Powers of attorney and guardianship are legal tools used to assist individuals who may be unable to manage their affairs. However, the two differ significantly in their application, implications, and the level of autonomy they afford to the individual. Guardianship is often considered a last resort due to its intrusive nature and the significant loss of rights it imposes on the individual.
Powers of Attorney
A power of attorney is a legal document where a principal (the person signing the document and granting the power) appoints an agent (the person receiving the power) to make decisions on their behalf. The two primary powers of attorney are a general power of attorney, which grants powers to manage a person’s property, finances, and general affairs (anything but health care), and a health care power of attorney, which grants powers to make decisions regarding a person’s health care.
Powers of attorney are planning instruments and, therefore, they are established while the principal still has the capacity to make decisions. In other words, a power of attorney is typically created before it is needed because if the principal waited until they needed it, they may no longer have the legal capacity to sign the instrument. That said, when a power of attorney is ultimately needed is not a bright line. In some cases, financial powers of attorney may be used for convenience and not because someone is incapacitated. For example, a power of attorney may be used by a spouse signing on behalf of the other spouse at a real estate closing or for another business transaction. But even for a child acting as an agent for a parent, it is not always a bright line when the child begins acting. Generally, as a parent ages, a child or other person acting as their agent gradually becomes more involved in helping with various financial and health care decisions. Typically, there is no arbitrary moment in time where a person becomes incapacitated and an agent steps in to begin acting on their behalf.
Powers of attorney are fundamentally different from guardianship in that they do not remove any rights of the principal; they only grant rights to the agent to act on the principal’s behalf. A person who has granted a power of attorney to an agent still retains rights to make their own decisions. Of course, if a person becomes incapacitated, then from a practical standpoint, they may lose some rights by virtue of the incapacity but not because they have granted a power of attorney. For example, an attorney would not allow a person to sign a legal document, and a medical professional would likely not take direction from a patient showing clear signs of substantial incapacity. Notwithstanding that practicality, no rights or ability to handle one’s own affairs are removed by the power of attorney.
Guardianship
Guardianship, on the other hand, is a court-supervised process where a guardian is appointed to make decisions for an individual who has been adjudicated incompetent by a court. There can be a guardian of the person (medical decisions), a guardian of the estate (financial and property decisions), or a general guardian (financial and health care decisions). This process often results in the loss of significant rights and autonomy for the individual, as the guardian assumes control over personal, financial, or medical decisions. That said, a court can order limited guardianship and allow a person to retain certain rights. Guardianship is a two-pronged process requiring a petition to adjudicate a person incompetent, which, in many cases, is a parent or other loved one, and then, if a person is deemed incompetent, a guardian is appointed, and an ongoing proceeding involving an inventory and accounting is required. From a legal perspective, guardianship is, to some extent, an adversarial proceeding between the family member and the person who may need a guardian.
Due to several highly publicized guardianship cases receiving negative public attention, there has been a recent movement for supported decision-making, especially for individuals with disabilities. Supported decision-making involves a core of trusted individuals working with a person with limited capacity to make their own decisions, rather than resorting to guardianship or other restrictive legal arrangements. Consequently, North Carolina made several significant changes to their guardianship statute in 2023. North Carolina now mandates that the petitioner and the court in an incompetency proceeding consider less restrictive alternatives to guardianship. Additionally, North Carolina now requires the respondent (i.e., the person who may be adjudicated incompetent) and other relevant parties to be served with a notice of rights. In cases where a durable power of attorney or healthcare power of attorney is in place and functioning effectively, North Carolina courts may determine that guardianship is unnecessary. Similarly, courts have found that even when incapacity is established, guardianship should not be imposed if other resources or alternatives can adequately protect the individual.
Why Should Guardianship be a Last Resort?
Guardianship proceedings are procedurally burdensome and can lead to significant emotional and financial strain for all parties involved. If a person is adjudicated incompetent and a general guardian or guardian of the estate is appointed, an insurance bond must be posted, and regular accountings must be filed. Additionally, petitions and hearings are often required for many actions dealing with the Ward’s assets. The matters become public record, and the Ward often loses the right to drive, deal with their own property, marry, and make other decisions. Powers of attorney are private decisions made in advance by a person while they are competent. An agent under a power of attorney is generally not required to post a bond or report to the court. However, powers of attorney are fiduciaries required to act in the best interest of the principal, and subject to civil and criminal liability for taking advantage of their position.
General and health care powers of attorney may be established for less than a thousand dollars in only a couple of appointments with an attorney, whereas guardianship may require years of court proceedings and tens of thousands of dollars in expenses. Most importantly, guardianship is a mechanism of control that strips the rights of an individual.
While there may be times when a guardianship is necessary and the only way to protect an individual, all alternatives should be considered. For example, if an elderly person with diminished capacity is being financially exploited, while an agent under a power of attorney does not have the authority to control the individual, they do have the authority to monitor the situation and the elderly person’s finances. Accordingly, the agent can collect the necessary evidence to report the exploitation to the proper authorities. Financial exploitation of a person over 65 or a disabled person is a felony in North Carolina.
When Should Guardianship be Considered?
There are generally two situations where guardianship may be the best option. First, when a person with solely owned assets has substantial incapacity and has not previously executed any type of power of attorney, guardianship may be the only option. Note that just because a person has substantial incapacity and has not previously executed a power of attorney does not mean guardianship is the only or best option. For example, if one spouse has become substantially incapacitated and does not have a power of attorney, further analysis is required. If all assets are jointly owned, the spouse without the incapacity may be able to effectively manage the property for the incapacitated spouse. Additionally, the default statutory rules may allow the spouse without incapacity to effectively make necessary health care decisions. If there is no guardian or health care power of attorney in place, N.C.G.S. § 90-21.13(c) allows the patient’s spouse to consent to medical treatment on behalf of the patient who lacks the capacity to make or communicate their own health care decisions.
Second, when a person who has substantial incapacity has executed powers of attorney and is being exploited by the agent under the power of attorney. Although rare in my experience, powers of attorney can unfortunately be abused, and assets can be misappropriated by the agent. If the principal no longer has capacity to effectively revoke the agent’s authority, guardianship may be the only method by which to shield the person and seek indemnity from the unscrupulous agent under the power of attorney.
Conclusion
The autonomy of individuals with diminished capacity should be valued and only restricted to the extent necessary. While powers of attorney and guardianship are both tools used to assist individuals who are unable to manage their affairs, as described here, the effect of the two mechanisms is fundamentally different. Powers of attorney and other alternatives are always the first course of action, and guardianship should only be pursued as a matter of last resort.
About the Author
Andrew M. Brower is a Board Certified Specialist in Estate Planning and Probate Law at Law Firm Carolinas. If you would like more information on the topics discussed in this blog, please contact our office to schedule a consultation.