Michael Oher, Britney Spears Put Conservatorships in the News. What Pros Say. – Barron’s

Stories about properly functioning conservatorships don’t make headlines, of course, so their image is no doubt skewed. In a conservatorship, a court appoints a person or entity to manage the affairs and make decisions for an individual who is deemed incapable of doing so. As with many legal and financial instruments, they can be used for good or ill. For this week’s Barron’s Advisor Big Q, we asked financial advisors: “What is your view of conservatorships, including their pros and cons?”

Seamus Smith, attorney, Creative Planning Legal: If you’re looking at the Michael Oher case, I think the big takeaway is that before anybody signs [a conservatorship agreement], they need to make sure they understand it very well or have somebody specifically advising them as to the consequences before they sign the papers. From a financial advisor’s standpoint, that means encouraging the client, if they’re considering putting someone else in charge of their assets, to make sure the person doesn’t have a conflict and has that client’s best interests in mind.

Britney’s case emphasizes that prior planning is really important. I’m sure she had no idea she might suffer from some mental health issue. But she could have enacted planning documents for herself stating that if that ever happened, the people she wants involved would be involved. Most of the time conservatorships are the default when there’s no planning in place.

Cheryl Holland, owner, Abacus Planning Group: Our primary experience of conservatorship is for minor children whose parents died intestate. In South Carolina, the children are entitled to 50% of the estate of an individual dying without a will. We have never had any challenges with these conservatorships, although the annual filings can be a challenge.

We do have a family who is considering conservatorship for an adult sibling who is consistently in financial trouble and unable to make sound financial decisions. I think the pros of conservatorships include wise management of the assets with disbursements for reasonable needs, protection of individuals from the inevitable cons and hangers-on, protection from IRS and other legitimate creditors due to overspending or poor debt choices or not filing income taxes, and protection of other family members’ assets.

The cons include a loss of dignity when you don’t control your own financial choices. There can also be tensions between family members who would like to be siblings and not each other’s keeper. Potential unethical behavior of the conservator is another con, as is the high standard of paperwork for simple decisions. 

Jennifer Proper, managing director, wealth strategies, Pitcairn: Conservatorships have been in the news quite a bit lately, and they’re often painted as being very negative. With our clients, honestly, it’s all about proactive planning. We assume that at some point in the future our clients might need some additional help. Typically we will meet with our clients when they have their mental faculties to do estate planning. A lot of them will have estate-planning documents that assume that at some future date they may lose their mental or physical capacity.

Trustees appointed in trust documents can be designated far in advance of a mental or physical incapacity and are hopefully someone you implicitly trust with those sensitive decisions. Conservators, on the other hand, are court appointed at a point in time when you don’t have any control because you are already incapacitated, so you’re at the mercy of decision-making done by someone you didn’t appoint.

Grant Rawdin, CEO, Wescott Financial Advisory Group: I think the real question with conservatorships is, what could you have done to not be in that situation? Probably the greatest number of conservatorships happen for those who have become incompetent because of dementia and other age-related deficits. And the conservatorship could have been avoided had a trust been set up with a durable power of attorney or other things that would have allowed them to not need a conservatorship.

Conservatorships of the type that you’ve seen lately should not be that common. They should be set up only because there is somebody who has a deficit but somehow is in control of either making a fortune or for whatever reason now has control over a fortune and can’t oversee it. If you’ve inherited that fortune, shame on whoever left it to you, because it probably should have been in trust. It isn’t hard in estate planning to formulate a trust that can account for somebody’s mental capacity. There are different ways to do this kind of thing in a much more orderly fashion than taking it to conservatorship.

Alexandria Nadworny, wealth advisor, Affinia Financial Group: One of the first things we talk about with new clients is making sure their estate-planning documents are completed. That can avoid a very expensive court procedure if the person does become incapacitated at some point and needs a conservatorship. By completing an estate plan before losing capacity, you may avoid the need for guardianship of the person or conservatorship of the estate or financial matters. That’s not always the case, however; maybe an estate plan isn’t completed, or the documents aren’t drafted properly, so a conservatorship may need to be pursued.

While there are definitely reasons for conservatorship and reasons for guardianship, the goal is always to have the least restrictive type of oversight for the individual. [Conservators manage finances and property of adults unable to do so, while guardians oversee care and decisions for minors or incapacitated adults.—Ed.] There are limited conservatorships, where it may be a specific contract or entering or single transaction. The goal is for the person to be able to do the most they can on their own, with the largest amount of autonomy. The biggest suggestion I have if a person does need to be under conservatorship or guardianship, is to have as many checks and balances in place as possible to avoid contested matters in the future.

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