I get a lot of calls from clients asking this question and wanting to know about options. In fact, just this week I spoke with a client who’s uncle lost capacity and she needs to finalize his tax returns. Her first thought was that she needed to file a petition for conservatorship so that she could be appointed to handle his finances. But, while talking with her we came up with some other options based on documentation her uncle had in place.
One of the first items to determine is whether there has been a formal diagnosis of lack of capacity. This could be as simple as something in writing from a doctor stating that the individual lacks the capacity to handle finances. If there is no formal diagnosis, then I want to know the level of capacity of the family member. If the family member has a certain level of capacity, then there may be some options to execute certain documents such as a statutory power of attorney.
The next topic is to see what documentation the person has already executed. Did they execute a durable power of attorney, advance health care directive, or a trust? It is important to know if these documents exist because they are alternatives to a conservatorship proceeding. The important provisions to review in these documents include the following: 1) who is named as the agent/attorney-in-fact and successor trustee; 2) when do the agent/attorney-in-fact or trustee step in (i.e, is the power of attorney immediately effective or springing?); and 3) if the named agent/attorney-in-fact or trustees are not alive or are unable act, are there provisions for the appointment of a successor?
Best case scenario, the individual listed as the agent/attorney-in-fact or successor trustee is willing and able to act in that capacity, the power of attorney is immediately effective (meaning no need to do anything to prove that the principal lacks capacity), and the process to have the successor trustee step in as trustee is simple. If the power of attorney is springing, typically it will require that a doctor put in writing that the principal lacks capacity. Sometimes these declarations have to be under penalty of perjury, it has to be the treating physician, or more than one writing is required. The Trust can require the same thing to prove that the settlor lacks capacity and is no longer able to act as trustee. Or, there could be other requirements. I have seen some very convoluted and onerous requirements to prove that a settlor lacks capacity. In addition, it can be difficult to get a physician to sign a document under penalty of perjury.
If no named agent/attorney-in-fact or successor trustee is able and willing to act, then the documents have to be reviewed to see if there are provisions for filling vacancies. It is rare that a provision will be included in a power of attorney, but trusts will often contain such a provision. A typical provision in a trust is that all the current beneficiaries have to consent to a person to be appointed as successor trustee. This can be difficult when either all the beneficiaries do not agree or the current beneficiary lacks capacity. If there is no provision stated in the documents, then the probate code provides that an interested party must petition the court for the appointment of a successor agent/attorney-in-fact and successor trustee.
A few things to consider before petitioning include where will the matter be filed and which assets will be subject to which proceeding. Any assets that are in the incapacitated family member’s name alone (no joint owner and not titled in a trust) will be subject to either a conservatorship of the estate or management under a power of attorney. A typical asset that falls in this category is a retirement account. Any asset that is co-owned with someone that is alive and has capacity can be managed by the co-owner. Any asset that is titled in the name of a trust will be managed by the trustee and not by an agent under a power of attorney or by a conservator of the estate. Typically real property is titled in the name of a trust.
A court proceeding involving a trust typically takes place in the county where the trustee resides. The probate code provides that venue is appropriate in the place of administration which is defined where the day-to-day activity of the trust occurs. Since the trustee has the responsibility to carry out the day-to-day activity, venue is typically in the county where the trustee resides.
A court proceeding involving a power of attorney and a conservatorship is the county where the incapacitated family member resides. This means that you could have court proceedings occurring in two separate counties if you need to file a petition to appoint a successor trustee and either a petition for the appointment of a conservator or a successor agent/attorney-in-fact.
Determining the best options requires the review of multiple documents, reviewing how assets are titled, and doing a cost analysis of each type of proceeding. This analysis illustrates the importance of having the appropriate documents executed and making sure they are updated.