Wednesday, January 25, 2012

Using a Conservatorship to protect your inheritance.

A conservatorship is designed to prevent a financially incapable elder from wasting his or her money due to deteriorating thinking skills. The socially acceptable motive for rescuing the senior citizen from himself is that the elder may need that money for his own needs, particularly long term care. A child who sees his elderly parent sending her life savings to television evangelists or Caribbean scammers may be legitimately concerned that mom is spending the money she may need for long term care. He also might be legitimately concerned that his mother is wasting his inheritance. This article explores the risks and rewards of using a conservatorship to prevent mom and dad from spending the money their children hope to inherit.

A conservator can be appointed for a person who is “unable to manage financial resources.” This is a wide open door. Conservators get appointed because old women are sending all their money to crooked preachers or old men are spending all their money on hookers. Many times a child seeks a conservatorship because another child is bleeding the parent dry with pleas for money that the kid could earn himself if he had the gumption to go out and get a job. Whenever siblings are involved, there will be the suspicion that the one seeking the conservatorship is less concerned with the well-being of the elder than the well-being of his potential inheritance.

      Can you use a conservatorship to protect your inheritance? Yes. But there are dangerous pitfalls along the way.

      Let's say elderly mom has three kids: Moe, Larry and Curly. Moe and Larry are out in the workplace earning a living. Curly is living with mom and taking care of her and having conversations like this.
“Mother, I baked you a birthday cake.”
“Oh, thank you Curly. You are the only one of my sons who ever bakes me a cake.”
“That's right mother. Moe and Larry don't care about you like I do.”
“What can I do to repay your kindness, Curly?”
“Oh, nothing. I do it out of love. But if you insist on doing something, you could sign over to me all those shares of Microsoft stock you bought in 1985.”
“This is such a nice cake, Curly. Bring me those papers.”

Moe is not happy about this. He reads my blog and knows that one of the best ways to get around a will is to have the elder give away all his or her money before death. In our case, mother's will may split her estate equally between her three children, but if Curly gets his name on on the assets prior to death, there is nothing to transfer by will. Moe and Larry are out of luck.

Moe figures that he will ask that a conservator be appointed for mom on the grounds that she is trading Microsoft stock for birthday cakes, thereby depleting her financial condition for frivolous reasons. He doesn't make the mistake of asking that he be appointed. This would set the stage for a courtroom sibling dispute, which judges never like. He instead will ask that a professional—an neutral independent—be appointed. That way he cannot be accused of trying to get his hands on mom's money himself. Once a conservator is appointed, the professional will make sure that mom's remaining property stays put so that all three brothers inherit it when mom dies. The professional conservator might even be able to get that Microsoft stock back in mom's name using Oregon financial elder abuse statute.

But there is a danger.

The big danger is the mom will be so angry when she receives the papers saying that Moe wants to take her money and give it to a professional—in her mind, a stranger—that she will call her lawyer and tell him to write a new will that disinherits Moe. This happens all the time. Even if a conservator is appointed, mom has the right to have a lawyer and to change her will. The capacity necessaryto write or change a will is far lower than that necessary to manage financial affairs. All mom has to know is the names of her children, what she owns, the fact that she is signing a will, and the effect the will will have. If she knows what she owns, can name her children, and knows that by signing the will she is disinheriting Moe, she has the capacity to change her will. She also has a reason for changing her will; to punish Moe for taking her to court.

A lot of families have a Curly—that son (or daughter) who fails to thrive and spends his life hanging around his parents home and living off handouts from mom or dad. The kids who did thrive don't think much of these family members. Professional fiduciaries dislike them as well and tend to want to separate them from the parent. Parents, however, may love their children equally or even favor the neer-do-well child. By the time one gets to considering a conservatorship there may be in place a stable decades-old family dynamic in which the the parents give extra support to one while the other, more successful children, complain. A child who disturbs this dynamic does so at some peril.

A will signed by a person subject to a conservatorship will always get close scrutiny by the courts. Even if she had the capacity to disinherit Moe, Moe might challenge the will on the basis that Curly used “undue influence” to get her to do it. In undue influence case, the lawyers make lots of money. Judges are successful people and tend to be unsympathetic to folks like Curly who live off their parents. That does not mean, however, that Moe is guaranteed a win. Elders can distribute their estate as they see fit. Giving all the money to the person who was with them the most is neither unusual or unjust.

The moral of this story is that if you want to do the right thing and protect mom from herself, your motives should be pure. If it is truly her that you are thinking about, it should be of no consequence that she disinherits you. If your motives were not pure—you were doing it to prevent your inheritance from disappearing—then you are taking risk. The risk is that your efforts will not be appreciated and you will be disinherited anyway. If you are not disinherited you win. If you are disinherited, you took the risk and lost. 

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