Financial Conservatorships: Managing Conservatee Assets

Whenever my five-year old finds coins on the ground, he gets really excited. He’ll pick up that penny or a quarter and exclaim, “Look at all my money!”  In his eyes, he’s become the richest boy around. After all, money can mean different things to different people. But how would he handle it if he really did end up with a large sum of money with no one else to help? This is where financial conservatorships and guardianships are important.  

The meaning and usage of the word may differ from state to state, but in general, conservatorships or guardianships exist to allow a trusted adult (i.e., the conservator) to make decisions for another individual (i.e., the conservatee). This conservatee, either because of age or cognitive impairment, does not have the capacity to make decisions for themselves.

Types of Conservatorships

There are two types of conservatorships: Conservatorship of the Person and Conservatorship of the Estate.

Conservatorship of the person means that the conservator is in charge of making decisions regarding the individual’s health and wellbeing. Conservatorships of the estate, or financial conservatorships, are put in place so that the conservator or guardian can handle the finances for someone who is unable to responsibly handle their money. In the highly publicized Britney Spears conservator case, there was a conservator signed for both her health and wellbeing and her finances. 

A conservator/guardian must be appointed by the court as a result of a petition.  This petition can come from a spouse, family member, or even an interested person.  A separate petition will also need to be filed if petitioning to be conservator of the estate. In situations where family members, because of distance, obligations, or capability, are unable to serve as conservator, a court may appoint a private professional fiduciary to serve.  

Financial Conservatorships

Conservators or guardians who are appointed to care for the estate have a fiduciary responsibility to manage the estate’s assets responsibly. Because the state has decided the conservatee is unable to make financial decisions for themselves, the conservator is responsible for acting in the conservatee’s best interests. They have the authority to make all financial decisions on behalf of the conservatee.

The purposes of financial conservatorships can vary widely depending on the needs of the conservatee. For conservatees who are under 18 (also known as guardianships in some states), financial conservatorships are an important way to make sure assets and investments in the estate are used productively and managed prudently.  

The conservator will have the ability to take more risk because of the age of the conservatee and there may be less of a need for liquidity. In addition, the conservator understands that at some point, the child will come of age and be in charge of making their own financial decisions.  So the conservator might manage the conservatorship in a way that prepares the child to be ready to make proper financial decisions with a significant amount of money.  

Conservators who are in charge of estates where the conservatee is much older will manage the assets differently. Often the conservatee is starting to show cognitive impairment and it is unlikely that they will be able to return to managing their finances.  The time horizon may also be shorter, and there may be less resources available for the conservator to draw upon.  Access to liquidity is more important due to the aging process and higher potential health care expenses.

Additionally, there might be unique rules the conservator is required to follow.  In California, conservators are required to follow the Uniform Prudent Investor Act, as well as Probate Code 2574 which restricts investments to government bonds and exchange traded securities. The conservator will manage assets with an understanding that the conservator of the estate’s end goal is to help the conservatee get to a point where they can care for themselves 

In the beginning of a financial conservatorship, the conservator might spend a lot of time locating and marshaling assets and setting up proper titling of accounts. After things are set up to run smoothly, day to day, the conservator may deal with the mundane of opening bills, cleaning up finances, approving and paying for expenses, and preparing for tax filings.  

For estates with significant assets, the management of investments and real estate may fall outside of the conservator’s expertise and may need to be delegated to a financial professional.  However, the conservator, acting as fiduciary, will need to review and monitor the investments and keep records of their supervision. This is because conservatorships are reviewed on an ongoing basis by the courts, who want to confirm that the conservator is acting in the conservatee’s best interests, and that the conservatee does not have a change in status.

Hopefully my son will never reach a point where he will need a financial conservatorship, but it’s good to know that there are systems in place to account for these types of scenarios and that there are family and professionals that can act in his best interest.

A trusted financial advisor can help navigate the complexities of financial conservatorships, working with the conservator to determine whether long-term care objectives are realistic and reasonable. Connect with Prudent Investors for a 30-min introductory session to speak with one of our advisors and learn more about our investment principles and services. 

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