What is a Fiduciary

What is a Fiduciary?

The caregiving and supporter role often arises out of crisis. A loved one becomes disabled, or worse, unexpectedly passes away. It’s natural for family members and friends to want to help, but it’s also important to consider the legal obligations underpinning these roles.

Defining “Fiduciary”

Fiduciary roles often arise out of legal documents and relationships such as a trustee or executor under a Will; the parent-child relationship; spouses; and business partnerships. But did you know that a fiduciary role can arise out of an informal relationship as well? These informal relationships, or “confidential” relationships can occur by simply undertaking to act on behalf of another person. This is especially true in relationships where one person is more vulnerable due to disability, and is relying on the other person to assist, or act on their behalf.

Consider, for example, an aging parent who is starting to have failing health and memory problems. They may begin looking to their adult child to assist them with making certain life decisions or engaging in every day transactions. They may need them to start accompanying them to doctors’ appointments and be their “surrogate” when interacting with third parties concerning billing matters or scheduling. In such a situation, there is no doubt that the adult child who engages to assist this parent has become a “fiduciary”. Even an informal fiduciary such as this has legal responsibilities, and correspondingly, personal liability if they fail.

The Legal Responsibility of a Fiduciary

In formal fiduciary relationships, the legal responsibilities of the fiduciary are clearly defined in the legal document under which they arose. For example, an agent acting under a valid Durable Power of Attorney need look no further than the signed document to know what is expected of them. The Texas statutory form even includes a two-page explanation of fiduciary duties and the liability of the agent for breach of those duties.

But what about the example of the adult child helping the disabled parent? What if the parent did not have any formal estate planning documents in place before they became ill? As it turns out, they owe similar fiduciary duties to the aging parent just as a legally appointed agent under a valid legal document. These general duties include: (1) duty of loyalty and utmost good faith; (2) duty of candor (being open and honest); (3) duty to refrain from self-dealing; (4) duty to act with integrity; (5) duty of fair, honest dealing; and (6) duty of full disclosure (being transparent in decision-making). With duties like this, the informal fiduciary may want to consider how to make the relationship more formal to insure their acts are protected.

How to Legalize an Informal Fiduciary Relationship

Informal relationships can be formalized through proper legal planning. This can include making estate planning documents such as power of attorney documents where the individual appoints a legal “agent” to act on their behalf. However, such documents are dependent on the individual having the mental capacity to understand what these documents mean. But what if the individual is disabled and has lost this capacity?

In cases where the disabled individual lacks mental capacity to create legal documents, a legal proceeding called a guardianship, may be necessary. In a guardianship, a court can appoint someone to act on behalf of the disabled individual for healthcare and residential decisions as well as financial decisions. These are one-time legal proceedings that offer the fiduciary better legal protection as they instill the guardian with full legal authority to act on behalf of the disabled individual. Guardianships are also supervised by the court, creating accountability as it concerns the fiduciary duties owed to the disabled individual.

Whether a fiduciary role has arisen out of a relationship is very fact specific. Before undertaking to act on behalf of another, it’s important to be advised as to the legal role and responsibility, and potential personal liability.

Adriane S. Grace is a guardianship attorney in Frisco, Texas who regularly assists and counsels clients who are acting in a caregiver or supporter role. If you have questions about guardianship or fiduciary duties in the Frisco, Prosper, Allen, McKinney, Richardson, Dallas, Carrollton, The Colony, or Denton area, please complete the contact form to request a meeting.



Power of Attorney

Power of Attorney: How to Avoid Abuse and Financial Exploitation

In estate planning, we often use Power of Attorney documents as a tool to plan for future incapacity. But with great power comes great responsibility. And power of any kind is easily abused. Thus, it’s important to carefully consider the legal effect and consequences of a Power of Attorney document.

What is a Power of Attorney?

A Power of Attorney allows a person to act on behalf of another in a financial transaction or for medical decisionmaking. A person making a Power of Attorney is called the “Principal” and the person they appoint to act on their behalf is called an “Attorney-in-Fact” or “Agent”.

The Agent isn’t really an “Attorney” (as in one who is licensed to practice law), but like a licensed Attorney, an Agent is a “fiduciary”. That means they must put the interests of the Principal above their own interests when acting as Agent. They must also account to the Principal for all actions performed, or decisions made, under the Power of Attorney. A failure to do so is an abuse of a Power of Attorney, or as we call it in legalese, a “breach of fiduciary duty”.

How Does a Power of Attorney Work?

A Power of Attorney allows an Agent to engage in transactions or make certain decisions on behalf of the Principal. Depending on the type of Power of Attorney, the Principal can also continue to engage in the same transactions and decisions. This is true of a “Durable Power of Attorney”. This is a Power of Attorney that permits the Agent to act immediately upon the Principal signing the Power of Attorney. These type of Power of Attorney documents are often used as a matter of convenience for a Principal who wants assistance with managing their assets or business, and who trusts their Agent. The appointment of an agent under a Durable Power of Attorney is effective immediately and continues until the Principal revokes it, dies, or a guardianship is created by a court. Consequently, an Agent is free to act under the Durable Power of Attorney even if the Principal later becomes incapacitated.

With a “springing” Power of Attorney, the Agent acts on behalf of the Principal only in the event of “incapacity”; when the Principal can no longer make decisions concerning their healthcare and/or finances. In Texas, a Medical Power of Attorney is always a “springing” Power of Attorney because the Agent is only permitted to make medical decisions when medical doctors have certified in writing that the Principal is incapacitated. Similarly, a Principal can create a “springing” Power of Attorney for financial transactions by specifying in the document that the Agent can act on their assets and financial accounts only in the event of the Principal’s incapacity.

Although a springing Power of Attorney may seem like a safe option, these documents are also subject to abuse since they are used in the context of a Principal who has lost mental capacity. Thus, it’s important to understand how and when a Power of Attorney can be used. For example, in Texas, a Power of Attorney cannot be used to change a person’s permanent place of residence or to “move” them to a skilled nursing facility. Nor is it permissible to use a Power of Attorney to admit a person to a psychiatric facility for in-patient care. Additionally, an Agent on a Power of Attorney may only engage in those financial transactions specified in the Power of Attorney document.

Who Can Make a Power of Attorney?

A person making a Power of Attorney, or “Principal”, must be able to understand the business they are transacting and the legal effect or consequences of the transaction. Thus, it is essential that at the time that they are making the Power of Attorney, the Principal understands they are granting certain powers to another person that can be exercised on the Principal’s behalf. The Principal must also be able to understand the legal consequences of those powers being exercised without the Principal’s participation.

If a Principal is unable to understand these concepts then they lack “capacity” and should not make a Power of Attorney. If a person makes a Power of Attorney at a time when they lack capacity, the Power of Attorney is voidable.  An Agent who engages in a transaction or makes a decision under a voidable Power of Attorney  could be held personally liable. For example, the purported Agent who sells property under a voidable financial Power of Attorney could be personally sued by third parties if the sales transaction goes awry or if someone complains about their authority to sell the property.

Power of Attorney forms are widely available on the Internet, but if the potential “Principal” is already incapacitated or if their capacity to make a Power of Attorney is questionable, potential Principals and agents should avoid using these forms. Instead, friends or family concerned about how to conduct the business transactions and medical decisionmaking of an incapacitated person, may need to consider a guardianship proceeding.

Avoiding Financial Exploitation Under a Power of Attorney

Because a Power of Attorney is a private document, courts do not oversee the actions of an Agent. Thus, anyone considering whether to make a Power of Attorney should seek legal counsel. Estate Planning Attorneys can advise about who to appoint as an Agent; what kind of powers their Agent should have; and how and when to limit those powers. When powers are not properly limited, Agents can exploit the finances of the Principal and even change their estate plans.

Similarly, appointed Agents under a Power of Attorney should seek their own legal counsel if they are aware that a Power of Attorney was made without the advice or assistance of legal counsel and are concerned about its validity, or their power to act.

Adriane S. Grace is an attorney in Frisco, Texas. If you have questions about Power of Attorney in the Frisco, Prosper, Allen, McKinney, Richardson, Dallas, Carrollton, The Colony, or Denton area, please complete the contact form to request a meeting.

Orphan Annie

How to Choose a Guardian for Your Child

Orphaned children are not just the plot of a fictional book or horror movie, but a fact of real life. When thinking about our children, nobody wants to consider their untimely death. However, choosing a guardian for your child is just as important as your decision for your child’s education, healthcare, and religious or moral training.

Why Parents Should Choose Their Child’s Guardian

When a parent fails to legally designate a guardian for their child, the results can be devastating. Real life examples include (1) relatives fighting in court over who will be the orphan child’s guardian; (2) court-appointed guardians who mismanage the orphan child’s assets; (3) court-appointed guardians who are too old, infirm, or negligent; or (4) informal caregivers who steal the Social Security benefits of the orphan child in their care.

If a parent dies before designating a guardian, a state court must make that decision. And those decisions are dictated by state  guardianship laws. In Texas, our state’s guardianship laws state that the child’s relatives in “the third degree by consanguinity” (pronounced CON-SAN-GWEN-IT-EE) have the right to be appointed guardian. Included in that definition is living great-grandparents, grandparents, and adult aunts and uncles from both the mother’s and father’s side of the family. And it’s the oldest generational relatives who have the highest priority (think: grandparents).

Not only is that a lot of people who could argue, fight, and protest, but some of them may include people who the parent would never trust with their child’s care.

Who Should a Parent Designate as their Child’s Guardian?

A lot of times parents fail to choose a guardian for their child because they struggle to find someone who is both a good caregiver and is financially responsible. Fortunately, in Texas, we allow parents to designate different people for those roles. A parent can choose a guardian of the person of their child, and separately, a guardian of their child’s estate. The guardian of the person has the duty of raising the child and providing for their basic needs. The guardian of the estate is responsible for managing the money or property the child will inherit from their parents and also has the right to file lawsuits on behalf of the child.

Careful consideration should be given to the two guardianship roles and to the people in the child’s life who could fulfill those roles responsibly. Parents should also consider whether a court would agree with their selections for guardian. Does this person have a criminal history? Do they have enough experience or education to raise a child? Do they have any issues with money such as bankruptcies or poor credit?

Finally, if parents are choosing a different person in each guardianship role, consideration should also be given to the relationship of the two people designated. Do they know each other well enough? Will they get along? Will they act in the child’s best interest when it comes to making decisions of financial significance? Or, will they use their respective positions as bargaining chips for withholding access to the child?

How to Legally Designate a Guardian for Your Child

Designating a guardian is more than just telling your friends and family about your wishes. You also need a legally defensible plan. In Texas, a parent must make their advance designation of guardian for their child in writing. The designation can be made in a stand alone document or in a Will. Either way, the designation must be signed by the parent and two witnesses. A parent’s legal designation must be honored by a judge unless the person designated is otherwise disqualified by law.

Because an advance designation is admissible in a later guardianship proceeding, parents should consider hiring an estate planning attorney to assist them with properly documenting their choice(s) for guardian. An estate planning attorney can also assist parents with preparing additional legal documents such as a trust for their child. A trust could avoid the need for a guardian of the child’s estate and gives the parent greater flexibility to appoint a bank or other corporate fiduciary to act as trustee. This can be particular useful if the parent expects to leave their child substantial assets that require more complex financial management skills.

Designating a guardian for your child is essential to preserving your legacy. Don’t delay.

If you have questions about guardianship for your child in the Dallas, Plano, McKinney, Frisco, Allen, & Prosper area, contact me, an Estate Planning and Guardianship Attorney, for a consultation. In addition to in-person consultations, I am available by teleconference and videoconference. I have assisted and advised many parents with designating guardians and trustees for their children. Additionally, I have successfully represented and assisted newly single parents and caregivers in probate and guardianship proceedings involving minor children. 

Mental Health image2

Mental Health and Guardianship: How to Get Help

I frequently receive phone calls from friends or family members of an individual suffering from a mental health crisis. Their question is the same, “Can I get a guardianship over them and force them to take their medications, or get psychiatric care?”  Or sometimes the question is whether they can get a trust or some other legal document to prevent the person from spending their money irresponsibly or giving it away. 

Although my heart goes out to these families, it pains me to tell them that guardianship is not a likely remedy and here is WHY:

Due to major changes in Texas guardianship law over the last five (5) years, it has become increasingly difficult to obtain guardianship over a disabled person. Statutory probate courts, which have the responsibility of overseeing these cases, are closely scrutinizing applications and applicants for guardianship. As a result, not only has obtaining a guardianship become challenging, but more costly.  

Applicants for guardianship (friends or family members of the individual) are required, by law, to consider feasible alternatives to guardianship and supports and services before they file for guardianship. For people suffering through a mental health crisis such as suicidal depression, a manic episode of bipolar disorder, psychosis, or a severe drug or alcohol addiction, there is at least one important alternative to guardianship that statutory probate courts also oversee: a mental health commitment. 

The process for an involuntary commitment to a psychiatric hospital can be found in Chapter 574 of the Texas Health Code. This process allows family members to alert the police and the court to situations where a person may need immediate psychiatric care if they are “likely to cause serious harm” to themselves or others. The policy behind this process is that with time and the right treatment, these individuals are usually able to return to a stable mindset. As such, guardianship is viewed as unnecessary under these circumstances and even an infringement of the individual’s constitutional freedoms. Additionally, courts encourage the use of power of attorney forms and supported decision-making to assist individuals dealing with short-term declines in mental health or borderline cognitive functioning, as a feasible alternative to guardianship.  

Guardianship, therefore, should be thought of as a long-term solution to severe mental decline. Generally, a probate court will approve a guardianship application when the individual is completely unable to care for themselves and/or their property and finances on a permanent basis. Medical conditions that tend to result in this finding include severe intellectual or developmental disabilities, traumatic brain injury, post-stroke dementia, and Alzheimer’s dementia. 

Attorney Adriane S. Grace regularly consults with families on guardianship, alternatives to guardianship, and supports and services including public benefits, and helps them navigate and implement these options to avoid costly guardianship proceedings where possible. She also assists families, when guardianship is necessary, to navigate the legal process in uncontested proceedings, and to defend the application, or applicants, in contested proceedings involving complex family dynamics. Contact Attorney Adriane S. Grace if you have questions about whether guardianship is available to you in Frisco, Prosper, Plano, McKinney, Dallas, & Allen Texas area.