Proper Fiduciary Choice Can Save Your Assets – And Maybe Even Your Life
Written by Bogutz and Gordon
What can go wrong when you choose the wrong person to serve in a fiduciary capacity? Or what if the court charged with overseeing your guardianship or conservatorship falls down on the job?
A recent article in the Denver Post http://www.denverpost.com/search/ci_14442041 (“Probate court rife with lapses in training, oversight: Who’s Protecting the Unprotected”, By David Olinger, 02/21/2010) highlights a number of things that can go wrong:
- In one case when a retired librarian needed help, the Denver probate court appointed a guardian. That guardian subsequently sold many of her belongings to himself and billed her hundreds of times for walking with her and reading poetry to her. Despite the appointment of a guardian she nearly starved to death.
- In another case the Denver probate court heard nothing from the guardian for a 50-year-old Denver man with dementia for five years.
- In a third case, the guardian and his female friend racked up $83,517 in expenses on behalf of the ward, his brother, before the Denver probate court asked why a single, elderly man was paying for frequent plane trips.
Each of these cases highlights what can happen when the wrong person is chosen to serve in a fiduciary capacity (such as a guardian, conservator, or trustee) for an incapacitated person or when the court that you think is looking out for the ward lacks the time or resources to actively “police” its fiduciary cases.
But these cases also bring to mind another interesting question: Could it happen here? Arizona is not Colorado and the results would not necessarily be the same here.
Arizona has been rather progressive fiduciary regulation and prevention of elder abuse and exploitation. In fact, Arizona is known as a national leader in elder law.
The courts and the legislature have promulgated a number of laws and regulations aimed at curbing the abuse and exploitation of the elderly and incapacitated. These rules and laws range from the simple to the complex. For instance, Pima County has long required a potential fiduciary to supply basic identifying information such as gender, race, height, weight, hair color, and eye color. The purpose of gathering this information on the probate information sheet has been alternately stated as giving information to authorities if the court issues a fiduciary arrest warrant, or simply allowing the judge to identify the fiduciary in the courtroom. Whatever the underlying reason, the form has proved so popular with the court that the new Arizona uniform probate rules requires its use statewide.
At the other end of the complexity spectrum is the fiduciary licensing program. This program began in 1994 with the well-meaning goal of curbing theft, neglect and other abuses of wards by fiduciaries. In the intervening 16 years, the program has undergone much change. Originally the program referred to Certified Private Fiduciaries. Later the certification was renamed Certified Fiduciary. And just this year the designation was renamed Licensed Fiduciary.
As originally conceived, the program consisted of both an initial training component and a continuing education requirement provided by or overseen by the Arizona Supreme Court. In the ensuing years the Supreme Court has gotten out of the initial training and continuing education business and now leaves that up to private enterprise. An applicant now takes the certification exam without first taking required courses. The Court’s role (through its Administrative Office of the Courts) is now limited mostly to the initial licensing, as well as discipline of those licensed fiduciaries accused of wrong-doing.
The fiduciary certification program was envisioned as a way of curbing some of the more egregious abuse such as those mentioned in the Denver Post article. The program was meant to do that in two ways. First, the initial training and the written examination would ensure that all licensed fiduciaries had at least some modicum of training. Secondly, the court is able to discipline those fiduciaries found guilty of wrong-doing. In these ways it was hoped that the certification could raise the bar among Arizona fiduciaries and hopefully protect the elderly and vulnerable.
Has the fiduciary certification program been successful? While the state has perhaps seen some decrease in exploitation by professional fiduciaries we still see unfortunately significant fraud and abuse in Arizona similar to that mentioned in the Denver Post article.
Why? Partly the reason lies with human nature. Despite all the controls and barriers we put in place, some bad people are still going to find a way to exploit and abuse the vulnerable. But perhaps more important is the fact that the fiduciary licensing program contains two very big loopholes. First of all, the fiduciary licensing statute specifically defines a fiduciary as: “A person who for a fee serves as a court appointed guardian or conservator for one or more persons who are unrelated to the fiduciary.” In other words, a relative is not subject to the licensing requirement. (Nor, for that matter, is someone who serves without a fee.) In our experience, relatives are just as likely–if not more likely–to steal from, exploit, or abuse a person than non-related persons. As long as relatives are exempt, the licensing requirement can never hope to curb all abuse.
The second loophole in the licensing program is that it applies to guardians and conservators (and in some cases personal representatives) appointed by the probate court. Unfortunately, most fiduciaries are not appointed by the court at all. For instance, the agent under your power of attorney and health care attorney is not appointed with court involvement at all. Also, the trustee or successor trustee of your revocable trust likewise does not (usually) need court approval. And there are far more fiduciaries serving as agents under powers of attorney and as trustees than in court-appointed roles such as guardian or conservator.
So what does this tell us? Basically, selection of a proper fiduciary–whether a personal representative under a will, a trustee, or an agent under a financial or health care power of attorney–is perhaps the most important decision that you can make when planning your estate. Your next-door neighbor may not be the best person to whom you entrust your life and your assets. Nor would it be a good idea to appoint your recovering-alcoholic nephew.
Another choice for a fiduciary is an institution such as a bank or a trust company. Another choice is your attorney or CPA–particularly if that person or firm has a large fiduciary practice. It is very important that you choose someone who is trustworthy. Despite the popular notion, serving as someone’s trustee or personal representative is not an honor, it’s a job. Be sure you treat it like one when naming fiduciaries in your estate planning documents.