Guardianship if often an expensive legal process which should be avoided if possible. Thus, planning should be considered as an alternative to guardianship. Guardianship is often needed for an incapacitated person. Texas law defines an “incapacitated person” as:
- a minor
- an adult, who because of a physical or mental condition, is substantially unable to (a) provide food, clothing or shelter for himself or herself; (b) care for the person’s own physical health; or (c) manage the person’s own financial affairs; or
- a person who must have a guardian appointed for the person to receive funds due the person from a governmental source.
The Texas Estates Code lists 9 alternatives to guardianship including:
- a medical power of attorney
- a durable power of attorney concerning financial matters
- a declaration of mental health treatment
- a representative payee to manage public benefits (i.e. Social Security)
- a joint bank account
- a management trust (a Guardianship Management Trust)
- a Special Needs Trust
- designation of a guardian before the need arises; and
- establishment of alternative forms of decision making based on person-centered planning.
The Estates Code also provides that if a judge declares one spouse incapacitated, the other spouse is authorized to manage, control and dispose of the entire community estate without guardianship.
Notwithstanding the list above, there are dozens of options that are less restrictive alternatives to guardianship which vary by the situation.
There are two (2) types of guardianship in Texas: (1) guardianship of the person which concerns the care of the incapacitated person; and (2) guardianship of the estate which concerns handling of the assets of the ward (the incapacitated person).
Common tools to avoid guardianship of the estate include:
- Durable Power of Attorney – this document gives authority to someone else to handle your financial matters either immediately or upon your disability. (Caveat: Some financials only accept their own forms contrary to Texas law).
- Convenience accounts – depositor can name a co-signee without giving the co-signee ownership rights before or after depositor’s death which allows for someone else to pay your bills.
- Revocable Living Trust – assets held in a trust so guardianship of estate is not needed. Commonly used to avoid probate.
- Irrevocable Trust – there are numerous types of irrevocable trusts designed for various goals ranging from creditor protection to planning for long-term care public benefits if one has inadequate long-term care insurance, etc.
- Court Created Trust – often created when a minor is involved in a lawsuit and has no legal guardian or for certain incapacitated persons. Funds are held by bank or trust company.
- Guardianship Management Trust – property management and administration by trustee
- Testamentary Trust – trusts created within a will which can be used to avoid guardianship of estate for any beneficiary with special needs (including spouse).
- Modification of Will by court order after death of decedent to create testamentary special needs trust to avoid guardianship for disabled beneficiary and not lose public benefits for the beneficiary
- Special Needs Trust – federal law permits the creation of a trust with your own funds (if you have mental capacity and if not, then by parent, grandparent, court or guardian) if under the age of 65 to obtain or retain valuable Medicaid (which is “means-tested”) benefits.
- Pooled Trust – an alternative to Special Needs Trust and Guardianship Management Trust which preserves Medicaid qualification by joining a subaccount to a master Pooled Trust.
- Community Administration – one spouse can manage all community property assets of the incapacitated spouse.
- Court Registry – up to $100,000 may be deposited in the court’s registry used to avoid administration of a minor’s or other incapacitated person’s guardianship estate.
- Uniform Transfer to Minors Act (UTMA) – donor appoints a custodian of the account who has authority to invest without court order for the education, maintenance or support of the minor.
- ABLE account – if person is on public benefits such as Supplemental Security Income and Medicaid which is “means-tested”, up to annual exclusion (presently $15,000 per year total – not per person) can be contributed to such an account without a transfer penalty and without it counting towards $2000 resource limit. Government is a remainder beneficiary.
- Representative Payee – a representative payee may be appointed by the Social Security Administration to handle Social Security benefits without the need of a guardian.
- Veteran’s Benefits Fiduciary – veteran’s pension benefits can be managed by a person as permitted by the Department of Veteran’s Affairs.