Dec 06

Guardian of the Estate vs. Management Trust

Digest

Guardianship of the estate involves an individual managing an incapacitated person’s assets under court supervision, while a management trust uses a corporate trustee and is often required for estates over $500,000. The article compares flexibility, oversight and costs to help families choose the right solution.

When someone is declared by a court to be incapacitated as part of a guardianship proceeding, Texas law provides two primary methods for managing their finances and property. Let’s discuss the two options. Guardian of the estate vs. management trust.

Please note: there are many complexities and rules around guardianships and management trusts, and not all can be incorporated into this blog.

This is intended to help you understand the basics. You should always consult your attorney because every case is unique.

What are they?

The guardianship of the estate is a type of guardianship. Guardians are usually an individual person, though businesses and private professional guardians may be guardians of the estate.

The guardian of the estate does the following:

-Manage the ward’s property;

-Respond to claims made against the ward or the ward’s property;

-Prosecute claims on behalf of the ward; and

-Generally handle most transactions on behalf of the ward.

A management trust is generally reserved for instances where the ward has assets over $500,000. The trustee of a management trust cannot be an individual person. It is typically a financial institution or a trust company.

Pros and cons of guardianship of the estate

The guardian of the estate can be the same person as the guardian of the person, which can facilitate services and care on behalf of the ward by having only one decision-maker.

The guardian of the estate can choose not to charge a fee to the ward’s estate, which is common when the guardian of the estate is a family member of the ward.

Guardianships of the estate are closely monitored by the court, and guardians of the estate generally have to get court approval before taking virtually any action.

Depending on the complexity of the ward’s estate and care needs, legal fees to file the motions necessary to get approval for acts the guardian of the estate would like to take on behalf of the ward can be expensive. This process can, in many cases, also require a significant amount of time spent on behalf of the guardian.

Pros and cons of a management trust

Trustees of management trusts have significantly more flexibility than guardians of the estate. They can much easier take action and manage the ward’s property.

Because of the flexibility management trusts are generally preferred for estates larger than $500,000. Additionally, it can lead to lower attorney’s fees.

Even if the ward’s property is valued over $500,000, if the ward owns less common assets, such as a management interest in a small business, the management trust may not be an option.

Since management trusts by law require a corporate trustee, the trustee will charge a fee (usually 5% of the annual income and expenditures) to manage the ward’s assets.