Legalese — When You Are in Charge of Other People’s Money

I’ve written before about how to become the Executor of someone’s will, or how to become a Conservator for someone’s money if they become incapacitated.  What I haven’t talked about is what you should do once you gain those powers.

When you are in charge of someone else’s money, you are what is called a ‘fiduciary.’  Being a fiduciary is a huge responsibility, and it comes with a whole host of legal and ethical obligations that you need to be aware of lest you run afoul of them.  The biggest obligation is the one that usually trips people up, because it involves math and can involve complicated bookkeeping.

Where people mostly run into trouble with this is when they already own property with the person over whom they are a fiduciary, such as spouses.  Let me put that in plainer English: if you are someone’s wife, and most of your property is owned jointly, but some of it is in your name and some of it is in his name.  Let’s take Betty and George Smith (who are 100% fictional) as our example. Betty is 75 and George is 78, and they have been married for 50 years.  They do not have any children.

Unfortunately, George develops Alzheimer’s disease, and while his body is healthy, he is no longer capable of managing money or the day to day tasks of living.  He is easily scammed by folks who send him emails and call him.  Betty wants to protect their savings and make sure she can deal with everything for George.  George really needs to be moved to a memory care facility, but he will not willingly go.  Betty and George have not visited an attorney recently, and so they do not have Financial and Medical Powers of Attorney all lined up.  Betty applies to the Probate Court to be George’s Guardian and Conservator.  As his Conservator, she is now in charge of all of his money.  She cancels all his credit cards, puts a freeze on George’s credit, and hides their joint checkbook so he can’t get at their money or run up debt to help a Prince in a far-off land. 

She knows she has to set up a Conservatorshp account and file an inventory with the Court.  But what goes in these things?  They have a joint checking account that they have always used for every day expenses.  George has a retirement account from which they draw a little money every month to supplement their Social Security.  They have an Edward Jones account that they own together.  George owns a few stocks in his own name, and bought Betty a few shares of Belk stock in her name as a joke because he said she spent so much money there she ought to own the store by now.   They each have some CDs and they have a money market account in both of their names. Both of their cars are in George’s name.

Betty is a good, moral, and ethical person.  She knows that she and George made a lifetime commitment and there is now ‘yours and mine’ or ‘his and hers.’  There is only ‘ours.’  She wants to do this Conservatorship correctly.  On the inventory, which is a list of things that are George’s and will be put into the Conservatorship that is filed with the Court, she lists everything that is in George’s name alone.  She also believes that George owns a one-half interest in the CDs that are in Betty’s name, as well as a one-half interest in the Belk stock.    Because she does not believe in ‘yours and mine’, she lists it all. 

On the one hand, it doesn’t matter much.  It is, for all intents and purposes, their money to be used for their collective expenses.  Whichever one of them dies first, the other will inherit the entire estate.  IT is impossible for Betty to steal from George, because in the end it is all her money anyway. 

But, the law and that sort of logic are sometimes at odds with each other.  Let’s use one CD as an example.

Betty has a CD in her own name worth $50,000.00.  Because she believes it is half George’s, she lists “Wells Fargo CD, $25,000.00” on his Inventory.  About nine months later, the CD comes due.  The account has collected $25.00 in interest.  Betty decides that the CD is not earning enough money, and transfers it into their Edward Jones account so she can earn a better rate of return.   This is a good financial decision.  All her advisors, personal and professional, said she made an intelligent move.

And in a vacuum, she has.  However, as far as George’s Conservatorship is concerned, she has created an accounting nightmare.  Yearly, and then again in the final accounting when George passes away, Betty is going to have to account for every penny that came into and went out of George’s Conservatorship and show the paperwork justifying her accounting.  She has told the Court that George owned one-half of that CD.  Because she did not separate George’s money from hers, on the perfectly logical theory that it was ‘theirs.’ But legally, she’s in a bind.  How can she show which percentage of the interest earned on the CD is George’s?  Because she then transferred the whole lot into the Edward Jones account, which already had money in it, and because that $50,000.00+ got invested in a few different mutual funds, how is she going to be able to separately track George’s $25,000.00?  It is more or less impossible.

This is a really complicated concept, and the accounting and bookkeeping you have to do is even more precise and complicated. If I’ve confused you, that’s because it is confusing, and it might not be something you want to take on yourself without getting professional, legal advice.  A lot of times, people look to their accountants and financial advisors for this type of advice.  I understand why – when you want to know how to keep track of money, you ask an accountant.  When you want to know where to put your money, you ask a financial advisor.  But what those folks often don’t know is what the Probate Court wants to see.  The Probate Court does not necessarily care about efficiency or the greatest return on investment.  That’s why it’s important to get legal advice separate from investment advice.  A good lawyer will work with your financial advisors. 

I’ve represented too many Bettys who found themselves in a world of trouble when George dies and they have to account for everything.  They end up having to spend a lot of money to get me to untangle it for them, and try to convince the Court that they haven’t done anything nefarious.  They haven’t – they’ve been loyal, loving wives who did the best they could.  But the Court throws around white-collar-crime sounding phrases like “commingling of funds” and “breach of fiduciary duty.”  All of this at a time when you are mourning the loss of your spouse and under a lot of stress.

Like so many things, it’s easier and a whole lot cheaper to get advice on the front end.   Remember the saying: an ounce of prevention is worth a pound of cure?  It’s true in the law, too.    

Nothing in this article should be construed as legal advice. It is being offered for informational purposes only.

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