Alternatives to a Formal Guardianship
Guardianships are effective tools. However, there are many appropriate circumstances when families want to avoid the expense, publicity and bureaucracy of a guardianship. There are several effective alternatives. These include Power of Attorneys, Trusts and Gifts. All must be implemented prior to incompetency.
Durable Power Of Attorney (Business Affairs)
The most common device used to privately manage the assets of another person is a Power of Attorney. A Power of Attorney authorizes someone to act as the legal agent for another. It must be signed while the signor is still competent. The recipient of the Power of Attorney is referred to as the Agent or Attorney-in-Fact, although the recipient does not have to be a lawyer.
There are many types of Powers of Attorney, but, in all cases, the person granting the Power retains the right to personally manage his or her own affairs. Whenever possible, he or she should also retain the right to revoke the Power of Attorney. The document must be carefully drawn to include all powers which may be needed. In order to be most effective, the Power of Attorney must be signed AND notarized and contain a durability clause. A durability clause is specific language that states the Power will survive the disability or incompetence of the signor. Without this language, the authority granted in the Power of Attorney will lapse when the signor becomes incompetent - a fatal flaw.
There are several advantages in using Power of Attorneys:
- they are inexpensive;
- they can grant complete legal authority to act on behalf of the Grantor;
- they are revocable (unless stated otherwise);
- there is no accounting to the Probate Court; and
- the Grantor retains ownership of and the ability to manage his or her own property.
There are, however, disadvantages in using Powers of Attorney. A small number of financial institutions and insurance companies do not permit their use. The Social Security Administration and IRS widely ignore them. Also, the Attorney-in-Fact may abuse his or her authority by mismanaging or taking assets.
Despite these problems, the Power of Attorney is an extremely useful device which should be considered in most circumstances.
Trusts
There are two basic types of Trusts: Living Trusts (Inter Vivos Trusts) and Testamentary Trusts. Living Trusts are set up during the lifetime of the creator and Testamentary Trusts are trusts established in the creator's Will. There are dozens of variations of these two types of Trusts.
Assets held in a Trust are managed by a Trustee. A Trustee can be an individual or an institution. Assets held in a Trust are managed and distributed in the manner set forth in the document creating the Trust. In this sense, each Trust is different.
A Living Trust can be useful to avoid a guardianship of the estate in several ways. If established while still competent, a person may transfer all of his or her property into a trust for his or her own benefit, or for his or her spouse or children. They are also frequently used by parents and siblings for an incompetent family member with special needs.
A Trust can only be used to manage assets and will not eliminate the possible need for a Guardianship of the person.
Unconditional Gifts And Representative Payees
The need for a Guardianship of the estate can be eliminated if the incompetent does not own any property or receive any direct income. Therefore, when dealing with small amounts of money, it may be appropriate for the individual to give away everything he or she owns. This may be accomplished by deed, memorandum of gift, or by signing over titles, stock certificates, bonds, etc.
With respect to income, it is possible to arrange for most checks (including Social Security and other federal benefits) to be made payable to a representative payee, or to have the checks deposited directly into a joint account or an account controlled by a Power of Attorney. In this way, a trusted family member or friend can assist the incompetent.
Durable Power Of Attorney For Health Care
Ohio, Kentucky and Indiana permit individuals to execute Durable Powers of Attorney for Health Care. With this document, Tri-Staters can designate a person to make health care decisions for them if they are unable to speak for themselves. This helps to avoid the need for a Guardian of the Person.
Generally, the Attorney-in-Fact will have the authority to give informed consent, refuse to give informed consent, and in very limited circumstances to withdraw consent for any medical treatment.
Living Wills
A Living Will can also help to avoid the need for a guardian of the Person. Living Wills must be in writing and should recite the signor's instructions regarding medical treatment in the event of terminal illness or permanent unconsciousness.