Guardian ad Litem

A recent appellate division case makes clear the role of a guardian ad litem.  When a person cannot handle his financial or medical affairs due to physical or mental disability, a guardian might be appointed for him.

In order to appoint a guardian for a person, a court action is required.  The court action must be supported by the reports of two physicians who have examined the incapacitated person and opined that he can no longer handle his financial or medical (or both) affairs due to mental or physical infirmity.

For instance, if Mr. Smith suffers a massive stroke, he may be unable to handle his affairs. If Mr. Smith failed to sign a power of attorney and an advanced healthcare directive, then no other person could make decisions for him.

Mr. Smith’s children will want to help him, but legally, they can’t because they don’t have the authority to make decisions for him or access his financial accounts (bank accounts, annuities, IRAs, etc.). One of his children will have to initiate a guardianship action.

Once the child files the guardianship action, the court will appoint an attorney for Mr. Smith. In a guardianship action, the court is being asked to declare that Mr. Smith  can no longer handle his affairs and that someone else (his child) has the authority to make decisions for him.  If the court decides this is the proper course of action, then the court is depriving Mr. Smith of fundamental rights—Mr. Smith can no longer make decisions for himself.

Since it is alleged that Mr. Smith can no longer make decisions for himself, the court must appoint an attorney for him to ensure that his fundamental rights are not inappropriately being taken away from him. That lawyer must advocate for Mr. Smith.  If Mr. Smith tells the attorney that he does not want a guardian, then the attorney must advocate for what Mr. Smith wants, unless what Mr. Smith wants is plainly harmful to Mr. Smith.

A guardian ad litem does not have the same role as the court appointed attorney. A guardian ad litem is appointed in some (not all) guardianship actions to opine as to what is in the best interests of the proposed ward, that is, Mr. Smith in my example.  Mr. Smith’s court appointed counsel might believe that Mr. Smith needs a guardian, but Mr. Smith might tell his attorney that he doesn’t want a guardian.  In such a case, the court could appoint a guardian ad litem to opine as to Mr. Smith’s need for a guardian.

Once the court declares that Mr. Smith is mentally incapacitated, the court could leave the guardian ad litem in place in order to accomplish some goal. The guardian ad litem could have a special skill from which the court believes Mr. Smith would benefit.  For instance, if Mr. Smith were being sued for an automobile accident in which he was involved, the court could appoint a guardian ad litem who is an attorney with extensive experience in litigation involving automobile accidents.

The court could empower the guardian ad litem to negotiate and enter an agreement disposing of the lawsuit against Mr. Smith. With such authority, the guardian ad litem could negotiate a settlement of the lawsuit against Mr. Smith and enter a settlement agreement disposing of the lawsuit.

A guardian ad litem is not appointed in most guardianship actions, but in some cases, the appointment of a guardian ad litem can be very beneficial. If a guardian ad litem is appointed, it is important to remember the differences between the court appointed counsel and the guardian ad litem, because even attorneys get their roles confused.

What Is a Trust?

Many clients ask me if they should have a trust.  The client has heard of some person who has a trust, and they believe that a trust would be appropriate for them.

A trust is a fiduciary relationship in which one person, called the trustee, is holding assets (cash, stocks, bonds, mutual funds, real estate) for another person, called the beneficiary.  A fiduciary relationship is one in which the fiduciary has the utmost duty of care to handle the assets of another person.  So, with a trust, the trustee is the fiduciary, holding the assets of the beneficiary with the utmost duty of care.

The person who establishes the trust is called the grantor.  The grantor places his assets into the trust.  The trustee holds and invests the assets of the trust.  And the beneficiary derives the benefits of the trust.

With many trusts, the grantor establishes the trust for the benefit of himself with some other person, such as his children, as remainder beneficiaries after his death.  In such cases, the grantor also serves as the initial trustee of the trust, with one of the children serving in the role of successor trustee after the grantor’s death.

Because a trust is really just one person holding assets for another person, the trustee can invest the assets of the trust any way a person can invest assets.  A trust could have its assets invested in multiple types of investments, just as a person could.  For instance, you are probably “invested” in real estate in that you own your home.  A trustee can invest in real estate by owning a home in the name of the trust for the benefit of the trust’s beneficiary.

You probably have a checking account.  A trustee could have a checking account in the name of the trust.  You could invest in CDs, stocks, mutual funds, and annuities.  A trustee could invest in CDs, stocks, mutual funds, and annuities.

If Joseph Smith were invested in stocks, the stocks would simply be titled “Joseph Smith.”  If Joseph Smith were the trustee of a trust for the benefit of his nephew, Mark Jones, then the stocks would be titled “Joseph Smith, Trustee, of the Mark Jones Trust.”  Titling the stock in this manner would show that Joseph Smith is holding the stocks for the benefit of Mark Jones in a trust.

If Joseph Smith wanted to invest the assets of the trust in real estate, mutual funds, annuities, bonds, etc., all of the accounts or assets in which the trusts was invested would be titled “Joseph Smith, Trustee, of the Mark Jones Trust.”  The trust could invest in one asset or twenty assets, just as you could invest in one asset or twenty assets.

The only limitation to the manner in which the assets are invested is that the trustee must always bear in mind his duty of care to the beneficiary.  When it comes to investing, the trustee must be guided by the Prudent Investor Rule.  The Prudent Investor Rule requires the trustee to invest the assets of the trust in a prudent—careful—manner.

Whether a client needs a trust or would benefit from a trust is always a question of fact given the client’s particular set of circumstances.  A trust is not the right choice for every client.

Many trusts are revocable, meaning that the grantor of the trust can amend or completely revoke the trust any time the grantor chooses.  Revocable trusts often come in handy for estate planning purposes when a client owns real estate in another state, for instance, in Florida.

An irrevocable trust is a trust that cannot be amended or revoked by the grantor.  The grantor could designated another person, such as the trustee or someone else, who could modify or terminate the trust, but in order to be irrevocable, the grantor cannot retain the power to modify or terminate the trust.  Irrevocable trusts are often used to remove assets from the name of the grantor and gift those assets to other persons.