Guardian of the Estate vs. Management Trust

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. These are: the guardianship of the estate and the 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, but you should always consult your attorney because every case is unique.

What are they?

The guardianship of the estate is a type of guardianship, and guardians are usually an individual person, though businesses and private professional guardians may be guardians of the estate. The guardian of the estate will 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 a trust created by a court when a person has been declared incapacitated and certain requirements are met. The court will appoint a trustee of that trust, usually a financial institution or trust company, to manage the ward’s finances, pay bills, and handle most transactions on behalf of the ward. If the ward regains capacity, the court will dissolve the trust and the ward will regain control of their property.

When can each be used?

Guardianship of the estate can be used in any case where a guardianship is instituted, but is not always necessary.  The guardian of the estate can be either a person (typically a family member or friend), or a private professional guardian. The guardian of the estate can be the same person as the guardian of the person, but they do not have to be.

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, and 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 when it comes to taking action and managing the ward’s property. Management trusts are generally preferred for estates larger than $500,000 because of this flexibility, which also 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.

Which is best for my situation?

There are many factors to consider in determining whether a guardianship of the estate or a management trust is the best option for your loved one. Many people do not need either a guardian of the estate or a management trust, even if they have a guardian of the person. Call us at (512)374-4922 or email [email protected] to talk with one of our guardianship attorneys about which may be the best solution for your situation.