Posts Tagged ‘partial incapacity’

Nursing Home Resident’s Lawyer Did Nothing Wrong

FEBRUARY 23, 2015 VOLUME 22 NUMBER 8

From time to time we report on cases in which lawyers are disciplined for behavior involving clients who are older or have disabilities. We do that not out of any sense of schadenfreude, but because the behavior described in the disciplinary proceeding is illustrative of an important limitation on lawyers’ behavior.

This week, though, we have a different type of disciplinary proceeding to describe. The lawyer in question was not disciplined, and for good reason. Let us explain.

Neil French (not his real name) was in his mid-70s when he signed a power of attorney giving his daughter power to make financial and personal decisions for him. Three years later he had a heart attack, and ended up being transferred to a nursing home in his home state of North Dakota. He was signed in by his daughter, using the power of attorney; as part of the intake process, the facility had his daughter sign a form indicating that Neil was “incapable of making medical decisions” for himself.

A few months later Ilsa, a friend of Neil’s, contacted local lawyer Gregory Runge. Ilsa told Mr. Runge that her friend wanted to leave the nursing home and return to his own home. Mr. Runge double-checked the local court records to see that there was no guardianship or conservatorship proceeding pending, and he told Ilsa that there did not appear to be any reason Neil could not simply walk out of the nursing home. If necessary, he could revoke the power of attorney he had given his daughter — that would remove her authority to sign him in and force her to begin a guardianship proceeding if she thought he was incapable of making his own decisions.

In the course of checking out the story told to him by Ilsa, Mr. Runge looked up other court records. Though he could not find any guardianship proceeding he did find a request that the court issue a restraining order against Ilsa. The request was signed by Neil’s daughter, signing as agent under the power of attorney; it alleged that Ilsa had been guilty of “disorderly conduct” in her contact with Neil.

A few days later Mr. Runge heard from Ilsa again. She told him that Neil wanted him to bring a form revoking the power of attorney to the nursing home. Mr. Runge called Neil directly and confirmed that he wanted to leave, but that his daughter had been preventing him from going home. Mr. Runge told him that he could simply walk out of the nursing home, but agreed to bring the revocation document to Neil for his signature.

The next day Mr. Runge visited Neil in the nursing home. He explained that the power of attorney was revocable, and handed Neil a revocation form for his signature. A nurse came into the room as the two were talking, and Mr. Runge explained to her that Neil had revoked the power of attorney and intended to leave the home. Then Mr. Runge returned to his office.

A short time later Mr. Runge received a call from someone at the nursing home. They told him that Neil had been determined to be incapacitated, and that the revocation of his power of attorney would probably be ineffective. Mr. Runge responded that there did not seem to be any court finding of incapacity, that Neil had seemed to understand the significance of the revocation document, and that his daughter no longer had any authority over the decision since the power of attorney had been revoked. Neil left the nursing home later that day, and moved in to Ilsa’s apartment.

Neil did not return to the nursing home, and apparently his daughter did not initiate a guardianship proceeding. A welfare check conducted (apparently at the behest of the nursing facility) later on the day of his move found that his condition was “OK”, and that he did not want to return.

But Neil’s daughter did file a complaint with the North Dakota Supreme Court’s Disciplinary Board. She alleged that he acted improperly by preparing the revocation document without talking with her or other family members, or ascertaining Neil’s medical condition.

After a hearing, the Disciplinary Board’s local investigative committee issued a preliminary finding that Mr. Runge had violated the Rules of Professional Conduct. According to this finding, he had acted improperly by preparing a revocation of a power of attorney for a client with “limited capacity” whom he had never met. The finding also criticized him for not first communicating “with the client’s appointed representative, a family member who had been appointed in a durable power of attorney.” The committee recommended that Mr. Runge be “issued an admonishment” (the lowest level of discipline). The full Disciplinary Board upheld the proposed discipline.

After Mr. Runge appealed his admonishment, and the North Dakota Supreme Court considered the facts and holding. The state’s high court noted that North Dakota disciplinary rules give a lawyer direction about how to represent a client whose capacity may be diminished: the lawyer should maintain as close to a “normal” lawyer-client relationship as possible. Because Neil had not been found to be incapacitated by any court (there was no guardianship or conservatorship in place), and after Mr. Runge had met with him and discussed his options and the effect of revoking the power of attorney, it was entirely permissible for him to determine that Neil understood what he was doing and wanted to proceed. There was no requirement that Mr. Runge speak with Neil’s daughter before following his wishes, and the complaint against him was dismissed. In the Matter of Runge, February 12, 2015.

North Dakota, like the majority of states, has patterned its ethical rules governing lawyers after the American Bar Association’s Model Rules of Professional Conduct. So has Arizona. That means that the ethical rules governing representation of a person with diminished capacity in Arizona should lead to the same result as that reached by the North Dakota Supreme Court. It can be a challenge to determine whether a client with medical issues and complicated family dynamics really understands what they intend to do, but it is precisely the challenge that elder law attorneys navigate regularly and, frankly, enjoy. Mr. Runge should be commended for helping Neil accomplish his wishes.

Home Refinance Can Foul Up Estate Planning

MAY 19, 2014 VOLUME 21 NUMBER 18

When our clients consider creating a revocable living trust, we usually explain that there are several benefits to that estate planning device. Chief among those benefits for most people: avoidance of probate on the death of the client. For married couples, there is usually no probate required on the first death anyway, so a living trust mostly protects against having a probate on the second death.

A few of our clients also see other benefits from living trusts. They may make it easier to minimize estate taxes on the death of the second spouse (though, frankly, current estate tax rules for Arizona residents make this a benefit for a very, very small portion of the population). They may make it easier to control the use of funds for heirs — though many clients are uninterested in imposing any restrictions on the inheritances they leave to children or others.

The living trust may have benefits beyond probate avoidance for a small number of our clients, based on their family situation, type of assets or the size of their estate. But for every client who decides on a living trust, the same two drawbacks need to be weighed against the benefits in their circumstances. First, a living trust is a more expensive estate planning option (how much more expensive? That will depend on individual circumstances, but typically between $1,000 and $2,000 more for most of our clients). Second, and the subject of this week’s cautionary story, is this: if you have a living trust, you need to keep that in mind for the rest of your life, and make sure that your assets get transferred to, and remain titled to, your living trust.

We were reminded of this issue by a typical client story we heard last month. A couple who have been long-time clients — we’ll call them Dick and Jane — created their joint revocable living trust a few years ago. They did it for the usual reason (to avoid probate on the second death), but also for a less-common reason — Dick had been diagnosed with early dementia, and the trust would make it easier for Jane to manage their joint assets as his capacity began to diminish.

After they created their trust, that’s exactly what happened. Dick became less and less able to make decisions, and more and more reliant on assistance with activities of daily living. In fact, Jane found that she had to hire help to take care of Dick in their home. Fortunately, she had a durable power of attorney and the living trust in place — she was able to take care of their finances and marshal them for Dick’s care needs.

Jane figured out that it would make sense for them to refinance their home mortgage. That might have been true just because of the current historically low interest rates — in Dick and Jane’s case, it also made sense to take out some additional principal from their home equity, so that Jane would have sufficient reserve to cover Dick’s growing care costs. It was a good thing that their home had been transferred to their joint trust, since Dick had lost the ability to sign refinancing documents. Because she was the sole trustee, Jane would be able to handle the refinancing by herself.

You might know where this story is going next. If Jane had called us, we could have warned her about the problem that was likely to arise. We don’t expect our clients to call us before making major financial decisions, but in this case it would have been good to hear from Jane. Why? Because the title insurance company insisted that Dick and Jane’s home had to be transferred out of the trust before the refinancing could be completed. And (possibly because the title company was based in Kansas, not Arizona) there was another problem in the documents: the title company’s attempt to create a joint tenancy between Dick and Jane did not comply with Arizona’s requirements. That meant that when Dick died a year later, his one-half interest in the family home had to go through the probate process.

To be clear, that result was not nearly as tragic as Dick’s medical and mental decline and ultimate death. In the scheme of things, the need for a probate proceeding — especially in a state, like Arizona, where probate is a relatively simple process — is more properly characterized as “nuisance” than “tragedy”. But the irony of Dick and Jane’s experience was that they intended to simplify things, and to save money for their heirs — and, despite their best efforts, the result was that Jane actually had to go through extra legal proceedings (since their home was originally in joint tenancy, there would not have been a probate on Dick’s death but for the refinancing following the trust). To be sure, if they had not created the trust and signed powers of attorney, Jane probably could not have refinanced the home at all without a court proceeding to establish authority over Dick’s share of the home, so the net effect was probably beneficial. But the disconnect between the estate plan and the title company’s odd insistence on taking the home out of the trust meant that Dick and Jane missed an opportunity to have their plan work perfectly.

Why do title companies insist on taking homes out of trust for refinancing? This has always puzzled us, too. Apparently, they think that the record is unclear about whether the trustees of a trust have the right to encumber the home with a mortgage — but they are not at all troubled about the trustees’ right to transfer the house outright. Why don’t the title companies then transfer the home back into trust? This one puzzles us, too. Until a decade or so ago, they would do so upon request. Now they typically fail to mention it to their clients at all. And why would a Kansas title company try to practice law in Arizona, creating a defective joint tenancy deed? We have no answer for this one.

Here’s the moral of the Dick and Jane story (or at least this tiny slice of their story — their real story is far, far richer than this one small glitch): if you have established a revocable living trust, be very cautious about titles to your property. Your home, your bank and brokerage accounts, and most of your other assets should probably be titled to the trust (talk to your lawyer — this is not always the case). Once things are titled to the trust, you have to be mindful of any changes you might precipitate, even (especially?) if you did not intend to make any change.

Fiduciary Duty Not Breached In Limited Conservatorship Case

JANUARY 26, 2004 VOLUME 11, NUMBER 30

When the courts appoint a guardian or conservator to handle an individual’s personal and/or financial affairs, the subject of those proceedings loses virtually all of his or her autonomy and independence. At least that’s the way things have worked for centuries. In recent years, however, the guardianship system in this country has seen a small but detectable shift toward the use of “limited” guardianship and conservatorship.

Missouri law, for example, encourages a finding of “partial” incapacity rather than requiring a determination that a ward is completely incapacitated. To the extent that the ward is able to handle his or her own affairs, a finding of partial incapacity permits the court to limit the powers and responsibilities of the guardian or conservator.

That was the approach taken by the court with Elliott Scott Rogers, whose stepdaughter Donna Gardner sought appointment as guardian and conservator after Mr. Rogers had a stroke. By the time of the hearing Mr. Rogers had improved considerably. The court appointed Ms. Gardner as limited guardian and conservator, and spelled out some of the limitations on her powers. Ms. Gardner was to help transport Mr. Rogers to medical appointments, admit him to the hospital if necessary, and to assist in paying bills, writing checks and managing finances.

Over the next six months Mr. Rogers arranged for the purchase of an annuity naming Ms. Gardner as beneficiary, and hired a lawyer to prepare a new will leaving the bulk of his estate to Ms. Gardner. The checks paying for both of those items, as well as a number of personal bills of Ms. Gardner’s paid from Mr. Roger’s funds, were signed by Ms. Gardner, who was listed as a joint owner on Mr. Roger’s bank account.

When Mr. Rogers died his daughters objected to the payments for Ms. Gardner’s benefit, and the guardianship court ultimately ordered that all the money should be returned. The court also invalidated the will naming Ms. Gardner, on the theory that she had exceeded her authority when she paid the lawyer’s fee for preparation of the will.

The Missouri Court of Appeals disagreed. The whole purpose of limited guardianship and conservatorship, said the appellate court, is to encourage the ward’s autonomy and self-determination. The evidence was that Mr. Rogers understood what he was doing and wanted to benefit Ms. Gardner. It was not a breach of her fiduciary duty for her to help him achieve his goals, and she should not be ordered to return the funds. Even if Ms. Gardner’s actions had breached her fiduciary duty as conservator, said the appellate court, it would have been improper to invalidate Mr. Rogers’ will just because she wrote the check to pay for its preparation. Estate of Rogers, January 13, 2003.

The logic of the Missouri court is, frankly, a little unorthodox, but the result is unassailable. The purpose of a guardianship or conservatorship proceeding should be to protect the ward from exploitation or abuse, but to do so with the least invasive or limiting mechanism available. The court’s decision recognizes that Mr. Rogers’ level of functioning was high enough to permit him to make many of the decisions about his own finances, and the result validates those decisions.

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