As I mentioned in my last post, a common asset in a conservatorship of the estate is a retirement account that a conservator of the estate must marshal and manage.
The conservator of the estate has the authority to continue the retirement, profit-sharing, and employee welfare plans or benefits in force during the conservatorship. But, court authorization is required to elect benefits or payment options, to terminate, to change beneficiaries or ownership, to assign rights, to borrow, or to take similar actions under the plan. The conservator of the estate will have to petition for these powers. The request can be included in the initial petition, a separate petition or within an accounting petition. I always try to include it in the initial petition so that a separate petition is not required and the conservator of the estate has the authority right away upon appointment. Unlike requesting specific powers regarding real property in the initial petition, I find that the court is more inclined to approve specific powers for retirement accounts that are requested in the initial petition.
An initial issue that the conservator of the estate must determine is whether they must manage required minimum distributions from the retirement accounts. The tax implications are part of that consideration and it is important for a conservator of the estate to discuss these issues with their attorney and accountant.
Typically, personal property –a retirement account is personal property – is governed by the laws of the state where the owner (the conservatee) resides. However, if the administrator is outside of California and they do not accept the California Letters of Conservatorship, then an equivalent protective proceeding will have to be commenced in that state. Since qualified plans are governed by federal law (Employee Retirement Income Security Act of 1974 [ERISA]), it is unclear if a California conservator can take action regarding qualified plans. In my experience, my conservator of the estate clients who have obtained specific authority to manage a retirement account has had no difficulty with qualified accounts.
The conservator of the estate must inventory the retirement plan on the Inventory and Appraisal. This is required even if the conservator of the estate does not have specific powers over the account. The value used for the Inventory is fair market value as of the date the Letters of Conservatorship were issued. Best practice is to include a statement that covers the date of issuance of the Letters to the probate referee. The cash assets in the account will go on Attachment 1, but the securities will need to be separately identified on Attachment 2. The Probate Referee’s Guide (available here – https://www.sco.ca.gov/Files-EO/probate_guide.pdf) is a helpful resource on how to list assets on an Inventory. The values on the Inventory are the starting values for the accountings required in a conservatorship of the estate.
Unless waived by the court, a conservator of the estate must obtain a bond and the amount of that bond is based on the value of the assets in the estate, the income received by the conservatee, and what powers the conservator has over those assets. Some courts will require that the value and income from a retirement account is to be included in the bond amount calculation, but other courts may only require that the income be bonded if the conservator of the estate does not have the court approved powers discussed above.
Upon a conservatee’s death, the accounts will be distributed according to the beneficiary designations on file with the administrators. The conservator of the estate has no authority over these distributions. If there is no valid beneficiary designation or the designation fails for whatever reason, then depending on the value of the account, the conservator of the estate will need to determine whether a probate is required. The final petition in a conservator of the estate has to address whether the retirement was distributed per beneficiary designations or if a request has to be made to distribute to a probate proceeding or if a small estate affidavit is sufficient.