The Guardianship Process in a Special Needs Situation and Reporting Requirements

In most states, anyone interested in the proposed ward’s well-being can request a guardianship. An attorney is usually retained to file a petition for a hearing in the probate court in the proposed ward’s county of residence. Protections for the proposed ward vary greatly from state to state, with some simply requiring that notice of the proceeding be provided and others requiring the proposed ward’s presence at the hearing. The proposed ward is usually entitled to legal representation at the hearing, and the court will appoint an attorney if the allegedly incapacitated person cannot afford a lawyer.

At the hearing, the court attempts to determine if the proposed ward is incapacitated and, if so, to what extent the individual requires assistance. If the court determines that the proposed ward is indeed incapacitated, the court then decides if the person seeking the role of guardian will be a responsible guardian.

A guardian can be any competent adult — the ward’s spouse, another family member, a friend, a neighbor, or a professional guardian (an unrelated person who has received special training). A competent individual may nominate a proposed guardian through a durable power of attorney in case she ever needs a guardian.

The guardian need not be a person at all — it can be a non-profit agency or a public or private corporation. If a person is found to be incapacitated and a suitable guardian cannot be found, courts in many states can appoint a public guardian, a publicly financed agency that serves this purpose. In naming someone to serve as a guardian, courts give first consideration to those who play a significant role in the ward’s life — people who are both aware of and sensitive to the ward’s needs and preferences. If two individuals wish to share guardianship duties, courts can name co-guardians.

Reporting Requirements

Courts often give guardians broad authority to manage the ward’s affairs. In addition to lacking the power to decide how money is spent or managed, where to live and what medical care he or she should receive, wards also may not have the right to vote, marry or divorce, or carry a driver’s license. Guardians are expected to act in the best interests of the ward, but given the guardian’s often broad authority, there is the potential for abuse. For this reason, courts hold guardians accountable for their actions to ensure that they don’t take advantage of or neglect the ward.

The guardian of the property inventories the ward’s property, invests the ward’s funds so that they can be used for the ward’s support, and files regular, detailed reports with the court. A guardian of the property also must obtain court approval for certain financial transactions. Guardians must file an annual account of how they have handled the ward’s finances. In some states guardians must also give an annual report on the ward’s status. Guardians must offer proof that they made adequate residential arrangements for the ward, that they provided sufficient health care and treatment services, and that they made available educational and training programs, as needed. Guardians who cannot prove that they have adequately cared for the ward may be removed and replaced by another guardian.
This approach is to be discouraged for a number of reasons.  First, public benefits programs are often inadequate. They need to be supplemented with other resources. Second, both public benefits programs and individual circumstances change over time. What’s working today, may not work tomorrow. Other resources need to be available, just in case. Third, relying on one’s other children to take care of their siblings places an undue burden on them and can strain relations between them. It makes it unclear whether inherited money belongs to the healthy child to spend as he pleases, or whether he must set it aside for his disabled sister. If one child sets money aside, and the other doesn’t, resentments can build that may split the family forever.

The better answer to many of these questions is a “Special Needs Trust.”   Such trusts fulfill two primary functions:  The first is to manage funds for someone who may not be able to do so himself or herself due to disability.  The second is to preserve the beneficiary’s eligibility for public benefits, whether that be Medicaid, Supplemental Security Income (SSI), public housing, or any other program. They come into play in a multitude of situations, including parents planning for a disabled child, a disabled individual coming into an inheritance or winning or settling a personal injury claim, or one spouse planning for a disabled spouse.

First, a short explanation of what trusts are and how they work: A trust is a form of ownership of property, whether real estate or investments, where one person – the trustee – manages such property for the benefit of someone else – the beneficiary. The trustee must follow the instructions laid out in the trust agreement as to how to spend the trust funds on the beneficiary’s behalf – whether and when to distribute the trust income and principal.  In general, trusts fall into two main categories: self-settled trusts that the beneficiary creates for himself with his own money and third-party trusts that one person creates and funds for the benefit of someone else.

Each situation and each benefit program has its own rules which affect the drafting, funding and administration of special needs trusts.  The public benefit programs in many ways track the treatment of trusts in terms of creditor protection. Just as you generally cannot create a trust for your own benefit and protect the trust funds from creditors, you usually cannot create a trust for your own benefit and have the funds uncountable for purposes of Medicaid, SSI and other public benefits programs.

However, Medicaid and SSI have provided for “safe harbors” that permit the creation of self-settled supplemental needs trusts in certain circumstances. These are often referred to as (d)(4)(A) or “payback” trusts referring to the enabling statute and the requirement that at the death of the beneficiary the state be paid back its Medicaid expenditures on her behalf to the extent sufficient funds remain in the trust.

So-called “third-party” special needs trusts are usually created by parents and grandparents for the benefit of children and grandchildren with disabilities. These can be much more liberal than the statutory self-settled special needs trust and do not need to include a payback provision.

When addressing a special needs situation that involves guardianship, be sure to speak with an Elville and Associates’ attorney who fully understands the special needs planning process and how guardianships work in these particular situations.