By: Joseph Goldy, AAMS®
Anyone who has watched the Britney Spears conservatorship saga unfold in the news recently can appreciate how distressing it is when a person loses control of their financial life. Britney's situation highlights the importance of proper planning and the downside of having a court decide who is best to act as someone's caretaker.
Britney's father, Jamie Spears, was appointed her conservator in 2008. At the time, Britney was beginning to act erratically in public. Her father had petitioned the court to control her financial affairs, saying she could not manage things independently. Although it was only supposed to be a temporary situation, thirteen years later, and against Britney's wishes, Jamie Spears is still overseeing his daughter's financial and business dealings.
In the context of estate planning, understanding what happens when you are no longer able to make decisions independently is essential. Conservatorships, guardianships, and the various forms of powers of attorney all exist for different purposes.
Conservatorships
Upon hearing the case before a court of law, conservators are put in place by a judge. The judge's choice of a conservator is often a spouse, parent, or another immediate family member responsible for making financial decisions for the person incapable of doing so themselves. Conservatorships are commonly put in place when someone suffers from impaired mental ability or incapacitation.
Britney Spears' case underscores how difficult it can be to remove a conservator once in place. Since the purpose of a judge assigning a conservator is that the person in need (referred to as the principal) is deemed not to have the ability of sound judgment to manage their own life, the burden of proving you are now able to do so falls on the principal.
Britney is accusing her father of abusing the conservatorship powers and refusing to relinquish his role. The situation has caused the Grammy award-winning singer to prove her capacity to handle her affairs in public court, which is another one of the downsides of conservatorships.
Guardianships
Legal guardianships are similar to conservatorships in that a judge appoints them in a public court.
However, whereas conservators are put in place to manage a person's financial decisions, guardians must look after the principal's well-being and ensure basic living, health, and personal needs.
Typically, the guardian chosen by the judge is assigned to care for a minor until they reach 18. However, depending on the situation and conditions of the person, guardianships can be for someone of any age.
The blurring of responsibilities between what a guardian and conservator can do varies from state to state. What both conservatorships and guardianships have in common is the lack of choice of the person for whom the arrangement is supposed to benefit.
For this reason, whenever possible, it is prudent to prepare ahead of time for who you would like to be in a decision-making position regarding your financial and personal well-being. According to a Care.com study, just over 30% of American adults have estate planning documents in place.
Credit: Care.com
Limited and Durable Powers of Attorney
A power of attorney (POA) is a legal document where you can name a person, often referred to as the "attorney-in-fact," who will be there to make financial decisions for someone when needed.
Power of attorney documents is helpful to have on file with your financial institution. If you cannot pay bills or make withdrawals on your account due to incapacitation or other medical reasons, a trusted attorney-in-fact can be invaluable.
However, there are essential distinctions among the types of powers, particularly between a non-durable vs. durable power of attorney.
A non-durable power of attorney ceases when the principal is no longer legally competent. Having the attorney-in-fact lose control at incapacitation is undesirable for most people since this is precisely when the powers are needed most. A durable power of attorney is more appropriate in this case.
A durable power of attorney will enable the attorney-in-fact to remain in place making decisions while someone is suffering from a loss of cognitive ability.
However, many people prefer that the powers of the document only kick in when they become unable to make decisions on their own rather than on an ongoing basis. In that case, adding a "springing" provision will empower the attorney-in-fact only if you become incompetent.
Trading Authorization
Power of attorney documents should not be confused with giving someone trading authority at a brokerage firm.
Naming someone as an authorized trader is much more limited, often only allowing a person to manage investments on someone's behalf, speak to the financial institution about an account, and request withdrawals from the account in the account holder's name only. Trade authorization is there more for convenience rather than a planning purpose.
Health Care Power of Attorney
Whereas a general power of attorney will provide peace of mind knowing your financial affairs will be taken care of, a healthcare power of attorney exists to empower a trusted person to make health care decisions on your behalf.
Your health care power of attorney would be there to make critical health care decisions during times of illness or at the end of life.
In all the documents mentioned above, the holder of the powers cannot execute or revoke a person's will or living will. Also to note, power of attorney and trading authorization powers terminate at a person's death.
Proper account titling, beneficiary designations, wills, and revocable trust are various planning techniques to control assets after someone passes.
Although conservatorships and guardianships are there to protect the principal under care, they can also open up someone to potential abuse of power if not carefully monitored, as in Britney Spears' situation. Whenever practicable, putting in place power of attorney designations at least ensures the person you choose, not the court, will be the one making important financial, health, and well-being decisions if you are not able to.
Joseph Goldy, CFP®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.