Management trust can often substitute for guardianship

Sandra Reed
Sandra Reed

Tina, an only child, who lives in New York City, is concerned that her mother Mary’s Alzheimer’s makes her vulnerable to manipulation concerning her finances. Although Tina speaks with her mother weekly, Mary’s living in Texas means mother and daughter are together in person infrequently. Because of this, Tina did not realize her mother’s mental condition early enough to insist she execute a power of attorney. By the time Tina recognized the extent of her mother’s deterioration, Mary no longer had capacity to create that power.

Now Tina is considering instituting a guardianship proceeding to have herself appointed as guardian of her mother’s estate. Is there an alternative Tina can employ without having to establish a guardianship for her mother?

Mary is financially independent and not the recipient of any needs-based federal or state benefits, so planning to prevent loss of these is unnecessary. The Texas Estates Code §1301, et seq., allows a court to establish a trust for an incapacitated individual if the trust would be in the person’s best interest. Tina is financially savvy and can easily handle her mother’s financial affairs, including the investment of Mary’s assets. Therefore, Tina could be the trustee for the management trust. With today’s online banking features, Tina should experience minimal difficulties in handing her mother’s finances from afar.

Since the incapacitated person must be the sole beneficiary of the trust, Tina may not be a beneficiary of the trust. As trustee, however, Tina can manage her mother’s assets without having to apply to the court for permission to make discretionary distributions, pay expenses and take other day-to-day actions.

If Tina were appointed her mother’s guardian, she would have a duty imposed by Texas Estates Code §1161 to keep all of her mother’s assets invested, except for those funds immediately necessary for her mother’s education, support and maintenance. As a guardian managing her mother’s estate, Tina would have to act as a person of “ordinary prudence, discretion and intelligence.”  She would be required to consider her mother’s probable income and increased value of the assets; safety of capital; anticipated costs of support; her mother’s age, education, current income, net worth, liabilities, and ability to earn additional income; the nature of the ward’s estate; and any other resources reasonably available.

As Trustee of the §1301 management trust, Tina can choose whether it is wise to invest certain assets, because the estates code provides very little restriction on the trustee. This increased flexibility is a distinct advantage, particularly in today’s volatile investment environment.

Tina will have to file an application for creation of a management trust established in the Texas probate court with jurisdiction and venue over her mother’s estate. However, once the court establishes the management, Tina will not have to obtain the court’s permission for actions as she would with a guardianship. This substantially decreases the cost of securing control over and protection of her mother’s assets.    

Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.