This article will continue our discussion from last week concerning an incapacitated individual. As was explained in the last blog post, an incapacitated individual is defined as “a person that cannot make a decision for himself/herself.” Normally a doctor will have to rule an individual as incapacitated. Now I will expand on the three primary ways to manage property on behalf of an incapacitated person. The three ways are 1) Conservatorship, 2) Durable Power of Attorney, and 3) Trust.
CONSERVATORSHIP
A conservatorship is a guardian or a protector who is appointed by a judge to manage the financial affairs and/or daily life of another due to physical or mental limitations, or old age.
A conservatorship is necessary for those individuals who have neither a power of attorney or healthcare directive, and have lost the ability to make informed decisions and/or care for themselves. A conservatorship may also be required when a fraudulent or invalid power of attorney or healthcare directive has been drafted.
A conservatorship is set up when someone interested in the individual’s welfare must file a petition with the Superior Court, Probate Division, requesting appointment of a guardian or conservator. Once the filing is accepted it is scheduled for a hearing. Upon being granted, normally a conservatorship will last for a one-year duration.
The most famous example of a conservatorship dates back to 2008 when Britney Spears revealed that she suffered from an undisclosed mental illness and substance abuse. Since 2008, she has lived under a conservatorship.
DURABLE POWER OF ATTORNEY
A durable power of attorney provides for the appointment of an agent to transact legally on a person’s behalf. A durable power of attorney can be general or limited in scope, but it remains in effect after one becomes incapacitated. Normally, the power generally confers the agent with authority to buy, sell, exchange, and deal in property on the principal’s behalf.
Under the Uniform Power of Attorney Act (2008), an agent is only allowed to make a donative transfer on the principal’s behalf “only if the power of attorney expressly grants the agent the authority.”
A durable power of attorney is one of the most important documents an individual can have prepared for incapacitation.
TRUST
A trust is a fiduciary agreement that allows a third party, to hold assets on behalf of a beneficiary. A person may transfer property, including real and financial, into a trust to be managed by a third party trustee during any period of incapacity.
In addition to allowing for allowing third party management of property by the trustee, the trust can also set up procedures for determining whether the settlor is incapacitated. For example, a trust can set up a majority vote of a committee consisting of the settlor’s family and primary doctor.
In conclusion, there are three ways to manage property of an incapacitated individual: 1) conservatorship, 2) durable power of attorney, and 3) Trust. The most important of the three is a durable power of attorney and is a document an attorney can draft for you with either general or specific rules for the agent to follow.