected, to help support the professional trustee with relevant context such as family history.
- Supported decision-making (SDM): A supported decision-making agreement enables a person, who can make their own life decisions but needs assistance doing so, to name an individual, like a family caregiver, to help make decisions. Though not recognized in all states, the use is being expanded as states address guardianship reform. You should split up decision-making among several people in ways that allow the loved one to retain certain decisions and control over their money, lifestyle, and spending.
- Team approach: Designating a team can provide oversight and help prevent abuse by a single individual holding sole power over all decisions. This can include naming different decision-makers for health and financial decisions, naming co-agents on health and financial powers of attorney, naming co-trustees on a trust, or use of a corporate trustee. This approach allows closer scrutiny on the situation and can help build in checks and balances. For example, a watchful eye can be paid to look out for elder scams, missing money, and even family members who may try to be "generous."
- Trusted contact: Add 1 or 2 trusted contacts to financial accounts (including all Fidelity accounts) so that financial institutions can contact those individuals in the event of concerns about health, well-being, or welfare.
- Account monitoring: An account monitoring service such as the one from Eversafe.com sends suspicious activity alerts, including warnings for unusual withdrawals, missing deposits, odd charges, changes in spending patterns, and much more.
The issues and potential solutions can become significantly more complex for wealthier individuals. The considerations evolve from finding a responsible person who can manage simple tasks like paying bills to selecting an experienced professional who can prudently manage millions of dollars. In these situations, it is critical to consider the nature of the assets as well.
For example, what is the plan when the CEO or founder of a successful business becomes incapacitated? Often these cases involve careful consideration of both the business management and the personal needs of the protected person and the family that may depend on that person.
In summary, it's vital to understand the financial planning concepts discussed in this article and to be mindful of how we can best support our loved ones—to protect their assets, embrace their dignity, and even help fulfill their end-of-life wishes.
The first step is always education and family discussions. Fidelity has several resources to help our clients successfully plan for potential incapacity. Consider reviewing the following Fidelity resources:
David is responsible for Fidelity's estate and wealth planning activities, including creation of new thought leadership in these areas. He heads a team of professionals that develops and delivers the depth and breadth of Fidelity's wealth planning offering.
Prior to joining Fidelity, David was managing director and head of Insured Solutions for UBS Wealth Management Americas. He served as chief operating officer of UBS Wealth Planning. David first joined UBS as a senior member of UBS Private Wealth Management, and was involved in the creation of that business for the firm. During his tenure with UBS, he also served as the chairman and president of UBS Life Insurance Company USA, Inc.; the chairman and president of UBS Financial Services Insurance Agency, Inc.; and a board member of UBS Trust Company, N.A.
Prior to joining UBS, David was a director in Merrill Lynch's Private Banking & Investment Group. He joined the firm's International Private Banking business in London and was a key member of the firm's Corporate Strategy unit.