When an individual cannot manage his or her finances, courts can appoint a personal needs guardian, financial guardian, or both. A financial guardianship is for those who need help handling money.

Depending on the jurisdiction, financial guardianship may also be called guardianship of the property or conservatorship of the estate.

What Financial Guardianship Entails

Financial guardianship gives the guardian the authority to oversee the protected person’s finances and access to money to pay bills. In many cases, the terms of the arrangement require the guardian to seek court approval before making certain financial actions on behalf of the ward, such as selling assets.

The ward’s money goes into a guardianship or conservatorship account. The guardian or conservator is required to account for all of his or her actions, and files a full account of transactions each year which is reviewed by the court.

When Do Courts Order Financial Guardianship of an Adult?

Generally, courts appoint a financial guardian when a person is unable to provide for his or her property management and cannot understand or appreciate the consequences of this inability. Examples include:

• Individuals who frequently forget to pay bills, to the point that the bills go into collections or utilities are shut off.
• Individuals who have become vulnerable to financial exploitation. For example, suppose a person makes significant payments to an online scammer. In that case, a loved one might petition the court to become the person’s guardian to protect them from falling victim to future scams.
• Individuals with diseases and disabilities that prevent them from understanding their financial needs. For instance, dementia can cause people to have executive functioning difficulties that impact their ability to handle money.

Just because someone has these issues does not necessarily mean that a financial guardianship is appropriate. For example, if an individual has no assets, and has moved into a nursing home that receives the individual’s income, there is probably no need for a financial guardianship as there are no assets to manage. A court will also not appoint a financial guardian if the person has a valid and effective power of attorney.

Alternatives to Financial Guardianship

While providing protection and support, guardianship also limits an individual’s autonomy. As a guardianship involves having a person declared to be legally incapacitated, it can take away certain rights of the individual such as the ability to enter into contracts, rent a home, and engage in other financial transactions. Many states, like New York, require courts to explore less restrictive alternatives to guardianship before appointing a guardian. Those facing challenges with financial decisions should, along with their loved ones, first consider other options such as powers of attorney, trusts, or representative payees.

Financial Power of Attorney

Suppose an individual is having some difficulties with bill-paying but still can make decisions and understand the consequences of their choices. In that case, the person may have the capacity to execute a power of attorney for property management and a medical directive or health care proxy for personal needs management.

Compared to financial guardianship, a durable power of attorney can protect individuals’ rights while allowing someone to step in and help with monetary decisions. A person does not lose his or her ability to make financial transactions by executing a power of attorney, but rather gives his or her agent the ability to also perform on his or her behalf. The durable power of attorney also survives a person’s incapacity, allowing the agent to continue to act on the individual’s behalf even if the person loses capacity later on.

Under financial guardianship, it is more difficult for the protected person to change the arrangement if disagreements with the guardian arise. The protected person must petition the court to terminate or modify the guardianship, and the court must agree with the reasoning to make such a change.

Revoking a power of attorney is, by comparison, straightforward. As long as the individual who made a power of attorney retains capacity, they can withdraw their power of attorney at any time for any reason. They can also appoint a new agent without judicial oversight.

Those wondering whether they need someone to help with finances should speak with the elder law attorneys at Kommer Bave & Ciccone LLP.

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