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Standards for Financial Decision Making: Legal, Ethical, and Practical Issues

Course level: Intermediate

Written by Robert B. Fleming, Esq. & Rebecca C. Morgan.

© 2012 Robert B. Fleming, a partner in the Tucson law firm of Fleming & Curti, P.L.C © 2012 Rebecca C. Morgan, the Boston Asset Management Chair in Elder Law, the Director of the Center for Excellence in Elder Law at Stetson University College of Law and the Director of Stetson’s online L.L.M. in Elder Law.

You can download and print a pdf file of the course here, or read the full text below. There will be a 36-question test at the end which you will need to fill out and submit along with payment details.

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Standards for Financial Decision Making: Legal, Ethical, and Practical Issues

I. INTRODUCTION

This Article reviews the standards for guardians of the estate when making financial decisions. Guardianship is a particularly statutory mechanism, and there are differences among the states as to the statutes. Thus, in discussing the standards for guardians in making financial decisions, this article will focus generally on the National Guardianship Association (NGA) Standards,1 with some state statutes or cases provided as illustrations.

Since this Article focuses on the standards for guardians in making financial decisions, it is important to understand what the term “standard” means. According to Black’s Law Dictionary, a standard is “[a] model accepted as correct by custom, consent, or authority . . . [or a] criterion for measuring acceptability, quality, or accuracy . . . .”2 A standard is not the same thing as a duty.3

A standard is then the “model behavior” for a guardian of the estate in discharging the guardian’s duties—the way the guardian should conduct business. Much like the National Academy of Elder Law Attorneys (NAELA) Aspirational Standards,4 a standard informs the guardian of the ethical and professional way to do things. However, absent incorporation into a statute, the standard would not have the force of law. A guardian who does not conduct business in compliance with the standard may not be subject to sanctions under local law, but the standard may still have significant effect as a method of setting and identifying community and professional expectations. There is a possibility that professional guardians may be liable for professional malpractice, ethical violations, or even removal and surcharge for failure to follow well-recognized standards if those standards have become community practice.5

This Article will look at background, terminology, and general principles; review the standards applicable to the guardian of the estate, with emphasis on the NGA Standards; review some of the more common financial decisions made by guardians and how the standards apply to them; consider some of the issues for the future; and will conclude with a summary of recommendations. Because this Article reviews a number of common financial decisions, it does not provide an in-depth discussion of the types of decisions. Instead, this Article briefly describes the decision, applies the NGA standard, and discusses the practical approach to making the decision. For consistency, we recognize that in some states, “guardian” is used to refer to the person and “conservator” to the property. In this Article, however, “guardian of the estate”—or just “guardian”—will be used as a shorthand to encompass terms including guardian of the property or estate, or conservator, unless there is a need to make a distinction for the purpose of clarity,6 or when referring to a particular law that uses conservatorship—such as the Uniform Guardianship and Protective Proceedings Act (UGPPA).7

II. BACKGROUND AND GENERAL PRINCIPLES

What is a guardian of the property, guardian of the estate, or a conservator? Under the UGPPA, a conservator is “a person who is appointed by a court to manage the estate of a protected person. The term includes a limited conservator.”8 The UGPPA goes on to provide that the guardian of the estate “is a fiduciary and [must] observe the standards of care applicable to a trustee.”9 This does not mean that a guardian is the same as a trustee, although the duties may be the same or similar.10 The NGA Standards define fiduciary as “[a]n individual, agency, or organization that has agreed to undertake for another a special obligation of trust and confidence, having the duty to act primarily for another’s benefit and subject to the standard of care imposed by law or contract.”11 Recognizing the guardian as a fiduciary having certain duties sets a standard for appointment (as in who should be the guardian) as well as a standard for decision-making by the guardian. As noted in the National Probate Court Standards § 3.1.2(a): “Probate courts should appoint as fiduciaries only those persons who are: (1) competent to serve, (2) aware of and understand the duties of the office, and (3) capable of performing effectively. . . .”12 According to the comments, a fiduciary is “‘one who must exercise a high standard of care in managing another’s money or property. . . .”13 The power of the fiduciary is significant— meaning the court should give careful scrutiny to the qualifications of the proposed fiduciary.14 A guardian of the estate is a fiduciary:15 “[a] person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidence, and candor . . . [o]ne who must exercise a high standard of care in managing another’s money or property.”16 But is a guardian of the estate only a fiduciary, or something more? We offer that the guardian of the estate is, in fact, “something more.”17 This concept is reflected in the comments to UGPPA § 418:

This section reflects the dual role of a conservator. On the one hand, a conservator is a fiduciary charged with management of another’s property. Consequently, subsection (a) requires a conservator to observe the standard of care applicable to trustees. On the other hand, a conservator, like a guardian, also owes obligations directly to the protected person, obligations emphasized in subsection (b). Subsection (b) emphasizes the concept of limited conservatorship by limiting the exercise of the conservator’s authority and requiring the participation of the protected person in decision making. The conservator must encourage the participation of the protected person in decisions as well as encourage the protected person to develop or regain the capacity to act without a conservator. Before making a decision, the conservator should also make an effort to learn the personal values of the protected person and ask the protected person about the protected person’s desires. The conservator should be particularly cognizant of the views expressed by the protected person prior to the conservator’s appointment.18

A guardian of the estate (or conservator) is, indeed, a fiduciary, but with more obligations and subject to more considerations than other types of fiduciaries.

III. IS THE APPOINTMENT OF A GUARDIAN OF THE ESTATE TANTAMOUNT TO A FINDING OF INCAPACITY? IF NOT, WHAT ROLE DOES OR SHOULD THE WARD PLAY IN MAKING FINANCIAL DECISIONS AFTER APPOINTMENT OF A GUARDIAN OF THE ESTATE/CONSERVATOR?

The answer to this question is the classic law school answer—it depends on the state statute and the judge’s ruling. For example, does the statute require a finding, order, or declaration of incapacity before a guardian of the estate is appointed? Under the UGPPA, it is possible for a protective order to be entered or conservatorship to be established without finding the protected person to be incapacitated.19 Assuming that a court finds the person incapacitated, then the next question is whether the judge removes all of the ward’s rights, creating a plenary guardian, or only those rights the ward is incapable of exercising, thereby creating a limited guardianship.20 Even in a case where the ward has no legal authority to make decisions, the ward may still be able to participate in a meaningful way in decision-making.21 According to the NGA Standards, the guardian has a duty to consult with and involve the ward in decision-making to the extent the ward can participate.22 The more important the decision, the more important it becomes for the ward to participate.23 This involvement on the part of the ward might, in the case of a reasonably capable ward, amount to joint decision-making. It should be a goal to integrate the ward’s participation and preincapacity wishes as much as possible into the process.24

IV. FIDUCIARY STANDARDS AND RESPONSIBILITIES— MAKING FINANCIAL DECISIONS ON BEHALF OF SOMEONE ELSE— A BRIEF SURVEY AND ANALYSIS OF EXISTING STANDARDS FOR MAKING FINANCIAL DECISIONS

A. Overview

According to the Guardianship Summit website, there are a number of widely recognized sources of standards, including the NGA Standards of Practice, the NGA Code of Ethics, the NGA Standards for Agencies and Programs Providing Guardianship Services, the National Probate Court Standards, and the Council on Accreditation Standards for Guardians of Adults.25 Why should there be standards for guardians when making financial decisions for wards? As the practice evolved, it became clear to the NGA that standards were needed:

Developing standards for guardians has been an ongoing challenge for the National Guardianship Association (NGA). Not only has the profession undergone rapid change . . . , but the basic issues have been, and remain, imprecise and difficult to define for a national, membership-based organization. A basic philosophical element complicating the process has been the need to strike a consistent balance between standards that represent an ideal and those that recognize practical limitations, whether for a family guardian or for a professional guardian. . . . These discussions centered on the need to state what is “right” versus the need to recognize and accept the inevitability of the status quo—too many clients, not enough funding or staff. While we all agree that such restrictions are all too commonplace, . . . little is gained by simply accepting a substandard or unacceptable state of affairs. The NGA has, therefore, adopted standards that . . . reflect as realistically as possible the best or highest quality of practice. In many cases, best practice may go beyond what state law requires of a guardian.26

B. State Standards

Some states have adopted additional standards in varying formats.27 Statutes may also contain standards, especially if standards are viewed as creating a duty for the guardian of the estate.28 As noted above, some states have adopted the NGA Standards or similar standards for application to professional fiduciaries’ activities. Generally speaking, the application of NGA Standards appears to be limited in application to a professional fiduciary, and not to most family members acting as a fiduciary, especially if unpaid. In In re Guardianship of Stephens,29 the court noted that adherence to the Standards by professional fiduciaries is one of the significant differences between professional and family fiduciaries—along with the practical reality that family members do not generally have prior training or experience in the field.30 In Arizona, the NGA Standards formed the basis for the Arizona Code of Conduct first adopted in 2001 and applicable to professional fiduciaries licensed by the Arizona Supreme Court.31 The Arizona Code of Conduct, however, represents a significant reworking of the NGA Standards, resembling them only in broad terms. Organization, language and coverage are all significantly different from the NGA Standards. A number of questions and concerns arise from those state regulations modeled after the NGA Standards, including:

1. Difficulty maintaining consistency. The gradual evolution of the NGA Standards (the result of state experiences leading to changes in state versions) will adversely affect the consistency of state approaches. This can and will result in differing standards for different states. Some states may incorporate the standards by reference while others will adopt a then-current version—or even modify the NGA Standards before adoption. It is not difficult to imagine a circumstance in which an individual fiduciary’s responsibility under state law (and/or court regulations) might conflict with adherence to the principles enunciated by a national organization to which she belongs.

2. Aspirational vs. mandatory approaches. The NGA Standards speak in terms of absolutes, yet are aspirational in nature. When adopted as a court-mandated or legislatively mandated code, however, the aspirations become expressly enforceable directions.

3. Detail. The Arizona Code of Conduct is over 2000 words and includes a surprising amount of detail. In independent audits conducted by the Arizona Supreme Court, one of the five most commonly cited violations is the repeated failure of licensed fiduciaries to include their licensure number on court pleadings.32 Auditors then pore over files looking for instances in which the license number has been omitted from one pleading, even though the same file may have dozens or hundreds of instances of use of the number. The level of detail mandated by the Arizona Code focuses not on quality of service (or transparency of fiduciary administration), but also on rote detail. Similarly, one wonders if it is necessary to mandate that every disposition of real or personal property of the ward requires judicial, administrative, or other independent review (NGA Standard 19(I)). Is it possible that some kinds of property dispositions are simply too small to require review, or that review mechanisms might be reasonably constructed to provide adequate protections but not slavish attention to an expensive and sometimes cumbersome standard?

4. Ossification. Prevailing standards and acceptable behavior (both personal and professional) evolve over time. For example, NGA Standard 18(IX), requiring the guardian to “oversee the disposition of the ward’s assets to qualify the ward for any public benefits program,” may not be in the ward’s best interest in individual cases. That analysis has almost certainly shifted—substantially so—in the past decade. Tellingly, the Arizona Code of Conduct modifies this mandate, requiring guardians and conservators to “ensure” that their wards are “receiving all medical and financial benefits to which [they] may be entitled.”33

5. The need for states to adopt standards. Although the NGA Standards represent thoughtful analysis and comprehensive guidance, absent some form of state-level adoption, the Standards have no force.34

Although there may be concerns about the widespread adoption of the NGA Standards—or any standards—in individual states, they represent the best effort to date. The NGA Standards have already been adopted, or have been the inspiration for standards adopted in at least a handful of states, and they are recognized by professional guardians in multiple jurisdictions. We have recommended that each state consider adoption of the NGA Standards. Failing that option, states should consider standards with similar goals and organization.

C. How Do the Standards Guide the Guardian of the Estate in Financial Decision-Making?

This section will examine the standards for the guardians of the estate in making financial decisions. This section will primarily review the NGA Standards, briefly the NGA Code of Ethics and the Probate Court Standards,35 but will place emphasis on the NGA Standards since they were written by guardians for guardians36 and have undergone the most revision.37 Although NGA refers to these as standards, in the Preamble, the authors note that:

[t]he NGA has, therefore, adopted standards that we feel reflect as realistically as possible the best or highest quality of practice. In many cases, best practice may go beyond what state law requires of a guardian. In reading this document, it is important to recognize that some of the standards enunciate ideals or philosophical points, while others speak to day-to-day practical matters. Both approaches are critically important. It is not our ambition to prescribe a precise program description or management manual. Rather, we have sought to shape a mirror that practitioners and funders can use to evaluate their efforts. The standards also reflect the mandate that all guardians must perform in accordance with current state law governing guardianships and certification of guardians.38

D. NGA Standards Specific to a Guardian of the Estate

The NGA Standards provide four standards39 that are specific to the guardian of the estate. Standard 17 is wide-ranging in its application, requiring transparency,40 competent management41 that benefits the ward,42 correct record-keeping and accounting,43 limits on comingling,44 prosecuting if in the ward’s best interest and defending to protect the ward’s estate,45 use of prudent accounting methods,46 management of the ward’s estate in accordance with the ward’s estate plan,47 and use of the prudent person or investor rule.48 Standard 18, “Initial and Ongoing Responsibilities,” echoes much of what may be seen in a statute regarding the duties of the guardian of the property, such as securing the property,49 posting a bond,50 securing insurance,51 filing an inventory,52 filing accountings,53 applying for public benefits,54 etc.

Standard 18 also provides for some actions that may not always be seen in guardianship statutes which tend to be “person-based,” and it provides some autonomy and self-determination for the ward, such as meeting with the ward,55 coordinating a budget and financial plan with the care plan prepared by the guardian of the person,56 and giving the ward a chance to manage funds if the ward is able to do so.57 Similarly, Standard 19, covering “Property Management,” acknowledges that the guardianship is set up for the ward’s benefit, noting the importance of the ward’s views when the guardian is making decisions58 in addition to the more expected “traditional-property-type” factors, such as tax implications,59 the impact on the estate plan of the ward,60 the likelihood the property may deteriorate,61 or the cost of upkeep.62 The fourth and final specific property standard is Standard 20, covering conflicts of interest. This standard recognizes that the guardian of the property must avoid any appearance of impropriety and any self-dealing in the guardian’s management of and disposition of the ward’s property.63

E. Other NGA Standards We Believe May Apply to the Guardian of the Estate
When Making Financial Decisions

Although the four standards detailed above specifically apply to the guardian of the property, certain other standards arguably could also apply to the guardian of the property in appropriate cases. For example, Standard 6, covering informed consent,64 does not seem to have application beyond the guardian of the person65 since it appears to be limited in application to medical treatment decisions made by the guardian of the person.66 It may seem unlikely that Standard 6 will apply to most decisions of the guardian of the estate, beyond the case where the guardian, in making investment and disbursement and/or distribution decisions, should strive to be as fully informed as a guardian of the person must be in making medical and placement issues.67

Although Standard 6—limited as it is to medical decisions made by the guardian of the person—may not have direct application to a guardian of the property making financial decisions, it still can provide some guidance to the guardian of the property. As Standard 7 directs the guardian to use informed consent and references back to Standard 6,68 Standard 6 could provide guidance to a decision of the guardian of the estate. For example, it is not enough to listen to the broker, who may have a vested interest in the sale of a given investment, or the sale of investments in general, and make an investment decision based solely on the broker’s recommendation. The guardian of the estate should also be prepared to seek independent advice and information, and consider the global issues such as other investments not handled by that broker and therefore not included in suitability or asset allocation studies or proposals, likely expenditures in the foreseeable future, time horizon for management of the funds,69 budgeting, etc. Standard 7—Standards for Decision-Making.70 Although the applicability of Standard 7 to guardianship of the person may be more obvious, it will also apply to decisions made by a guardian of the estate. This standard incorporates the substituted judgment/best interest decision-making principles,71 sometimes referred to in health care decision-making as “Unified Substitute Decision-Making.”72 But, this is the Standard that the guardian of the estate would rely on, for example, in continuing a pattern of tithing to church, or sending small donations to select charities. Sometimes extrapolation is necessary. The guardian of the estate might ratchet back the donations to substantially less than the ward was making just before the guardianship, but still approve smaller donations to the same charities or religious recipients to which the ward had previously donated. The NGA Ethics Code in Rule 5.4 echoes this: “Where the liquid estate of the ward is sufficient, the guardian may make such gifts as are consistent with the wishes or past behavior of the ward, bearing in mind both the foreseeable requirements of the ward and the tax advantages of such gifts.”73

The comment to ethics rule 5 expands on the appropriateness of charitable giving:

Charitable contributions may be made, with court approval in some jurisdictions, in such a manner as to perpetuate the former practices of the ward, or consistent with a substituted judgment as to their benefit to the ward’s current or future situation. Non-charitable gifts, such as those gifts which might be made to family members or close friends, may be made from the surplus income of the estate if the guardian is in possession of demonstrable evidence that the ward would make such gifts. . . . In all cases, the guardian may be held to a thorough knowledge of the principles and practices of estate planning, including the tax consequences, in the carrying out of planned giving. If the guardian does not have such expertise, he or she must seek professional advise [sic] before deciding to make any gifts.74

Because the guardian of the estate is directed to talk with the ward to learn the “previously and currently expressed wishes of the ward and evaluate them based on [the ward’s] current acuity”75 and consider the ward’s “previously expressed or current desires . . . with regard to the property” when deciding whether it is in the ward’s best interest to dispose of property,76 we can see the application of this standard to a guardian of the estate.

Standard 8, titled “Least Restrictive Alternative,”77 directs the guardian to use the least restrictive alternative in making decisions for the ward. On its face, this Standard applies primarily to the guardian of the person. However, the guardian of the person does not make decisions in isolation and there will be financial implications to the decisions of the guardian of the person. Thus, there will be times when, as noted in Standard 18 (Property Management), that the guardian of the estate must be consulted by the guardian of the person.78 In fact, there will be decisions that must be made in consultation and jointly, whether in the creation of the care plan by the guardian of the person or in making individual decisions. In addition, the guardian of the estate certainly should encourage and facilitate least-restrictive-alternative planning made by the guardian of the person, and not just for financial reasons.

Standard 9 deals with the ward’s self-determination,79 and is clearly applicable to the guardian of the estate. It tells the guardian of the estate that, in an appropriate case, the ward ought to be permitted to manage a small account and perhaps pay regular bills—with appropriate levels of oversight (keeping in mind that oversight can be expensive and the danger of serious problems may be slight) by the guardian of the estate.80 The goal for a guardian of the estate should be, as it is for a guardian of the person, to effectively manage and protect the ward with minimum impact on the ward’s personal autonomy or perceived quality of life. This Standard speaks to an oft-described notion of “risk” in an individual’s normal daily life.

Individuals often take on risks of various levels and are able to cope. However, when an individual is placed in charge of someone else’s life, it is natural and human to try to eliminate risk altogether. That is almost certainly inappropriate. The job of the guardian of the estate should be—as it should also be for a guardian of the person—to manage the risks at an appropriate level. If the ward has an “outside” checking account, with $1,000 deposited every month, and pays the utilities and has some spending money, what is the risk? Probably slight—if the ward fails to make the payments, the guardian of the estate will know within a month or two. If the ward is taken advantage of, the only money at risk is the $3,000–5,000 built up in the account. Meanwhile, the cost of paying a guardian of the estate to make those same bill payments will certainly be something, and so it may be appropriate, from a purely risk-analysis perspective, to maintain a separate account accessible to the ward. Now add in the benefits of maximum autonomy and self-direction, and the decision to “delegate” some financial decisions back to the ward seems clearer.

The NGA Ethics Code “provide[s] principles and guidelines for guardians.”81 Some of what is contained in the rules is echoed in the standards, although perhaps in more forceful language. For example, Rule 5, Management of the Estate, requires “competent management of the property and income of the estate” and requires the guardian to “exercise intelligence, prudence and diligence and avoid any self-interest” in exercising the duty.82

The National Probate Court Standards were adopted in 199383 and are currently undergoing revision, with a “Final Review Draft” circulated in September 2012.84 Section 3.3 covers “Proceedings Regarding Guardianship and Conservatorship For Adults.”85 It is important to distinguish these standards from those by NGA—these standards are for the probate courts, and are focused on administration, caseload, and effective use of judicial resources,86 whereas the NGA standards are intended to apply to the actions of individual guardians.

The applicable statutes themselves may have standards for financial decision-making by the guardian of the estate. Since this Article is general in nature, rather than state specific, a few examples will be given as illustrations but are no way intended to comprise an exhaustive list. For example, UGPPA § 418 provides standards for conduct87 as well as for decision-making.88 It is important to recognize that the applicable state statutes must be consulted to determine the duties, obligations and methods that apply to guardians in making financial decisions.89

V. PRUDENT INVESTOR RULES—WHAT THEY ARE AND HOW DOES A GUARDIAN COMPLY WHEN MAKING FINANCIAL DECISIONS?

A. History and Overview of the Uniform Prudent Investor Act

Early in the eighteenth century, the British government became embroiled in an investment scheme that dramatically altered the development of trust law.90 The South Sea Company was formed in 1711, partly as a means of financing British government debt. When the South Sea “bubble” burst in 1720, one result was a general move to limit the types of investments permitted by (among other regulated investors) trusts and estates.91

One effect of those restrictions was establishment of “legal lists”92 in most English-speaking jurisdictions. Under the legal-list approach, narrow categories of investments were endorsed by English courts of equity (and their American offspring) which regulated fiduciary investments. Only investments on the list were permitted. The lists began with government debt and well-secured mortgage loans, and only expanded to include blue-chip stocks in the last few decades of legal lists—and then only in some jurisdictions.93

The legal lists approach was criticized as too constraining, since it focused almost exclusively on preservation of principal at the expense of both income and growth.94 Income, especially, came to be viewed as a suitable investment goal by the mid to late eighteenth century, and trustee discretion became more highly prized. This trend led to some relaxation of investment standards, with some jurisdictions retaining the legal lists approach, while others adopted the prudent man—later prudent person—rule.95 Generally speaking, jurisdictions would fall into one camp or the other, though trust investment standards might be somewhat more flexible than those applied to guardianships of the estate.

The most famous early expression of what came to be known as the “prudent man rule,” requiring that the trustee exercise “such care and skill as a person of ordinary prudence would exercise in dealing with his own property,”96 came from Harvard College v. Amory:97

All that can be required of a trustee to invest, is, that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.98

The prudent man rule has been soundly—and fairly—criticized for more than just its nineteenth-century sexism. Despite its generalized language, in practice it was utilized to approve after-the-fact reviews focusing on individual investments without consideration of the broader investment strategy or portfolio.99 It also favored an emphasis on preservation of principal that did not consider the effect of inflation or missed investment opportunities.100

Meanwhile, by the middle of the twentieth century, economists had developed what became known as “modern portfolio theory.”101 That theory of investment suggested that the investor should consider risk—both market-based and nonmarket—and that the marketplace would generally compensate investors for the degree of risk they were willing to take on.102 One implication of modern portfolio theory is that the essential task for the investor is to determine the level of risk acceptable in the circumstances.103 Once that determination is made, the investment return can be managed (albeit imperfectly) by managing the risk. A second important concept from modern portfolio theory is that risk, and hence return, can be managed by portfolio diversification. All of this leads to the primacy of asset allocation in analyzing portfolio investment.104

Modern portfolio theory has also affected fiduciary investment practice. Its emphasis on asset allocation, along with its premium on efficient investing, has been codified in the prudent investor rule.105 The prudent investor rule recognizes that a given fiduciary account—whether trust, conservatorship, decedent’s estate or other relationship—might be more concerned about preservation of principal, growth, or income, or a blend of any or all of those goals. In addition, the level of risk appropriate to a given fiduciary account might vary depending on the size of the estate, the age of the beneficiary, the predictable periodic expenditures required, the comfort of the beneficiary or others concerned for his or her welfare, the reasonable preferences of the fiduciary, and other considerations. Thus, application of the prudent investor rule will require the fiduciary to make a risk assessment, set priorities for income, growth, and preservation of principal, and work from those calculations to an asset allocation suitable for the chosen goals.106

The prudent investor rule has come to largely replace the prudent person (originally prudent man) rule. The Restatement (Third) of Trusts explicitly endorses the Prudent Investor approach,107 as does the Uniform Trust Code.108 The Uniform Prudent Investor Act of 1994109 has been adopted by forty-three American jurisdictions.110 In addition, its principles have been codified by Maryland.111 Jurisdictions not adopting the Prudent Investor Act include Delaware, Illinois,112 Florida, Georgia, Kentucky, Louisiana, Maryland, New York, Puerto Rico, and South Dakota.113

The prudent investor rule mandates the following:

  • A duty to minimize investment costs
  • Impartial treatment of beneficiaries. The trustee is directed not to unduly favor income generation over long-term gain, or the reverse, absent express trust authorization.
  • Appropriate (and prudent) delegation of investment responsibilities, complete with a “safe harbor” treatment of investment decisions properly delegated.
  • Application of modern portfolio theory, diversification, risk assessment, and asset allocation.114

Note that the prudent investor rule does not mandate low-risk investments. Furthermore, it does not mandate risk analysis of individual assets. Instead, it places a premium on an early determination of the degree of risk—permissible and appropriate—in a given portfolio, and diversification in order to maximize return within that risk tolerance.115 One of the primary complaints about the practical application, though not the letter, of the prudent person rule had been that it encouraged after-the-fact analysis of individual investment holdings.116 Thus, if a portfolio contained, for example, Enron stock (before it evaporated), the beneficiaries might complain about that single investment even though the portfolio itself performed as well as—or even better than—the market as a whole. The prudent investor rule instead encourages a global review of the fiduciary’s investments. If some stocks, bonds, or mutual funds underperform in the market that may be excusable if the portfolio as a whole was properly constructed. In fact, in a case where some level of risk is appropriate, it may now be a breach of fiduciary duty to not diversify across reasonable risk categories, and to hold investments that might reasonably be expected to underperform—but with a potential to substantially outperform.

Thus, the core concerns in application of the prudent investor rule become:

  • Diversification. Not just across classes, but across markets, asset types, and otherwise. A larger fiduciary account should ordinarily be exposed to some international equity investments and international fixed income classes. The fiduciary should even consider emerging market investments, investment-grade corporate bonds and perhaps even “junk” bonds—all set at appropriate percentages of the portfolio.
  • Asset allocation. Once risk analysis has been completed, the best way to maximize return within a given risk level is to determine the appropriate asset allocation and strive to reach it.
  • Rebalancing. At least annual review of the investment mix should be standard. For professional money managers, more frequent review is probably appropriate and is certainly commonplace. Somewhat counter-intuitively, the usual result of rebalancing is to require sale of high-performing assets and increased investment in underperforming ones.
  • Delegation. For a fiduciary without substantial investment expertise, it is both a good plan and protective against potential liability to select an investment adviser, to follow his or her advice, and to periodically reassess whether the adviser is meeting needs and expectations. Once proper delegation is made, the Uniform Prudent Investor Act provides that the fiduciary “is not liable to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function was delegated.”117

The application of the prudent investor rule, the Uniform Prudent Investor Act, Modern Portfolio Theory, and the Restatement (Third) of Trusts, in practice, means a number of things:

  • Stock-picking and market-timing are dangerous and counterproductive.
  • Independent financial advisers (especially flat-fee or fee-for-service advisers) are very valuable to
    the fiduciary
  • Mutual funds are often an easy way to satisfy multiple fiduciary obligations, including diversification, lower management costs, and built-in management. Index funds and Exchange Traded Funds (“ETF”s, like iShares, for instance) are often even more attractive to fiduciaries.
  • Investment costs need to be considered. No-load mutual funds may not, in fact, be the most inexpensive alternative over time. But actively managed accounts will usually pay significant commissions and administrative fees.
  • Do not forget to consider the tax effect (mostly income tax, but also estate tax, generation-skipping tax and even, sometimes, gift tax) of investment choices. Generally speaking, mutual funds will have less capital gains tax consequences than actively managed accounts. Index funds will usually have less tax consequences and ETFs less still. But dwarfing all of that will be the income tax effect occasioned by liquidation of all assets transferred to a fiduciary in order to permit the fiduciary to reinvest according to his, her, or its investment strategy and risk analysis.118

B. How Does the Prudent Investor Rule (or Prudent Person Rule) Apply to Guardians of Estates?

Statutes and the existing standards may apply the prudent investor rule to guardians.119 It is clearly so in the NGA Standards for those states which have adopted the Uniform Prudent Investor Act.120 The definitions accompanying the NGA Standards provide the following:

  • Prudent person rule: “An investment standard that considers the reasonableness of an investment based on whether a prudent person of discretion and intelligence, who is seeking reasonable income and preservation of capital, would make that investment.”121
  • Prudent investor rule: “All investments must be considered as part of an overall portfolio rather than individually. No investment is inherently imprudent or prudent. The rule recognizes that certain nontraditional investment vehicles may actually be prudent and the guardian who does not use risk-reducing strategies may be penalized. Under most circumstances, the ward’s assets must be diversified. The guardian is obligated to spread portfolio investments across asset classes and potentially across global markets to both enhance performance and reduce risk. The possible effects of inflation must be considered as part of the investment strategy. The guardian shall either demonstrate investment skill in managing assets or shall delegate investment management to another qualified party.”122

NGA Standard 17 concerns “Duties of the Guardian of the Estate.” Section (IX) directs, “The guardian shall apply the Prudent Person Rule and the Prudent Investor Rule when managing the estate.”123 The NGA Ethics Code addresses the use of the prudent investor rule and prudent person rule. Rule 5 of the NGA Ethics Code deals with the guardian’s management of the estate.124 Rule 5.3 incorporates a “prudence” standard by providing that “[t]he guardian has a duty to exercise prudence in the investment of surplus funds of the estate.”125 The comment to Rule 5 notes in part that if there are “surplus funds in the estate, the guardian must invest such funds prudently. While caution is essential in choosing nonspeculative opportunities for investment, diligent attention should be paid to opportunities which may result in a high rate of return.”126 The riskiness of an investment as well as those that may have conflicts or appear improper must be taken into consideration.127

The UGPPA also explains the guardian’s duty vis-à-vis investments. Under Section 425 of the UGPPA, “[a] conservator, acting reasonably and in an effort to accomplish the purpose of the appointment, and without further court authorization or confirmation, may . . . invest assets of the estate as though the conservator were a trustee . . . .”128 Equating the guardian of the estate129 to a trustee, by reference implicitly incorporates the prudent investor rule.130 Keep in mind, however, that some states have not adopted the prudent investor rule131 and may use a different standard, such as the prudent person rule.

To be sure, and it must be underscored, there are differences between a trustee’s obligation and the duties of the guardian of the estate with regard to investment analysis. Here are some examples:

1. The duty of impartiality owed by a trustee to income and remainder beneficiaries132 will, in most cases, be inapplicable. The guardian of the estate has a primary duty to her ward, and investment analysis will not require any sense of impartiality toward the “interests” of the heirs or beneficiaries of the ward’s estate.133 That said, the guardian should expect that prudent investor principles mandating consideration of the time horizon for investment, asset allocation, and suitability will be applied to minimize losses or speculative investments.

2. The distinction between “default” and “mandatory” rules134 will be much less significant. Put another way, default rules will ordinarily be more important for the simple reason that there is no operative document detailing the ward’s wishes in specific situations.

It should be clear that the prudent investor rule (and, as appropriate, the prudent person rule) applies to the actions of conservators, though not without some adjustments from the more developed law that governs trustees. Less protection should be accorded to heirs than to, for instance, the remainder beneficiaries of a trust. However, accommodations for the different circumstances in conservatorship will be minor, and the bulk of the law should be viewed as a standard applicable to conservators.

VI. EXPLOITATION RECOVERY—SHOULD THE GUARDIAN TAKE ACTION? HOW SHOULD THE GUARDIAN DECIDE?

Too often, a ward may be the victim of financial exploitation—whether before or during guardianship. In some cases, the financial exploitation is the catalyst for establishing the guardianship. When a ward has been financially exploited, the guardian needs to decide whether to pursue remedies against the perpetrator. What duties apply by statute or what guidance is provided by existing standards?135

First, the guardian must recognize the guardian’s duty to report suspected or actual exploitation to Adult Protective Services (APS) or law enforcement.136 The guardian should also consider the guardian’s liability (civil, criminal, or professional) if the guardian does not take steps to report or to protect the ward or the ward’s estate. The next step is for the guardian to determine whether the guardian should take action outside of APS. The UGPPA provides that a guardian, in administration of the estate, may, without court approval “prosecute or defend actions, claims, or proceedings in any jurisdiction for the protection of assets of the estate and of the conservator in the performance of fiduciary duties,” as long as to do so is reasonable.137 The guardian of the estate thus may pursue a claim against the perpetrator, but the critical question to be answered is whether the guardian should do so.

The NGA Standards reference the guardian’s duty to protect the estate assets138 and the NGA ethics code, to collect the ward’s debts.139 NGA Standard 17.VI provides that “[t]he guardian shall make claims against others on behalf of the estate as deemed in the best interest of the ward and shall defend against actions that would result in a loss of estate assets.”140 Note that these provisions give discretion to the guardian—the UGPPA says the guardian “may”141 and the Standard authorizes the guardian to move forward if “deemed in the best interest of the ward.”142 The guardian needs to determine whether the applicable statute is mandatory or discretionary. Then the guardian needs to make sure that the guardian’s decision to proceed, or not, meets whatever statutory standard applies to the guardian of the estate and the decision is made carefully, prudently, using the appropriate decision-making standards, and considering the necessary factors. The guardian needs to exercise due diligence in making the decision whether the guardian should proceed.143

The “should” question is not as easy to answer as the “may” question. There are a number of issues the guardian must consider in deciding whether to pursue a claim against the perpetrator of financial exploitation. As noted earlier, the guardian must consider the applicable statute, whether the statute allows the guardian to bring the action on behalf of the ward, and applicable evidentiary issues. Is there a sufficient paper trail that will make the case or will the ward need to testify? If there is insufficient evidence without the ward’s testimony, does the ward have capacity to testify? If the ward does have capacity to testify, how will the litigation impact the ward’s physical and emotional well-being?

The guardian should also consider the likelihood of a meaningful recovery. Does the perpetrator have any assets or is the ward’s money gone entirely? If the exploitation involved tangible property, rather than money, it may be possible to sue for the return of the property or to undo the transaction (such as rescinding a deed). The guardian also needs to consider the timeline from the beginning to end of the litigation, and postlitigation, collection of any judgment. The guardian should include in his or her thought process a cost-benefit analysis of litigation, including factors such as the cost of pursuing (tangibles and intangibles), the likelihood of recovery, the likely amount of recovery, the ability to collect on a judgment, etc.

Additionally, the guardian needs to consider any claims against the guardian if the guardian fails to proceed against the perpetrator. Could a claim for breach of duty be filed against the guardian if the guardian does not attempt to recover the money or property?

Criminal prosecution is another matter. The guardian may be able to file a police report, which is different from calling the elder abuse APS reporting number to report financial exploitation144 on behalf of the ward, but whether a case will be filed and prosecuted is out of the guardian’s hands. The guardian also has to consider the impact on the ward. For example, what if the perpetrator is the only child of the ward; does the ward really want to see her son sent to prison?

The guardian also needs to take steps to protect the ward from future exploitation. The perpetrator may have continued access to the ward, and if the ward has an allowance or is under a limited guardianship, the perpetrator may continue to exploit the ward. This may be of particular importance where the guardianship is limited and the ward still has control over some aspects of the ward’s estate, or has retained the ability to enter into contracts. Planning documents may need to be revoked or undone, if the ward still has the capacity to do so. The guardian may need to address ongoing or future exploitation rather than pursue the redress of past exploitation. To accomplish this, guardian may have to examine factors like the ward’s living arrangements and which individuals have access to the ward. If the guardianship is limited, the guardian needs to consider whether additional rights may need to be removed from the ward, as a protective measure.

One thing that may be useful to the guardian of the estate is to obtain a credit report for the ward upon appointment.145 This will allow the guardian to not only obtain a picture of the ward’s finances, but also help the guardian spot any anomalies—credit cards opened in the ward’s name recently, loans and financial obligations in the ward’s name, and alert the guardian to irregularities, possible financial exploitation, and even possible identity theft.

There may be circumstances in which the guardian is the perpetrator and uses the ward’s money inappropriately.146 A guardian can be sanctioned or removed,147 the successor guardian can move against the bond,148 and the guardian could be prosecuted. The UGPPA allows the ward or someone who is interested in the ward’s welfare to petition for the guardian’s removal.149 The guardianship statute may also provide an option. For example, in Illinois, the guardian of the estate could file a petition seeking the court’s issuance of a citation to require the perpetrator to appear when the guardian believes the perpetrator has, among other things, somehow stolen or taken any property of the ward.150 A Florida statute lists a number of reasons for removing a guardian, any number of which could apply when a guardian financially exploits the ward.151

As noted above, although there is some language in the Standards that could be pieced together on the issue of Exploitation Recovery, we think it would be beneficial to have a standard specifically for this topic.

VII. MAKING CERTAIN FINANCIAL DECISIONS— WHAT GUIDANCE DO THE STANDARDS PROVIDE?

A. Selling the Home and Moving to an Institution— Whether to Sell and How to Decide

A guardian of the estate may need to decide whether to sell the ward’s home. In making such a decision, there are a number of factors that must be considered, some of which will require the guardian of the estate to work in tandem with the guardian of the person. Assume that the ward can no longer live alone. The guardian needs to decide whether the ward needs round-the-clock care that is provided in a nursing home, or whether the ward needs assistance with activities of daily living (ADLs). The guardian then needs to decide whether the assistance with ADLs can be provided in the ward’s home or whether the ward needs to live in supportive housing. The guardian of the estate has to figure out how to pay for the level of care the ward needs.152 If the ward needs nursing home care, the guardian of the estate needs to consider the ward’s resources as well as the availability of public benefits.153

There are a number of considerations that go into the choice of a ward’s residence, including the ward’s preferences if the ward has capacity to express them and they are reasonable. For example, a ward may prefer to live at home, but may not have sufficient funds to pay for the required in-home care. Another consideration would be the necessity and cost of retrofitting a home to make it accessible for the ward. Also, the insurance, the cost of upkeep, taxes, utilities, etc. for the home should be factored into the decision-making equation. Whether the ward’s need for a higher level of care is permanent or temporary must be determined. That can affect the decision of the guardian of the person and the guardian of the estate. The guardian of the person should obtain an evaluation from a health care provider regarding the extent and likely duration of needed care.

Both types of guardians have a duty to prepare plans. The guardian of the person is responsible for a care plan and the guardian of the estate for a financial plan.154 The financial plan and budget need to be correlated with the care plan.155 This is an ongoing duty, so the guardian of the person and the guardian of the estate must stay in touch and coordinate the decision-making, such as what level of care is needed and in what setting the care may be provided.156 Before a decision is made about housing, the ward should be consulted.157 An early step that the guardian should take in gathering the needed information is to review the ward’s existing testamentary documents.158 Realizing that the ward may not be able to express a decision, or that the ward’s wish is not feasible, the NGA Standards offer:

In the absence of reliable evidence of the ward’s views before the appointment of a guardian, the guardian, having the proper authority, may not sell, encumber, convey, or otherwise transfer property of the ward, or an interest in that property, unless doing so is in the best interest of the ward.159

If the ward needs skilled care and cannot reside at home, the guardian of the estate must weigh whether to keep the property—knowing of the expense of upkeep—or sell the property, after engaging in the considerations described here. The family should be apprised of a decision to sell the property, so as to give the family a chance to buy the house themselves, or otherwise provide support for the ward in order to maintain “the family home.”160

The use of a reverse mortgage may be an option to provide a stream of income for the ward to allow the ward to remain in the home. There are pros and cons to the use of a reverse mortgage, which the guardian of the estate should carefully consider. The guardian of the estate must have the power to enter into a reverse mortgage.161 The attorney for the guardianship should be consulted and should review the mortgage documents. Any impact on the ward’s public benefits should be taken into account. The guardian of the person should obtain a current medical evaluation of the ward to determine whether it is feasible for the ward to remain in the home, and the short- and long-term prognosis of the ward’s physical and mental condition. If the ward’s condition is likely to deteriorate within a few months, a reverse mortgage may not be the best option. Other considerations include whether the reverse mortgage will serve the ward’s best interest. While a reverse mortgage produces an income stream for the ward, it also serves to encumber the title to the home.162 Whenever appropriate, the family should also be consulted163 because they will have to pay off the reverse mortgage at the ward’s death if they wish to keep the family home.

If someone else is living in the home with the ward, such as an adult child, the guardian of the estate will need to decide whether to charge that person rent or hire that person to provide care or services to the ward. Family members residing with the ward complicate the equation as they may have a legal duty to support the ward. The guardian must consider not only direct expenditures benefiting others, but also the indirect relief provided to other residents by alleviation of the support obligation.

B. Other Financial Decisions—Credit Issues and More

After assuming authority, the guardian may be faced with making other financial decisions for the ward, such as borrowing money, acquiring credit, loaning money,164 selling assets, continuing a ward’s business,165 undertaking business or financial transactions with the adult child of the ward, and paying support.166 The guardian has the responsibility to make financial decisions a ward might have been making if the ward had the capacity to do so.167 The decision may require the use of a substituted judgment or best interest analysis.168 For example, the UGPPA addresses the circumstances where the guardian might borrow or loan money:

A conservator, acting reasonably and in an effort to accomplish the purpose of the appointment, and without further court authorization or confirmation, may: . . . . (19) borrow money, with or without security, to be repaid from the estate or otherwise and advance money for the protection of the estate or the protected person and for all expenses, losses, and liability sustained in the administration of the estate or because of the holding or ownership of any assets, for which the conservator has a lien on the estate as against the protected person for advances so made.169

NGA Standard 19 reminds the guardian to consider “reliable evidence of the ward’s views” before selling, conveying, encumbering, or in other ways transferring the ward’s property or interest therein, unless it is in the ward’s best interest to do so.170 The guardian must also consider any tax implications from the guardian’s actions.171 The guardian at all times must be aware of potential conflicts and the appearance of impropriety.172

C. When There Is Little Money— Representative Payee, Applying for Benefits, Use of Medicaid

It is possible to avoid the necessity of guardianship (of the estate, at least) altogether, especially where the ward’s assets are limited and the ward’s income is primarily Social Security or other pension income. This is usually accomplished by reliance on the Social Security Administration’s (SSA) “Representative Payee”173 system—a de facto guardianship arrangement established precisely to help with management of small estates.174

1. Process for Representative Payee Appointment and the Rep. Payee’s Duties and Obligations

If SSA determines that a beneficiary needs a representative payee, then a specific process is followed.175 Whether or not a guardian of the estate has already been appointed, the SSA will make its own determination of the need for the representative payee and select and appoint the payee according to its own process.176 Application for appointment as a representative payee is a two-part process. First, the applicant must show that the Social Security recipient is legally incompetent—mentally or physically incapable of managing his or her benefits177—or a minor.178 That determination alone will ordinarily result in suspension of benefits until a suitable payee is located.179 Usually, however, the application for representative payee status is considered at the same time. The SSA has a priority list of potential payees, which it will follow absent indications that the beneficiary’s best interests require modification.180 Note that, although a “guardian” appears in the first position on the list, this primary position is qualified to require that the guardian either “has custody of” the beneficiary or “demonstrates strong concern for the personal welfare of the beneficiary.”181

2. Applying for Public Benefits

A guardian of the ward’s estate has the power to handle the ward’s financial matters—implicitly including the authority to make application for public benefits that might be available for the ward.182 Oddly, nothing in the lengthy list of powers included in the UGPPA mentions the power to make public benefits applications, or to arrange the ward’s affairs to maximize the availability or amount of benefits.183 Still, the act does give some guidance: it authorizes a guardian of the person to use utilize all the ward’s available resources (including public benefits) to provide care for the ward,184 and it recognizes that a government agency paying (or being asked to pay) benefits to a ward in a guardianship or conservatorship (that is, guardianship of the person or estate) might have standing in the guardianship or protective proceeding itself.185

Meanwhile, a guardian is permitted to sign an application for Social Security benefits186 and (in most, if not all states) Medicaid.187 NGA Standard 18.IV provides that “[t]he guardian shall obtain all public and insurance benefits for which the ward is eligible.”188 According to the Preamble for the Standards, the use of the word “shall” in 18.IV creates a duty for the guardian.189 The comments to Rule 5 of the ethics code note that in some cases, the possibility of public benefits providing an important source for the guardian in the provision of services to the ward creates a “positive obligation” on the guardian to determine if such benefits are available to the ward and to “seek such assistance on behalf of the ward.”190

A more difficult question arises when considering whether a guardian has an obligation to apply for means-tested public benefits.191 In fact, it is sometimes urged that a guardian has—or should have—an affirmative obligation to not only seek benefits, but also to plan and position the ward’s assets for maximum means-tested public benefits eligibility.192

A guardian should be concerned about securing early public benefits eligibility because the guardian’s duty should be to utilize her ward’s assets for the best reasonably available care for as long as those assets survive, while anticipating that, at some future point, it may become necessary to seek supplementary assistance from the public benefits system.

There are several reasons that a guardian should seek public benefits assistance with at least some urgency. First, to the extent that the guardian is applying a “substituted judgment” analysis, it is common for individuals to express a preference for maintaining assets against not only future developments but also to provide an inheritance for their children (or other beneficiaries of their estate). Second, any ward, except the most dependent, has at least some prospect of recovery to the point that a return to the community—or to a less-restrictive setting than is available through the public benefits system. However, lack of resources may foreclose some future planning options. Third, in addition to the general desire to provide an inheritance, there is also the more specific need in individual cases to provide care for a dependent spouse, minor or adult child, or partner. With a partner, depending on state law, it may be particularly urgent to maintain resources for someone who is not entitled to protection by virtue of marital status.

3. Duty to Plan for Public Benefits

Advocates of a duty to plan, particularly for Medicaid eligibility, often cite a decades-old Illinois case as authority for the premise that a guardian may be liable for failing to consider positioning a ward for receipt of future public benefits. In In re Guardianship of Connor,193 the Illinois Court of Appeals affirmed the trial court’s ruling that a guardian “had violated its fiduciary duty to [the ward] by failing to expeditiously obtain public aid . . . .”194

More specifically, the Connor court found that the guardian could have, but did not, retained its ward’s residence even while making a Medicaid application—the home was sold and the proceeds used to pay the ward’s nursing home bills.195 The appellate court went one step further than the trial judge, ordering the guardian to repay, from the guardian’s own funds, the amount of a burial account authorized by the Medicaid eligibility rules but overlooked by the guardian in preparing the estate for Medicaid.196

However, reading Connor as establishing an affirmative duty to plan for Medicaid eligibility may be a bit of a stretch. Note that neither the trial court nor the appellate court discussed whether a guardian might have a duty to make permitted gifts, to recharacterize assets from countable to exempt, or to engage in any more assertive planning techniques.197 The Connor court was critical of the guardian’s failure to understand the eligibility rules, and to blindly rely on the representations of the local Medicaid eligibility office about how the process ordinarily worked.198 Purchasing a pre-paid burial arrangement and indicating the ward’s intent to return to her home on the application are both fairly simple planning techniques that any guardian, and certainly any professional guardian, might reasonably be expected to understand or determine.

Recent cases have made clear that a guardian can be given the authority to engage in more elaborate and aggressive planning, at least in some circumstances.199 Note, however, that the reported cases tend to deal with transfers of assets200 to spouses or to caretaker children.

4. Guardianship Standards

What standards should apply to the guardian’s decision to apply, and plan for, public benefits eligibility? There are a number of references that give the guardian some guidance and direction.

The default position, of course, should be that the guardian applies for “all public and insurance benefits for which the ward is eligible.”201 This not only permits protection of the ward’s remaining resources and income, but also reflects the reality that the majority of individuals in similar circumstances would reasonably be expected to pursue the same course—applying a sort of substituted judgment default position. Only in cases where the quality of the ward’s care might be diminished, or there is specific evidence of the ward’s prior objection to securing government assistance,202 might the guardian forgo available benefits.

It is less clear whether standards might argue for more active planning for potential public benefits eligibility.203 “The guardian shall oversee the disposition of the ward’s assets to qualify the ward for any public benefits program,”204 but that may not require the guardian to engage in every available—or even every “reasonably” available—planning alternative. Clearly, Connor argues for a standard requiring at least what might be thought of as simple and obvious planning techniques—like purchase of prepaid burial arrangements, and inquiry into the actual eligibility rules before the guardian acts.205

Particularly in cases where public benefits planning involves making gifts from the ward’s funds, court approval should be sought in advance.206

5. When the Money Runs Out—Pro Bono, Strategies for Addressing

There will be occasions when the ward’s estate will not be sufficient to last throughout the ward’s life. In these cases, the guardian will need to apply for public benefits207 and look at other ways to increase the ward’s income.208 One thing for the guardian to consider is taking reduced or no fees as guardian of the estate. For example, Guardianship Standard 22 notes that a guardian is entitled to “reasonable compensation,” but keep in mind that the guardian also has a duty to “conserve the ward’s estate” when deciding to charge a fee.209 Although the standard gives guidance in determining the reasonableness of the fee,210 an additional factor should be considered: the amount of the ward’s estate. If the ward’s estate is likely to be depleted, the guardian should consider that in determining the fee amount requested.211 The urge to resign if the estate is exhausted may be compelling, but considering the guardian’s fee may have contributed to the exhaustion of the estate, the guardian’s duty to the ward, and the guardian’s professional role, the guardian should remain as guardian in a pro bono capacity, unless doing so would work an exceptional hardship on the guardian.212

In addition to considerations regarding fees, as the money runs out, the guardian will have to consider how to prioritize what the guardian may purchase for the ward. A loss of money does not relieve the guardian from the duty to provide for the ward’s necessities, or justify a contract for substandard care. Instead it would be a failure on the part of the guardian to appropriately discharge his or her duties, and would result in surcharge or removal. It becomes imperative that the guardian timely pursue public benefits for the ward, as well as investigate social programs and other services for which the ward may be eligible. The guardian may need to be creative and engage in problem solving, looking at less restrictive, and less expensive, alternatives to meet the ward’s needs.213

VIII. FUTURE CONSIDERATIONS

This section offers thoughts and observations about where to go in the next ten years.214 Over the years, efforts have been made to minimize, if not eliminate, abuses in guardianship administration, primarily through statutory regulation and monitoring.

It is the responsibility of the court to oversee and monitor guardianship cases—indeed, court monitoring is the only way to ensure the welfare of wards, discourage and identify neglect, abuse, or exploitation of wards by guardians, and sanction guardians who demonstrate malfeasance. Yet, court monitoring is an expensive and timely proposition, and despite twenty years of legislation designed to reform guardianship procedures, the failures of the court to provide appropriate oversight and monitoring continue to make national headlines.215

There are laws, standards of practice, and more, yet there are still problems with the way some guardians of the estate discharge their duties. If the focus is to minimize abuses, perhaps it is time to approach guardianship problems in a new way. It is time to recognize that those who intend to steal or otherwise misappropriate a ward’s estate will do so, regardless of the laws, standards, and court orders that apply, and overregulation bogs down the whole system. A new focus will require an examination of the current system and consideration of conflicts in the application of the guardian’s substituted judgment and the best interest of the ward when the guardian is making decisions.216 Rather than wholesale regulation of the professional industry that focuses on picayune details, but does not encourage training, holistic analysis, and good industry practices—such as adoption of general standards, like those articulated in the NGA Standards of Practice—should be encouraged.217

It may be time to focus more on who is appointed as the guardian of the estate. There is a documented preference by courts for appointment of family guardians.218 While that preference makes sense on many levels,219 perhaps it is time to rethink the “family preference” and recognize that educational requirements and standards should apply to all guardians.220 With statutes mandating the same education and application of standards to all guardians, family and professional, guardians may be more likely to understand the duties and obligations of serving as a fiduciary and the importance of complying with the statutes and court orders. Further, a professional guardian has more at stake than a family guardian—at least from a financial standpoint. If the professional guardian does not comply with a court order and is sanctioned or removed, the guardian has more to lose.221

Without the force of law, if a family member is appointed as the guardian, it is likely that the family guardian, even a well-meaning one, will not know of the existence of “aspirational” standards propounded by the professional community. A family member guardian can learn these standards through information and training. The quality of guardianship and oversight does not have to suffer for a ward who has the otherwise good fortune to have a family member actively involved in the ward’s financial affairs.

Family guardians and professional guardians should be treated the same and have the same, or at least similar, requirements as far as guardian education and training, background checks, bonding, etc.222 Some states have lower requirements for family guardians.223 As noted in the probate court standards, it is important to consider who is appointed as the guardian of the property224 and who can “do the job.”225

In addition, more thought should be given to how the estate is managed. In this current economic climate, government benefits are scarce and perhaps even at risk as individual states and Congress look to revise entitlement programs.226 When formulating a requisite plan, the guardian should consider that some benefits may be unavailable in the future. While budgeting should become a standard occurrence, certain questions would arise. For example, if formal budgets are used, and there is a deviation, is court approval required? Will budgeting drive up costs unnecessarily? Does it provide protection from runaway expenses? Are the courts prepared to deal with it (either in terms of time or in terms of interest)? Will a too-rigorous process with too-serious consequences drive out professional fiduciaries? What about family members who mean well, but don’t understand rules and don’t want to spend the money to get good assistance?

Consider the situation if there is a tension between decision-making standards (substituted judgment and best interest) and the idea of least restrictive alternative to a guardianship. Is there a need to balance the guardian’s duties to the ward and the ward’s desire for independence, autonomy, and control? There is a clear directive in the statutes for the use of least restrictive alternative. But is the application of the least restrictive alternative contradictory to the duties of the guardian and the best interest standard in decision-making?

IX. CONCLUSION AND RECOMMENDATIONS

The NGA Standards provide guidance to the guardians when making property decisions. The Standards are thoughtful, although somewhat general in nature. It is encouraging that the Standards have been revised over time, and revision should of course be a continuing process. But aspirational standards may not be enough as the guardianship practice continues to evolve. It may be time for state adoption of standards in order to give the Standards force and effect.227 Individual states should focus now on implementing standards governing guardians. Things of particular concern for regulating those handling funds in a fiduciary capacity include:

  • Recognition of the individuality and, to the extent possible, self-determination of wards. To that end, state standards should emphasize substituted judgment approaches where the ward’s current wishes are articulated, or where the ward’s past wishes are known. Only if, or to the extent that, information is unavailable or the ward’s financial well-being is implicated should a best interests analysis apply.
  • Cost effectiveness should be emphasized. It should not be a requirement that the guardian of the estate always implement the cheapest available alternative, but the guardian should always be prepared to explain and defend the choice of vendors, approaches, and decisions in a cost-benefit analysis.228
  • Training should be both mandatory and effective. Training should be available to, and required of, both professional and family (or casual) guardians. Training regimens must also be implemented for judicial officers and staff who, after all, are responsible for interpreting and monitoring the decisions of guardians.
  • Standards should be general enough to be adapted to individual circumstances, but specific enough to be enforceable in individual cases. This dynamic tension requires standards that focus not on the minutiae of implementation or codification of specific approaches, but on goals, purposes, and proper analysis by guardians. Regulation should not be for the purpose of catching guardians in violation of technical standards, but rather for the purpose of improving the delivery of services to a vulnerable, needy, and under-protected population.229

It is important to recognize that the guardian does not make a decision in a vacuum and serves as more than just a fiduciary. There are a number of factors that a guardian must consider when making decisions for the ward. The guardian must involve the ward in the decision-making process, and recognize that a ward can express a preference in a number of ways, because the ward has a great stake in the outcome. The guardian must give the ward an “honest” role in expressing a preference and not just give lip service to the requirement of the ward’s involvement. That is to say that while for various reasons the guardian may not always be able to honor a ward’s preference, it is critical to give the ward as much autonomy and self-determination as the ward is capable of handling. The guardian plays a “holistic” role because the guardian must consider a broad range of factors when making any of the myriad of decisions that a guardian of the estate must make on a day-to-day basis for the ward.


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