Guardianships: Someone to Watch Over Them

Michele Morgan, Vice President/Trust Officer MorganM_BUS003xqc

The one thing you should know about guardianships—also known as conservatorships—is that they protect individuals who are unable to make sound decisions for themselves. As court-ordered arrangements, they result in the appointment of an individual or corporation to handle that person’s care and/or financial matters.

The arrangement lasts as long as necessary. In the case of a minor, that may be until they reach the age of 18. For an adult, it could be a lifelong appointment or just until they sufficiently recover from a health issue.

Circumstances That Lead to the Need

Guardianships are subject to state laws, and established by a court proceeding in the individual’s home county. Where children are involved, there is typically a large sum of money—either an unexpected inheritance or a personal injury settlement. Adult guardianships generally arise due to a temporary or permanent disability or an injury.

When the need arises, there are two different roles created in a guardianship: one involving the “Guardian of the Person” where the named individual or corporation is appointed to oversee the needs and care of the individual. The second role is the “Guardian of the Estate” to oversee the individual’s financial matters.

Guardians can be family members, unrelated individuals or, as mentioned above, corporations. Where large sums are involved, judges often prefer to see a bank serve as the guardian of the estate or, at the very least, as a co-guardian to ensure the assets will remain in place to support the individual throughout their life. Regardless of who is appointed the court requires an annual report to ensure the current arrangements continue to serve the needs and best interests of the individual.

Guardianships for children end at the age of 18 with a proceeding that determines the individual is now capable of making rational and prompt decisions about their own care and finances. For adults, a physician typically supplies a statement verifying they’ve regained the capacity to assume responsibility for their own care and finances.

Guardianships versus Powers of Attorney or Estate Plans

The need for a guardianship arises from the lack of other legal documents, such as powers of attorney or an estate plan. Sometimes, family members are overwhelmed by the medical side of caring for a loved one or have trouble agreeing on a course of action. In such cases, they may petition the court to appoint an impartial corporate guardian, especially to oversee financial matters. This saves family members from having to account to the court for how money is spent and from having to reimburse the estate if any charges are deemed inappropriate later.

Compassion Is Part of the Arrangement

While having the court involved in the care and financial matters of a loved one may seem invasive, judges involved with cases like these typically act as extended family members, especially where juveniles are involved. They take a genuine interest in ensuring each person gets what they need to be the best they can be. Compassion carries the day.

To learn more about guardianships and how Old Second can be of assistance in this area, please call me at 630-844-3222. I’m here to help get you the answers you need as you consider your family’s options.

Understanding the Benefits of a Special Needs Trust

Michele Morgan, Vice President/Trust OfficerMorganM_BUS003xqc

When you or a family member has a disability, protecting financial assets becomes a priority, especially when qualification for Medicaid and Supplemental Security Income (SSI) is involved. Fortunately, two types of special needs trusts (SNT) can help accomplish this.

Both trusts offer significant financial protection and can be used to pay for quality-of-life expenses, like wages for personal attendants and travel costs as well as for home furnishings, cars and even the therapeutic treatments not covered by Medicaid. The trusts differ in the degree to which these supplemental expenses are covered. This makes it essential to choose the right one for the job.

  • First-Party-Funded SNTs are funded using the disabled person’s own financial assets.
  • Third-Party-Funded SNTs are created using someone else’s money, not the disabled person’s assets.

While both types of trusts are exempt for Medicaid-qualification purposes, different rules apply to the way distributions can be made. This means the situations for their best use also differ.

First-Party-Funded SNT Rules

This type of trust is used when the disabled person’s own assets are sufficient to pay for the expenses Medicaid doesn’t cover. The disabled person, or someone acting on their behalf, creates the trust. That person is a parent, grandparent, legal guardian or the court. Funds typically come from a personal injury settlement, or inheritance that did not take a disability into account.

These trusts are irrevocable—once established, no changes are permitted. They must also include language that declares Medicaid has a lien on the trust’s assets. Any balances due to Medicaid for services received during the disabled person’s lifetime will need to be repaid to Medicaid before any other distributions may be made per the wishes of the disabled person’s estate.

Because Medicaid has this claim against the trust, all distributions during the trust owner’s lifetime are subject to review by Medicaid. The rules regarding those distributions are restrictive. For instance, a disabled person who wants to give a birthday gift to a sibling is prevented from doing so under this type of trust. The penalty for an errant disbursement can be severe. The disabled person is disqualified from Medicaid, becomes a private payer and needs to spend down the trust. Once that person’s assets reach $2,000 they may reapply for Medicaid.

Third-Party-Funded SNT Rules

This SNT is also exempt for Medicaid purposes because the money is not the disabled person’s and there is not a Medicaid lien. However, with no payback provision, the allowed distributions are less restrictive and determined by the grantor of the trust. Third-party trusts are typically funded with inheritances and bequests from family members who planned ahead and created the trust.

However, there are still rules. Chief among these is that the disabled person may not have any control whatsoever over the funds.

Hiring a Professional

Because the administration and investment of these trusts requires deep knowledge of the disbursement rules, typically either a corporate trustee or a combination of both a family member and a corporate trustee is chosen to oversee them. While naming only a family member is also possible, it puts undue pressure on that person. One false disbursement could strip a loved one of Medicaid coverage.

When hiring a corporate trustee, it’s important to find one who is willing to spend the time needed to understand and accommodate not just the rules but the needs and preferences of the disabled person.

If you, a friend or a family member might benefit from establishing an SNT—or from having a corporate trustee assume more responsibility for administering an existing SNT—we would be happy to talk to you about the options.

Call me at 630-844-3222. I am happy to help in any way I can.