Substituted Judgment Estate Plan

May 18, 2021

Most estate planning practitioners advise that a complete estate plan is a tool not only to avoid probate, but to avoid conservatorships upon incapacity.  While that may be the preferred method of estate planning, what happens if your loved one didn’t get their plan in place before being diagnosed with Alzheimer’s and you are faced with a Conservatorship proceeding to make medical and financial decisions for your loved one?  If that’s the scenario you are facing, all is not lost.  You can still avoid probate on the death of a Conservatee.  There is a way to develop an estate plan within a Conservatorship proceeding using a method referred to as “substituted judgment.”

For those unfamiliar with Conservatorships, a Conservatorship is a legal proceeding where a judge appoints a responsible person or institutional fiduciary (called the “Conservator”) to care for another adult (called the “Conservatee”) who cannot care for himself or herself and/or manage his or her own finances.  They can be conducted in either the Probate Division of the Superior Court of California (called Probate Conservatorships) or some Conservatorships (known as Lanterman-Petris-Short (referred to as LPS) Conservatorships) are conducted in mental health court.  For purposes of this writing, I am referring only to Probate Conservatorships.

WHAT IS A CONSERVATORSHIP?

Conservatorships are something I recommend my clients attempt to avoid, if possible.  They are public; expensive; and often expose “dirty laundry” or “embarrassing activities” if they are contentious.   If they become contentious, depending on the claims to support the Conservatorship, they can sometimes result in a rift in the relationship between the Conservator and the Conservatee.  They are necessary though.  If you or your loved one does not have a complete estate plan and/or may have fallen victim to undue influence or elder abuse from individual(s) who have less than honorable intentions, a Conservatorship is often the only avenue to protect the Conservatee and/or his or her assets from abuse. 

General Conservatorship.  Conservatorships of adults who cannot take care of themselves or their finances. These Conservatees are often elderly people but can also younger people who are susceptible to undue influence; financial abuse; or have been seriously impaired, due to an illness or injury.   There are two types of general Conservatorships:  Conservatorship of the Person and Conservatorships of the Estate.  An individual can be deemed in need of a Conservatorship of the Person, a Conservator of the Estate or both:

Conservator of the Person.  This type of Conservatorship is necessary when the Conservatee needs assistance with their daily living or to avoid being unduly influenced.  It often is the case that the proposed Conservatee lacks capacity to make decisions, medical and financial.  However, that is not a prerequisite for a Conservatorship.  A person who may have capacity to make medical and financial decisions can be deemed in need of a Conservatorship if they are particularly susceptible to undue influence and are making poor decisions as a result.  Depending on the degree of impairment, a Conservator of the Person can be appointed with powers to make all or none of the Conservatee’s medical decision and with special powers can be granted the authority to administer dementia medications and arrange for placement in a locked memory care facility.

A Conservator of the Estate.  This type of Conservatorship is necessary when the Conservatee is deemed unable to manage his or her financial affairs and needs assistance in managing the financial matters, such as paying bills and collecting a person’s income.  The establishment of a Conservatorship imposes significant limitations on the Conservatee’s ability to act on his or her own behalf. When a Conservatorship of the Estate is established, a Conservatee is presumed to lack capacity to contract, to sell, transfer, or convey property, to make gifts, and to incur debts.

If you have a loved one who is under a Conservatorship or in need of a Conservatorship due to incapacity, you may still be able to do tax planning, create a Trust, create a Will, fund a Trust or perform other activities on behalf of the Conservatee using substituted judgment.  California Probate Code Sections 2580 – 2586 provide the authority for a Conservator or other interested party to bring a petition to have the Court intervene and substitute judgment for the Conservatee.  California Probate Code Section 2580 sets forth a list of activities that can be performed, with a court order for substituted judgment. 

CALIFORNIA PROBATE CODE 2580  

“(a) The conservator or other interested person may file a petition under this article for an order of the court authorizing or requiring the conservator to take a proposed action for any one or more of the following purposes:

(1) Benefiting the conservatee or the estate.

(2) Minimizing current or prospective taxes or expenses of administration of the conservatorship estate or of the estate upon the death of the conservatee.

(3) Providing gifts for any purposes, and to any charities, relatives (including the other spouse or domestic partner), friends, or other objects of bounty, as would be likely beneficiaries of gifts from the conservatee.

(b) The action proposed in the petition may include, but is not limited to, the following:

(1) Making gifts of principal or income, or both, of the estate, outright or in trust.

(2) Conveying or releasing the conservatee’s contingent and expectant interests in property, including marital property rights and any right of survivorship incident to joint tenancy or tenancy by the entirety.

(3) Exercising or releasing the conservatee’s powers as donee of a power of appointment.

(4) Entering into contracts.

(5) Creating for the benefit of the conservatee or others, revocable or irrevocable trusts of the property of the estate, which trusts may extend beyond the conservatee’s disability or life. A special needs trust for money paid pursuant to a compromise or judgment for a conservatee may be established only under Chapter 4 (commencing with Section 3600) of Part 8, and not under this article.

(6) Transferring to a trust created by the conservator or conservatee any property unintentionally omitted from the trust.

(7) Exercising options of the conservatee to purchase or exchange securities or other property.

(8) Exercising the rights of the conservatee to elect benefit or payment options, to terminate, to change beneficiaries or ownership, to assign rights, to borrow, or to receive cash value in return for a surrender of rights under any of the following:

(A) Life insurance policies, plans, or benefits.

(B) Annuity policies, plans, or benefits.

(C) Mutual fund and other dividend investment plans.

(D) Retirement, profit sharing, and employee welfare plans and benefits.

(9) Exercising the right of the conservatee to elect to take under or against a will.

(10) Exercising the right of the conservatee to disclaim any interest that may be disclaimed under Part 8 (commencing with Section 260) of Division 2.

(11) Exercising the right of the conservatee (A) to revoke or modify a revocable trust or (B) to surrender the right to revoke or modify a revocable trust, but the court shall not authorize or require the conservator to exercise the right to revoke or modify a revocable trust if the instrument governing the trust (A) evidences an intent to reserve the right of revocation or modification exclusively to the conservatee, (B) provides expressly that a conservator may not revoke or modify the trust, or (C) otherwise evidences an intent that would be inconsistent with authorizing or requiring the conservator to exercise the right to revoke or modify the trust.

(12) Making an election referred to in Section 13502 or an election and agreement referred to in Section 13503.

(13) Making a will.

(14) Making or revoking a revocable transfer on death deed.”

PRE-DEATH WILL/TRUST CONTESTS

In addition to using the substituted judgement laws to aid in developing an estate plan for an incapacitated individual, arguably substituted judgment can be used during a Conservatee’s lifetime to invalidate a controversial plan that is the product of undue influence or incapacity.

POST INCAPACITY PLANNING

While it’s far less expensive and far more desirable to plan ahead before incapacity, life isn’t perfect and Conservatorships are sometimes necessary. With substituted judgment, your loved one may still be able to avoid probate on his or her death or even reduce estate taxes.  If your loved one is already under a Conservatorship, substituted judgment may be a way to “make lemonade out of lemons” and use the court supervision and involvement to the benefit of your loved one with post incapacity estate planning.  It may also be a way to contest the validity of a controversial Will or Trust during the creator’s lifetime. 

CANNON LEGAL FIRM CAN HELP

If you or someone you know need assistance with estate planning or need to litigate the terms of a Trust, we can help. We have 15 years’ experience with Trust and Estate litigation, administration and planning.  Many firms focus on planning, but not litigation or litigation and not planning.  However, we draw upon our litigation experience to craft better plans for our clients and know that our understanding of planning is often beneficial to our litigation and estate administration clients.   Contact Cannon Legal Firm for a free consultation. 

We proudly serve Seal Beach, Long Beach and the surrounding communities for all your Estate Planning, Trust & Estate Litigation, Trust Administration and Probate needs.   We are happy to provide a free consultation via telephone, virtual visit or socially distanced at our offices at 3020 Old Ranch Parkway, Suite 300, Seal Beach, California or at your home or office.

Contact us for a free consultation or schedule a Zoom or telephone appointment online.  Dana@CannonLegalFirm.com   –    562.543.4529 (Voice and Text)   –   www.CannonLegalFirm.com

About the author 

Dana Cannon

Dana M. Cannon has many years of experience with Probates, Conservatorships, Trusts and Estates. During that time she has advised clients on multi-million dollar trust administrations; handled complex litigation; performed estate planning; and represented clients in contested and uncontested conservatorship, guardianship, probate and trust matters. She has been a volunteer at the Los Angeles Superior Court Pro Bono Probate Settlement Program since it began.  She understands that these matters may not just involve money. They are often fueled by emotions and because of that this isn’t just business, it’s personal. She looks forward to assisting you with your legal needs.

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