When an elderly individual loses the capacity to rationally manage their finances, a judge can appoint a conservator to step in and take control of their assets. The extent of the conservator’s authority will depend on how mentally incapacitated the elderly individual is. The court can appoint a conservator to handle a single transaction (such as selling the family home), a limited set of activities (such as paying the bills), or the court can issue a broad mandate to manage all of the individual’s assets. In conservatorship proceedings, the incapacitated adult is referred to as the protected person.
When is an Elderly Individual Considered to be Incapacitated?
According to Arizona law (ARS 14-5101), an adult is considered to be incapacitated when they lack the capacity or sufficient understanding to make or communicate rational decisions regarding their well-being. In most cases, incapacitation is caused by one of the following impairments:
- Chronic drug use
- Chronic intoxication
- Mental deficiency
- Mental disorder
- Mental illness
- Physical illness
It’s important to note that an elderly individual’s poor financial choices don’t necessarily qualify them for conservatorship. To be considered incapacitated, the elderly individual will need to have one or more of the impairments listed above. A recent history of financial mismanagement or susceptibility to fraud may be an indicator of mental deficiency, but on its own it’s not enough to warrant a conservatorship.
What Can a Conservator Do?
A conservator has the same fiduciary duty as a trustee. In both cases, the individual managing the assets is required to exercise the same prudent administration that a regular investor would when handling their own assets. Conservators also have a duty of care to the protected person, and they’re required to place the needs of the protected person before their own.
In a conservatorship, the conservator could have any (or all) of the following rights and responsibilities:
- Acquiring an undivided interest in an estate asset, even if the conservator holds an undivided interest in the asset
- Acquiring or disposing of an estate asset (including land in another state) for cash or on credit, at private or public sale, and partitioning, exchanging, improving, developing, managing, changing the character of, or abandoning an estate asset
- Adjusting differences in valuation on exchange
- Allocating items of expense or income to the protected person’s estate
- Borrowing funds and advancing money to be repaid by the protected person’s assets
- Collecting, holding and retaining assets of the estate including land in another state, until, in the conservator’s judgment, disposition of the assets should be made
- Contesting, settling, or paying claims by or against the protected person by arbitration, compromise, or otherwise
- Defending or prosecuting actions, proceedings, or claims
- Demolishing improvements to real estate and property
- Depositing estate funds in a state or federally insured financial institution
- Distributing income and/or principle to the protected person and other beneficiaries
- Employing professionals including agents, financial advisors, auditors, and attorneys, to assist or advise the conservator in the performance of their administrative duties
- Entering into a lease (as lessor or lessee) with or without an option to purchase or renew for a term within or extending beyond the term of the conservatorship
- Erecting new or razing existing party walls or buildings
- Executing and delivering instruments
- Holding securities in a nominee’s name or in other form without disclosing the conservatorship
- Insuring the conservator against liability with respect to third persons
- Insuring the protected person’s assets against damage or loss
- Investing and reinvesting assets
- Making or obtaining the vacation of plats and adjusting boundaries
- Ordering repairs or alterations to buildings or other structures
- Participating or continuing in the operation of any business or other enterprise
- Partitioning by giving or receiving considerations and dedicating easements to public use without consideration
- Paying all necessary taxes and fees (including compensating the conservator) incurred in the care, collection, administration and protection of the protected person’s assets
- Paying calls and assessments for securities
- Receiving additions to the estate
- Selling or exercising stock conversion or subscription rights, and consenting to the liquidation, dissolution, merger, consolidation, or reorganization of a corporation or other business enterprise
- Subdividing, developing, or dedicating land to public use
- Taking an option for the acquisition of an asset, or granting an option involving the disposition of the protected person’s assets
- Voting a security, in person or by general or limited proxy
When Does Conservatorship End?
A court-appointed conservatorship is designed to last as long as the protected person needs it. If the protected person is temporarily incapacitated (e.g. a medically-induced coma, recovering from an illness, etc.), then the conservatorship will end with the protected person regains their decision-making capabilities. If the incapacitation is permanent (senility, dementia, Alzheimer’s disease, etc.), the conservatorship will end with the protected person dies.
An Alternative to Conservatorship
Considering how conservatorship strips someone of their decision-making abilities, conservatorship should be the final option. It’s always better for the elderly individual to willingly authorize someone to take control of their finances. As long as the elderly individual has a sound mind, they can authorize a family member or friend to handle their finances with a durable power of attorney. The power of attorney can offer broad access to their assets, or it can limit the agent’s authority to certain assets and activities. A power of attorney can bestow immediate authority, or it can withhold the authority until the testator becomes mentally incapacitated. Issuing a power of attorney is sometimes referred to as planned conservatorship or guardianship, and it does not require formal court proceedings.
What is the Difference Between Conservatorship and Guardianship?
Where a conservator’s responsibilities are limited to handling a protected person’s finances, a court-appointed guardian is given far-reaching authority over all the protected person’s affairs (healthcare, living situation, assets, etc.). Guardianships can be limited to certain activities, but most of the time guardians are given a fairly broad mandate to care for the protected person (also called the ward in guardianship proceedings). Generally speaking, a guardian has the same rights and powers that a parent has over their biological child.