Here are some points of comparison between a Power of Attorney and a guardianship in Pennsylvania.
- A Power of Attorney (POA) is a relatively inexpensive document that is part of an overall estate planning package. Guardianship proceedings are more expensive and normally cost several thousand dollars to create, and cost more money to administer on an ongoing basis. If you have a trustworthy and capable person to name as your agent in the POA, this can be a less expensive option than guardianship in the long run. Most people wish to avoid guardianship, if possible.
- Power of Attorney documents can cover financial matters and healthcare matters. Normally you would sign separate POA documents, one for finances, and the other for healthcare matters. With guardianship proceedings, the individual the court appoints to make your healthcare and non-financial decisions is called the “guardian of the person.” The person the court appoints to handle your investment and financial matters is called the “guardian of the estate.” The court can appoint different individuals to fill these positions, if appropriate.
- A well-drafted Power of Attorney will normally avoid guardianship proceedings.
- With a Power of Attorney, you designate the person or people you want to oversee your financial and healthcare matters in the event of your disability. With guardianship, the court listens to testimony, weighs evidence, and decides who should act on your behalf. Sometimes the court appoints a family member, and sometimes the court appoints an independent, professional guardian whose costs are paid from your assets.
- A Power of Attorney is signed by someone who is planning ahead, before incapacity. The additional expense incurred by
having to file for guardianship is often, but not always, the result of a lack of estate planning. Sometimes guardianship is required because the agent named in the POA died with no back-up or is otherwise unavailable or unwilling to serve. Sometimes guardianship is required due to family disagreements over how the named agent is handling financial or healthcare matters as POA. When the court sees family members fighting and disagreeing, it may decide that it is in the incapacitated persons’ best interest to appoint an unrelated professional guardian. - The author of this article suggests that it is better to not sign a Power of Attorney than to name the wrong person in your Power of Attorney document. If you have no signed POA, guardianship can be required in the event of your incapacity. Guardians are monitored by the court and must file annual reports, so there is accountability built into the guardianship system. Sometimes a trust designating a corporate trustee can be a way to make sure financial matters are handled properly if you have no trusted family members or friend to designate as POA. It is less common these days, but some banks will serve as Power of Attorney, and this can be an option to avoid guardianship in some cases, potentially in combination with a trust.
- You need to have legal capacity to sign a valid POA. Guardianship is appropriate only where the person lacks capacity and there are no less restrictive alternatives to avoid guardianship. A Power of Attorney is normally a less restrictive alternative to guardianship when the person named as Power of Attorney is acting properly.
- So long as you have “mental capacity” you retain the ability to revoke your Power of Attorney by signing a new one and letting the person you named know that they have been removed. With guardianship, you or a person on your behalf would have to file a “petition for review” to change the court order, remove the guardian, or prove that there is no longer a need for guardianship.
- Both a court-appointed guardian and an agent designated in a Power of Attorney are entitled to be paid for their services. That said, often a family member serving as your POA will not charge for their time spent handling your affairs, but they are entitled to reasonable compensation and reimbursement for out-of-pocket expenses. If you wish to do so, you can limit compensation in your POA, or state that your agent shall serve without compensation. A guardian is entitled to compensation and needs to seek court permission before being paid. If an agent under a POA pays themselves too much money, that can be challenged by someone with legal standing to complain, and the court can reduce compensation as appropriate.
- A Power of Attorney is used by the person you designate, known as an “agent under POA” without court supervision unless someone with legal standing complains to the court about how your agent is handling your finances. In that case the agent in the POA needs to account to the court and explain how they have handled your financial matters.
- A guardianship is court supervised and the guardian must file annual reports. A guardian can spend income without court permission, but to spend your other money (known as “principal”) the guardian needs to ask the court for permission. A Power of Attorney permits your named agent to spend money without court permission, but the agent must act in good faith, in your best interests, and in accord with what would be your reasonable expectations. An agent also has a legal duty to maintain financial records and documentation of all expenditures. If you name a trustworthy and capable person, they can handle your finances under a POA without the same level of ongoing legal fees associated with guardianship, and without having to go to court. An agent can still be held accountable in court in the event he or she is not meeting their duty of care, but there are no mandatory annual reports to file unless the Power of Attorney document requires the agent to prepare some form of annual accounting. It can be a good idea in some cases to require your agent to share financial information say with a designated third party upon request, or with say the POA’s brothers and sisters, so there is built in accountability, and everyone knows what the POA is doing with the parent’s money.
If you wish to have our office help you avoid guardianship by preparing your estate planning documents in advance, including preparation of your will, financial POA, healthcare POA, and possibly a trust if appropriate for your situation, please contact us. You can rely on the lawyers at Gerhard & Gerhard, P.C. to be on your side every step of the way.
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