In Michigan, a person may petition the probate court to appoint a guardian or conservatorship to someone who is incapacitated because they are no longer able to make important decisions for themselves. A guardian is empowered to make significant decisions about the ward such as where they will live and what kind of medical treatment they can receive. A conservator is empowered to manage the ward’s property and financial affairs. These are fiduciary positions where the guardian and conservator are trusted with the safety and wellbeing of the individual and their property. However, guardianships and conservatorships certainly have their drawbacks. The probate court may appoint someone to that position that is unsuitable and leads to the ward being abused and neglected. An unscrupulous conservator may steal money or dispose of property with the damage being undetected for months or years. Family members or friends trying to protect their loved ones may try to petition the court to modify or terminate the guardianship or conservatorship, but this can be a long, involved and expensive process during which the ward will continue to suffer.
Are there alternatives to guardianships or conservatorships to avoid these unfortunate outcomes? With a little foresight and some planning, it may be possible for individuals to set up their affairs in a way to prevent the need for the probate court to get involved.
DURABLE OR LIMITED POWER OF ATTORNEY FOR FINANCIAL AFFAIRS
A power of attorney is a document where a grantor designates someone to be their attorney-in-fact with the authority to act for them regarding their financial and legal affairs. “A durable power of attorney is a power of attorney by which a principal designates another as the principal’s attorney-in-fact in a writing that contains the words ‘[t]his power of attorney is not affected by the principal’s subsequent disability or incapacity, or by the lapse of time’, or ‘[t]his power of attorney is effective upon the disability or incapacity of the principal”, or similar words showing the principal’s intent that the authority conferred is exercisable notwithstanding the principal’s subsequent disability or incapacity”. MCL 700.5501(1). A limited power of attorney may not be considered durable into perpetuity but rather may limit the time frame it is effective or the scope of the attorney-in-fact’s powers to meet the needs and desires of the grantor.
However, a durable power of attorney for finances may avoid the need for a conservatorship should the grantor become incapacitated. The grantor should create the durable power of attorney before becoming incapacitated so that it is a valid document. The durable power of attorney must be either signed in the presence of two witnesses (neither of whom is the attorney-in-fact) or acknowledged by the principal before a notary public (or both). MCL 700.5501(2). The durable power of attorney can be amended or revoked by the grantor at any time that he or she is capable of doing so.
DURABLE POWER OF ATTORNEY FOR HEALTH CARE OR PATIENT ADVOCATE DESIGNATION
“An individual 18 years of age or older who is of sound mind at the time a patient advocate designation is made may designate in writing another individual who is 18 years of age or older to exercise powers concerning care, custody, and medical or mental health treatment decisions for the individual making the patient advocate designation.” MCL 700.5506(1). “[A]n individual who is named in a patient advocate designation to exercise powers concerning care, custody, and medical or mental health treatment decisions is known as a patient advocate and an individual who makes a patient advocate designation is known as a patient.” MCL 700.5506(2). In that document, the patient can direct the patient advocate regarding what medical decisions he or she is empowered to make, guidance regarding end-of-life decisions and preferences regarding anatomical gifts. If properly created, the patient advocate designation may negate the need for a guardian to be appointed for medical decisions.
“[A] patient advocate designation… must be executed in the presence of and signed by 2 witnesses”, and a witness may not be the patient’s spouse, parent, child, grandchild, sibling, presumptive heir, known devisee at the time of the witnessing, physician, or patient advocate or an employee of a life or health insurance provider for the patient, of a health facility that is treating the patient, or of a home for the aged where the patient resides, or of a community mental health services program or hospital that is providing mental health services to the patient. MCL 700.5506(4). The patient advocate designation can be amended or revoked by the patient at any time that he or she is capable of doing so.
A grantor can create a revocable trust where their property is transferred to the control of a trustee responsible for the assets therein. A revocable trust is usually created as a vehicle for property to avoid probate because the assets are not considered part of the decedent’s estate and can be transferred pursuant to the instructions in the trust document. Generally, the grantor is the trustee of his or her own trust during life and can do whatever is desired with the assets contained therein. Once the grantor dies, a successor trustee is then appointed to step in and carry out the wishes of the grantor as directed.
However, a trust can also prevent the need of a conservator to be appointed to manage the grantor’s affairs. If the trust document provides that a successor trustee can step in and take control when the grantor/trustee is incapacitated, then there is no need for a conservator to manage that property on the trustee’s behalf instead. An attorney-in-fact appointed under a durable power of attorney for the grantor/trustee may also be able to manage and control trust assets if there is no successor trustee appointed.
MEDICAID QUALIFYING FIRST-PARTY “PAY BACK” TRUST
An individual (or his or her family member) can establish a first-party Medicaid “pay-back” trust where the trust is funded by the beneficiary but a separate trustee is appointed to spend those funds to provide for amenities or extra services that do not supplant any government benefits that the individual is receiving. The individual/beneficiary gives up the right to have any control over how to direct or spend the money or property used to fund the trust. However, if done properly, these assets would not make the individual ineligible for SSI, SSDI or Medicaid. The drawback is that these trusts are required to have language that, upon the individual/beneficiary’s death, will “pay back” the state first for any government benefits paid during his or her lifetime before distributing assets to anyone else. There is no need for a guardian or conservator to manage these assets.
MEDICAID QUALIFYING THIRD PARTY AMENITIES TRUST
A third party can establish and fund a trust on behalf of another individual that provides for amenities or extra services that do not supplant any government benefits that the individual is receiving. If done properly, these assets would not make the individual ineligible for SSI, SSDI or Medicaid. A trustee would be appointed under this trust to act as the advocate on behalf of the protected individual and spend assets in a way to maximize their life. There is also no need for a guardian or conservator to manage these assets.
REPRESENTATIVE PAYEES FOR SOCIAL SECURITY INCOME
If an individual receives Social Security income and Supplemental Security Income (SSI), the Social Security Administration can appoint a relative, friend or other interested person to serve as the Representative Payee for that individual. This Representative Payee can receive the beneficiary’s Social Security income or SSI payments on the individual’s behalf and uses them for the beneficiary’s benefit. The Representative Payee is not required to be a court-appointed guardian or conservator appointed by the court, but will be subject to investigation by the Social Security Administration to ensure that the person selected is suitable for the job. However, the Representative Payee cannot manage any funds that do not originate as Social Security income or SSI payments.
HIRE A DAILY MONEY MANAGER
An individual can contract a daily money manager (DMM) to take over his or her day-to-day financial tasks. The individual can determine the scope in which the DMM will act which can range from ensuring that bills are paid on time and balancing checkbooks to taking total control and making payments or actually negotiating with creditors. If the individual is dissatisfied with the DMM’s services, then they can be fired and replaced with someone else with ease. A DMM can be a substitute to having the court appoint a conservator.
SET UP AUTOMATIC BILL PAYMENT
In lieu of having a conservator, DMM or even an attorney-in-fact, the individual can set up automatic bill payment online or with the creditor directly to cause monthly charges to be automatically paid from the individual’s bank account. This can eliminate the need for the individual to have to remember to write the check and pay the bill manually by themselves every month.
CREATE JOINTLY-HELD PROPERTY OR AUTHORIZED SIGNERS
In lieu of creating a trust or some other legal entity to control finances and property, the individual can add another person as a co-owner or authorized signer on their financial accounts to ensure that assets are protected and bills are paid. Jointly-held assets can double as a form of estate planning as the surviving co-owner of a bank account will receive the asset entirely when the co-owning individual dies. An individual can also designate someone to be an authorized signer on the account without any ownership rights so they can help handle the individual’s affairs but will not inherit the account automatically. The individual and the co-owner/authorized signer can enter into a pact regarding how and when the financial account will be used.
Individuals should take care in selecting a co-owner to their financial accounts absent some kind of written agreement because that co-owner would have the absolute right to convert every last dime in that account to their own use otherwise.
EVEN IF COURT ACTION IS NECESSARY, THERE ARE STILL OTHER OPTIONS AVAILABLE
If none of the other appropriate alternatives to guardianships and conservatorships are in place, then there still may be other options available to the court to negate the need to appoint a full guardian or full conservator:
- LIMITED GUARDIANSHIP OR CONSERVATORSHIP – The probate court can appoint a limited guardian or conservator that can either only act on very specific powers granted or has restrictions placed on his or her authority. These restrictions may include consulting with the ward before making a decision, being limited to spending a certain dollar amount without court approval, or reserving specific rights to the ward such as having discretionary spending money or determining his or her own daily programming.
- PROTECTIVE ORDERS – Instead of a guardianship or conservatorship, the probate court can be petitioned to enter a one-time protective order that approves a specific request or action on behalf of another person. These requests can include a one-time money transfer to a certain person (e.g. spouse), liquidation of an investment account, approval of a legal settlement, or approval to create a trust. This protects the individual from ongoing long-term control of his or her affairs from someone else.
A SKILLED PROBATE AND ESTATE PLANNING LAWYER CAN HELP YOU EXPLORE ALTERNATIVES TO GUARDIANSHIPS AND CONSERVATORSHIPS
There are many choices available to protect an individual to being subject to a court-appointed guardian or conservator, but deciding what option best fits your situation should be made in consultation with legal counsel. Picking the wrong choice or implementing your documentation incorrectly can lead to surprising and unintended consequences. A good lawyer can advise you of all the pros and cons of each alternative and help you create a plan that best fits your wishes and desires.
If you have further questions about guardianships and conservatorships or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.