A court recently has appointed you as conservator for another person. What does this mean? What are your responsibilities? What are potential liabilities? This information is meant as a general guide. If you have detailed questions, you should consult an attorney knowledgeable in this area of the law.
A conservator is a person appointed by the courts to manage the financial affairs of another person who cannot functionally or effectively manage his or her own financial affairs.
Don't confuse this with being a guardian, who is a person appointed by the courts to manage the personal and medical affairs of a minor or severely impaired adult.
A person whose functional disabilities qualify him or her for conservatorship (generally referred to as a "respondent" or "protected person") could have both a guardian and a conservator. In such cases, the same person may serve in both capacities or different people may serve.
A conservator is responsible for the respondent's overall financial situation while a guardian is more concerned with day-to-day matters that affect the respondent's personal affairs, care and health. A guardian, for instance, can receive current income for support and maintenance and pay current bills of the respondent. The guardian may generally receive the respondent's Social Security benefits, disability income, etc. Any excess should be turned over to the conservator. If there is no guardian or if you are serving as both guardian and conservator, you should assume responsibility for all elements of income and disbursement. Under law, a conservator appointed for a minor without parents may also exercise the powers of a guardian of a minor.
Some Helpful Suggestions
When you are appointed conservator, you acquire title as a trustee to all real and personal property (or that part specified in the conservatorship order), which is owned by the respondent in his or her name alone or as a co-tenant (co-owner) with others. As to property the respondent owns with others, you "step into the shoes" of the respondent as a co-owner. Your letters of appointment are evidence of your authority over the respondent's property or assets, or the part that is specified in the letters.
To place others on notice of your role and authority as conservator, you should have the title to all conservatorship property registered in your name as conservator for the protected person. With real estate, you can do this by recording your letters of appointment in the county where the real estate is located. With stocks and registered bonds, you need to submit current letters of your appointment along with the securities for re-registration. (The securities can be sold without re-registration if necessary, but it takes longer to receive the proceeds.) Bearer securities do not require re-registration.
Because you now hold title to the protected person's property as conservator, it is mandatory that you keep it separate from your own property, to avoid "commingling." In fact, you ought to consider renting a separate safe deposit box for this purpose. You should start a checking account only for managing the protected person's money (or, put differently, the liquid assets of the conservatorship estate). Then it is possible for you to prepare the required conservator reports to the court ("accountings"), which lists and describes all receipts and disbursements involving the liquid assets of the conservatorship. Never write a check from the conservatorship account to "cash" or to yourself without a note as to what you are buying on behalf of the protected person.
Accountability To The Court
Inventory and Bond: The Colorado Probate Code requires you within three months of your appointment to prepare and file an inventory of all the protected person's assets on court-approved forms.
Unless good cause is shown to the court why a bond should not be required, you will be required to get and post a surety bond. This bond serves to protect cash and other assets under your control or to pledge property of your own or make other arrangements to protect the assets (such as depositing stock certificates or bank books in the Registry of the Court or obtaining agreement from banking institutions restricting the withdrawal of money from estate accounts). The conservatorship estate can pay for the cost of the bond. Those financial protections will be considered and established among the judge, you and your attorney when you are appointed. It's important to note that the existence of a surety bond does not eliminate your financial responsibility. Should there be a problem for which the estate recovers against the bond, the bonding company has the right to recover the amount of its liability from you.
Financial Plan: The Colorado Probate Code requires you to prepare and file a proposed "financial plan" within three months of your appointment, describing how the protected person's assets and income will be invested or applied for his or her best interests. The financial plan essentially is a budget for the protected person, an estimate of monthly expenses of the protected person compared with the expected income from the assets you will be managing, plus outside income (such as monthly Social Security benefits, pensions, etc.) By guessing the protected person's ongoing expenses and income, it should become clear whether you will need to use principal (i.e., draw upon savings accounts or other, "illiquid" assets, or perhaps sell certain property) to meet the protected person's needs.
The financial plan will be reviewed and approved (or amended) by the court. It must be followed faithfully, but if significant changes occur in the status or projections of the protected person's needs, expenses or income, the financial plan must be updated and amended, and the court must approve it.
Accounting or Conservator Report
The Colorado Probate Code also requires you to file financial reports with the court on a periodic basis. The Colorado Probate Code and Rules of Probate Procedure require this filing at least annually unless excused by the court. The court will tell you how often you must file this financial report: quarterly, twice-annually or annually. The accounting report should be made on the appropriate court-approved form. It must list the assets under the conservator's control and the receipts, disbursements and distributions for the reporting period. Again, if there is any major change in the protected person's estate, or if you move to a new address, you must promptly notify the court, rather than waiting for the regular interval for filing a report. It is mandatory that you have a set bookkeeping system reflecting all cash receipts and expenses, so that you'll have the information necessary to prepare and support the court accountings reports, as well as income tax returns. Formal records must be kept to carry out your duty to protect and account to the protected person.
In managing the property of the protected person, keep these basic rules in mind: The first is your duty of undivided loyalty. You may not profit from your position as conservator, use the protected person's assets for your benefit as opposed to the best interests of the protected person or, without prior court hearing and order, enter into any financial transaction with the protected person. Exploitation of a person under disability is a serious offense, for which the law provides severe penalties, both civil and criminal.
The second basic rule is your duty of care. You must manage the protected person's assets with the care of a reasonable and "prudent investor" dealing with the property of another person. Conservators are governed by the standard for trustees in the Colorado Uniform Prudent Investor Act, as follows:
The Prudent Investor Rule:
A conservator shall invest and manage conservatorship estate assets as a prudent investor by considering the purpose, term, distribution requirements and other circumstances of the court's orders. In satisfying this standard, the conservator shall exercise reasonable care, skill and caution.
A conservator's investment and management decisions respecting individual assets must be evaluated not in isolation, but in the context of the estate portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the court's orders and the protected person's circumstances.
Circumstances to be considered include:
- General economic conditions
- Effect of inflation of deflation
- Expected tax consequences
- The role each investment plays in the overall estate
- Expected return from income and appreciation of capital
- Other resources of the protected person
- Need for liquidity, income or appreciation of capital
- An asset's special relationship or value to the estate
Thus, in making investments and distributions you should be reasonable, cautious and prudent. You may not speculate; you must be responsible. Remember that you are the caretaker of financial assets and property that the protected person will likely need for his or her housing, sustenance, health care and other best interests.
In caring for the financial needs of the protected person, you are not limited to spending only income. If income is not enough, it may be necessary to use principal. If the size of the estate is enough, you as conservator may make distributions not only to the protected person but also to those dependent upon him or her for financial support. Under some circumstances, a limited amount of income may be given to charity or to the protected person's family members if the income and assets are otherwise adequate for the care of the protected person. With regard to very large estates, substantial distributions may be authorized by the court to carry out an estate plan or for tax-planning purposes.
Your authority to use estate funds, along with the amount of proposed expenditure, may depend upon the source of the funds and the purpose for which they were received. For example, if the funds were received for the benefit of a minor as a result of a personal-injury verdict or settlement, the use of these funds normally would be limited to paying healthcare bills not covered by insurance and providing for the minor's extraordinary needs. The principle and unused income would accrue for the child to receive when he or she reaches a certain age, or would be placed in trust for the child's future health, education and welfare. In such cases, conservatorship funds would not normally be spent for normal, day-to-day living expenses (food, clothing, transportation, current education, etc.) since receipt of the personal injury proceeds does not affect the parent's continuing obligation of support. On the other hand, if the funds were from life insurance or other death-related proceeds from the death of a parent who was the family bread-winner, conservatorship funds might be spent more liberally to assist with the minor's basic support.
It is important that you consult with your conservatorship attorney before any payments are made for the benefit of anyone other than the protected person, so that necessary orders of court may be obtained. This applies to attorney fees as well as any compensation you may personally request for your services or reimbursement for out-of- pocket expenses (see below).
When you are appointed, the court clerk prepares a written document called "Letters of Conservatorship." This is evidence of your authority to act as conservator. Certified copies are normally obtained and shown or delivered to interested parties (such as banks and stock transfer agents) upon request. These "Letters" (and often the accompanying court order) will reflect any special powers or limitation on your powers.
It is important to note that under the Colorado Probate Code, by serving as conservator you do not normally assume personal financial responsibility for the investments and contracts of the protected person. You may be personally liable, however, if you do not reveal that you are acting in your capacity as conservator or make a personal guarantee in your individual capacity.
As conservator you are entitled to reasonable compensation for your services, payable from the protected person's estate. Any compensation that you receive is taxable income to you and is tax deductible from the income of the protected person. Many family members serve for no compensation and receive only reimbursement for their out-of-pocket expenses, including mileage, parking and the like. There is no statutory schedule or precise criteria for a conservator's fees. Rather, the Probate Code simply mandates that such fees must be fair and reasonable based on the time expended and results obtained, leaving the matter of compensation to be determined on a case-by-case basis.
If you plan to claim compensation, you must keep a record of your time involved in acting as conservator, including a description for each time entry of the services performed. Keep this record to support and answer any questions the court may have about your claimed compensation when your periodic or final accounts. Note that time spent for friendship and companionship is not compensable. Petitions for compensation may be prepared and presented to the court on a periodic basis by your attorney for you as conservator. Generally, these fee petitions will not be considered more than once a year and then only when the required financial accounting (conservator report) is current. Reasonable attorney fees are also payable out of the conservatorship. Similarly, they will be reviewed by the court either periodically or in connection with a final accounting.
A conservatorship terminates upon the death of the protected person or by order of the court determining that the conservatorship is no longer necessary or needed to protect the assets of the protected person. Any event could cause termination of the conservatorship estate. If the protected person is a minor, and minority was the only basis for the conservatorship, the conservatorship terminates at majority (age 21). When the protected person dies, the conservator must give notice of the death to the court and all other people entitled to receive notice under the order appointing the conservator. When the protected person dies, the conservatorship assets will be distributed to the decedent's estate or successors, or as ordered by the court, and a final accounting will be made to the personal representative of the decedent's estate. The court may also end a conservatorship if it finds after notice and hearing that the disability of the protected person or other reason for the conservatorship has ceased to exist. When a conservatorship ends for reasons other than when the protected person dies, title to the assets passes back to the formerly protected person. Finally, a conservatorship must be closed if its assets are exhausted. In each case, you must go to court to conclude the estate and to get your discharge or release from liability as conservator. The court will enter such decree only when satisfied that the conservator has met all the conditions that are required.
Words of Caution
This information cannot and does not try to answer everything you may need to know about being a conservator. It is intended to tell you your responsibilities and to introduce you to important conservatorship issues. If you have questions on how to proceed, consult your attorney before acting. By obtaining an attorney's advice BEFORE you act, you may avoid more costly legal services later.