Caveat: These materials do not discuss the issues unique to handling personal injury settlements or inheritance funds for minors. Fitzwater and Meyer is experienced in handling such cases. Please contact us for more information.

When is a person no longer capable of making decisions for himself or herself? When is a person no longer capable of managing his or her own financial affairs and in need of a court appointed conservator?

First, it is important to distinguish between someone who is disabled and someone who is legally incapacitated or financially incapable. Disability has no legal definition C nor should it. We all require assistance with some aspect of our lives. Some people require more assistance than others.

When representing a client with disabilities, we focus upon what assistance the client requires and how we can facilitate the continuation or improvement of that assistance. The mere fact that the client is disabled does not mean that the client is incapable of managing financial affairs. Put another way, not all disabled persons are incapacitated. Incapacity, therefore, is but a subset of disability.

ORS 125.400 provides that "upon the filing of a petition seeking the appointment of a conservator, the court may appoint a conservator and make other appropriate protective orders if the court finds by clear and convincing evidence that the respondent is a minor or financially incapable, and that the respondent has money and property that requires management or protection."

"Financially incapable" means "a condition in which a person is unable to manage financial resources of the person effectively for reasons including, but not limited to, mental illness, mental deficiency, physical illness or disability, chronic use of drugs or controlled substances, chronic intoxication, confinement, detention by a foreign power or disappearance." ORS 125.005(3).

"Manage financial resources" means "those actions necessary to obtain, administer and dispose of real and personal property, intangible property, business property, benefits and income." ORS 125.005(3).

Except for the elimination of the description "age," the reasons for the appointment of a conservator for an adult and the definition of the term "manage financial resources" is the same as the previous code. ORS 126.003 (5) and ORS 126.157(2).

Supreme Court Justice Douglass once said that we all have the "right to folly." Put another way, we all have the right to make the wrong decisions. The issue, therefore, is not whether we have made the wrong decision, but with what capacity the decision was made.

For example, is bouncing a few checks evidence of incapacity? Probably not C if it were, many of us may be in trouble. On the other hand, overdrafts for the past few months, together with an increased history of unpaid bills, misplaced funds, unexplained gifts, susceptibility to influence and related problems may be evidence of an inability to "manage financial resources."

Except for the language of the statute, there are no clear rules for determining capacity. Each case must be evaluated independently. The Court places weight in the opinions of doctors, psychologists, public social workers, private case managers, family and friends (in my opinion - in that order). In a contested matter, the Court (or the Court visitor) will attempt to contact all relevant parties to get an overall picture of the individual's capacity.

There are few cases in Oregon which actually provide guidance to the court or practitioners. Often, the higher courts will defer to the finding and evaluations of the trial judge. That said, see Smeed v. Brechtel, 30 Or App 505, 567 P2d 588 (1977); Van v. Van, 14 Or App 575, 513 P2d 1205 (1973). For a review of cases in other states and some older Oregon decisions, see 9 ALR3d 774.

ORS 125.470 requires that within 90 days after the date of appointment, (or a longer time if granted by the court), a conservator must file an inventory of all the property (assets and income) that has come into the possession or knowledge of the conservator. This is, effectively, the conservator's "beginning balance." The inventory must show the estimates by the conservator of the respective true cash values as of the date of the protective order.

A copy of the Inventory must be served (personally or by mail) upon the protected person (if 14 years old or older). Most courts require or strongly recommend that copies also be given to other parties of interest.

See Forms #3-9 Inventory and #3-10 Proof of Service of Notice of Inventory.

If the estate of the protected person includes real property, the conservator must record in the county where the property is situated either:

See Form #3-19 Real Property Abstract.

It is common for the court to require a conservator to furnish a bond. Unless otherwise directed by the court, the bond must be in the amount of:

Bonds are available from local agents who will provide a bond to file upon obtaining an order. The bond must be signed by the fiduciary and must be filed with the court before Letters of Conservatorship can be issued. The premium for the bond is payable from the assets of the protected person and is usually expected within 30 days of issuance by the bond agent.

An example of "real property that the conservator, by express limitation of power, lacks the power to sell or convey without court authorization" is the principal residence of the protected person. ORS 125.430 provides that the protected person's principal residence may be sold by a conservator only with the prior approval of the court. A motion seeking prior approval must be filed with the court and notice given to the persons entitled to notice.

The bond may be reduced by restricting the conservator's control of particular assets. Carol J. Kyle, in Updating Conservatorship Issues, OSB CLE Elder law, June 30, 1994, suggested the following language may be approved by the Court and the Letters of Conservatorship endorsed as follows:

When a surety cancels the bond, the conservator must file a new bond before the expiration date set out by the surety. If the conservator fails to file a new bond, the Letters of Conservatorship are void as of the date the bond is canceled. The surety remains liable for the time covered by the bond until an accounting is approved by the court and the surety is released. ORS 125.410(7) and ORS 125.415.

When the court approves a final account and the conservator is discharged, the bond is exonerated and the bond company needs to be notified so that any refund of premium may be calculated. Most bond refunds are not pro-rated during the first year, but are in successive years.

See Form #3-25 Order Discharging Conservator, Exonerating Bond and Closing Conservatorship.

The Conservator must consider and protect the estate plan of the protected person. ORS 125.460 states:

When evaluating the estate plan of the protected person, the Conservator may request and review a copy of the Will (and, in the authors' opinions, all other estate planning documents of the protected person.)

It is important to note, as the statute implies, that estate planning documents can include more than just a Will. Estate planning can be done by revocable trust, joint ownership, POD and ITF designations on bank accounts, beneficiary designations of life insurance policies and annuities, and contracts.

Preserving the estate plan must occur not only when distributing assets, but when initially placing assets in the conservatorship, when investing estate assets and when utilizing powers of revocation and withdrawal. This can become difficult when assets are held in joint ownership, ITF or payable upon death, and must be liquidated to provide for the care needs of the protected person. Great care must be taken by the conservator to insure that no particular beneficiary suffers as a result.

Often, the conservator's best course of action is to develop a Spending Plan, which takes into consideration all the elements of the estate plan and the impact upon various beneficiaries. The Spending Plan can be submitted to the court in a Motion for Approval or Motion for Instructions. After notices to all affected parties, the court can approval a plan of spending that meet the ongoing cash needs of the protected person while preserving, as much as possible, the estate plan and inheritance of the ultimate beneficiaries.

See Form #3-31 Motion For Approval of Conservator's Spending Plan and Authority to Change Nature of Two Joint Bank Accounts.

For more detailed information on this topic, see W. Fitzwater, Preserving the Estate Plan, Chapter 4, Guardianships and Conservatorship, OLI CLE, September 28, 2001.

A conservator acts with authority granted from the court. Some actions require the prior approval of the court. Some require prior disclosure to the court. Most fiduciary actions, however, are performed without the need for prior approval or disclosure. That said, there are times when the prudent conservator finds it necessary to seek the approval and/or instructions of the court to resolve disputes or to obtain clear instructions for the management of a protected person's affairs or the administration of an estate.

Following is a discussion of the statutory requirements for prior court approval and disclosure. In addition, the authors describe certain cases in which the prudent conservator may find it helpful to request prior court approval or instructions.

Is your conservator aware that the following actions require prior court approval?

1. Payment of Fees of Visitor or Physician When Related to an Objection. ORS 125.095(2). A fiduciary must obtain court approval before using a protected person's funds to pay a visitor or physician for services related to an objection to a petition or motion.

2. Any Compensation to a Fiduciary or the Attorneys for a Fiduciary. ORS 125.095(3). All payments from a protected person's funds for services performed by fiduciaries and their attorneys must have prior court approval. An exception allows payment to a conservator who is a trust company under ORS 709.030. A fiduciary may reimburse expenses without court approval if paid for the support, education, care, or benefit of the protected person and the protected person's dependents. ORS 125.425.

3. Payment for Room and Board Furnished by the Guardian or Guardian's Spouse, Parent, or Child. ORS 125.320(2). A guardian (and arguably a conservator) must have prior court approval to use a protected person's funds to pay room and board furnished by the guardian or the guardian's immediate family.

4. Sale of Protected Person's Residence. ORS 125.430. The protected person's principal residence may be sold by a conservator only with the prior approval of the court. A motion seeking prior approval must be filed with the court and notice given to the persons entitled to notice.

See Forms #3-14 Motion for Authority to Sell the Protected Person's Residence, #3-15 Affidavit in Support of Motion to Sell Protected Person's Residence and 3-18 Order Authorizing Conservator to Sell Protected Person's Residence.

5. Gifts Over $250 to One Person, and Over an Aggregate of $1,000 for All Gifts. ORS 125.435. Prior to the 1995 legislative changes, courts had been liberal in allowing the conservator to make gifts if the protected person's estate was large enough to provide for all the projected needs of the protected person. "[A] conservator . . . may make gifts in a reasonable amount to charity and other objects as the protected person might have been expected to make." ORS 126.327, repealed 1995. This provision was frequently used to facilitate an existing "gifting plan" established by the protected person prior to incapacity. Often the gifting plan was established as a means to avoid death tax liability upon the death of the protected person. Wilbanks v. Mars, 37 Or App 795, 588 P2d 118 (1978) evidence that the ward has indulged in a regular practice of Christmas and birthday gifting to immediate parties supported gifts by the conservator to those parties.

Now, ORS 125.435 sets a limit upon the value and amount of gifts that can be made without court approval. If the estate has adequate funds, the conservator is allowed to make gifts of up to $250 to a person in a calendar year. The aggregate value of the gifts made by the conservator may not exceed $1,000 in a calendar year. All other gifts by the conservator require court approval.

See Forms 3-16 Motion for Authority to Make Gifts, 3-17 Affidavit in Support of Motion for Authority to Make Gifts and 3-18 Order Authorizing Conservator to Make Gifts.

6. Convey or Release Contingent or Expectant Interests in Property. ORS 125.440(1). Prior court approval is required to "convey or release contingent or expectant interests of the protected person in property, including marital property rights and any right of survivorship incident to joint tenancy or tenancy by the entirety."

7. Create revocable or irrevocable trusts. ORS 125.440(2). Prior court approval is required to "create revocable or irrevocable trusts of property of the estate. A trust created by the conservator may extend beyond the period of disability of the protected person or beyond the life of the protected person. A trust created by the conservator must be consistent with the will of the protected person or any other written or oral expression of testamentary intent made by the protected person before the person became incapacitated. The court may not approve a trust that has the effect of terminating the conservatorship."

8. Elect Options or Change Beneficiaries to Insurance and Annuity Policies, or Surrender the Policies for Cash Value. ORS 125.440(3). The conservator who takes any of these actions must obtain prior court approval.

9. Disclaim Any Interest the Protected Person May Have by Testate or Intestate Succession or by Inter Vivos Transfer. ORS 125.440(4).

10. Authorize, direct or ratify any annuity contract or contract for life care. ORS 125.440(5).

11. Payment of Compensation to Persons Related to the Conservator. ORS 125.221 Senate Bill 35 (ch 392). Beginning January 2004, prior court approval is required for payment of compensation to a person who is the spouse, parent or child of the fiduciary or to a business entity in which the spouse, parent or child of the fiduciary has an ownership interest and that is employed by the fiduciary to provide direct services to a protected person or to provide services to the fiduciary that directly affect the protected person. The fiduciary must provide the court with the following information:

1. Employment of Another Person in Which the Fiduciary Has a Pecuniary or Financial Interest. ORS 125.221. This includes any ownership interest, business association, or financial involvement between the fiduciary and the person, or any relationship that could compromise the fiduciary's decisions. Before the fiduciary employs such a person, the fiduciary must give a full and accurate disclosure of (a) the pecuniary or financial interest, (b) the services to performed, and (c) the anticipated costs to the estate. The court may require additional disclosures as it deems appropriate.

2. Placement of an Adult Protected Person in a Facility. ORS 125.320(3). Before moving a protected person to a new facility, a guardian must file a statement of intent with the court and give required notices. (Discussed in more detail in Chapter 1 — Guardianships.)

ORS Chapter 125 grants conservators the authority to take many, if not most, actions without prior approval of the court. However, at certain times, the prudent conservator may find that he or she is still unable to act without the court's further involvement. The authors have achieved favorable results from seeking court approval or instructions in cases described in the following examples:

1. Preserving the Nature of Joint Accounts. A conservator must take into account the estate plan of the protected person, including "joint ownership arrangement with provisions for payment or transfer of benefits or interests at the death of the protected person to another." ORS 125.460.

A conservator does not have discretionary rights to a joint account and may not change the nature of the account. The conservator may, however, use joint account funds for the essential care, support and maintenance of the ward. Strain v. Rossman, 47 Or. App. 57, 614 P.2d 102 (Or. App. 1980).

2. Approving a Spending Plan. Again, ORS 125.460 requires a conservator to take into account the known estate plan of the protected person, "including the Will of the protected person," when "selecting assets of the estate for distribution Y for the support of the protected person."

3. Motivating Others to Cooperate. Fiduciaries often depend on the cooperation of others in order to fulfill their duties, such as obtaining financial information on behalf of the protected person. What happens when ordinary efforts to obtain information fail? Often, the only course of action is to request the assistance of the court.

ORS 114.275. A personal representative (and arguably a conservator) may apply to the court for authority, approval or instructions on any matter concerning the administration, settlement or distribution of an estate, and the court, without hearing or upon such hearing as it may prescribe, shall instruct the personal representative or rule on the matter as may be appropriate.

ORS 125.025. A court having jurisdiction over a protective proceeding may:

Compel the attendance of any person, including respondents, protected persons, fiduciaries and any other person who may have knowledge about the person or estate of a respondent or protected person. The court may require those persons to respond to inquiries and produce documents that are subject to discovery under ORCP Rule 36. (Emphasis added.)

ORS 125.465. The court may order any person to appear and give testimony by deposition if it appears probable that the person:

ORS 125.600 specifically allows the appointment of a fiduciary who will "exercise the powers of a conservator" if the court makes a specific finding that:

The temporary conservator is appointed only for a specific purpose and only for a specific period of time. The procedure for the appointment of a temporary conservator is the same as the appointment of a temporary guardian, with the exception that appointment of a court visitor is not required. ORS 125.605.

A temporary conservator must file a final report with the court setting out all activities of the temporary conservator while the appointment is pending. If the temporary conservator is later appointed as permanent fiduciary, the report can be postponed until the first annual accounting of the conservator. ORS 125.610.

See Forms #3-36 Petition for Appointment of Temporary Conservator, #3-29 Notice of Time for Filing Objections to Appointment of Temporary Conservator, #3-37 Proof of Service of Notice of Petition for Appointment of Temporary Conservator, #3-29 Order Appointing Temporary Conservator and #3-30 Temporary Conservator's Report.

The conservator must account to the court for the administration of the protected person's estate within 30 days after each anniversary of appointment and upon termination of the conservatorship or of the conservator's appointment as conservator. ORS 125.475.

Effective August 1, 2000, rules amending UTCR Chapter 9 have standardized the accounting format. UTCR 9.160. While courts may accept other accounting forms, most courts have made the UTCR form mandatory or, at least, strongly recommended.

See Form UTCR Chapter 9 in your materials.

See Forms #3-22 Conservator's Accounting, #3-21 Final Accounting and #3-23 Notice of Time for Filing Objections to Conservator's Accounting.

For an excellent discussion of the UTCR rules and form, see S. Friedenberg, UTCR Probate Court Accountings, Chapter 5, Guardianships and Conservatorship, OLI CLE, September 28, 2001.

The Conservator, the protected person or any other person may petition the Court to terminate the Conservatorship for the following reasons:

With prior accounting and approval of the court, the conservator may pay the remaining expenses and claims of the estate and deliver the remaining estate to the person designated by the court (such as the personal representative, guardian, attorney-in-fact or care facility) in the order, to be held, invested or used as ordered by the court.

See Forms #3024 Distribution Receipt and #3-25 Order Discharging Conservator, Exonerating Bond and Closing Conservatorship.

B. Upon the Protected Person's Death. ORS 125.530

Upon the protected person's death, the conservator should follow the requirements of ORS 125.530 for the delivery of the Will and the administration of the estate until delivery to the personal representative.

Generally, the conservator must deliver the Will of the protected person to:

Also, the conservator is required to "retain and administer the estate for delivery to the personal representative of the decedent or other persons entitled to the estate."

Often the protected person is elderly and receiving some form of long-term care in a nursing home, adult foster home or assisted living facility. This type of care is very expensive ($1,000-$4,000 a month) and can quickly deplete the conservatorship estate. Fortunately, in many cases, the protected person will eventually be eligible for Medicaid to assist him or her with the long-term care expenses. It is important therefore that the conservator be aware of Medicaid and the basic rules of eligibility. (For a more complete discussion of Medicaid issues, see the OSB CLE Handbook on Elder Law (the Purple Book). For the most current information about Medicaid, see Elder Law Essentials: Planning Tools and Practice Tip, OSB CLE, October 3, 2003.)

The Medicaid program currently pays for over 50% of all long term care in Oregon. Medicaid is a joint Federal and State program. Medicaid covers the full range of long term care services, including skilled, intermediate and custodial care, adult foster home and in-home services.

Medicaid eligibility is based upon financial need. The following numbers are subject to annual adjustment, but these are the current numbers for 2003. Institutionalized individuals whose income is at or below $1,656 (300% of the SSI standard) and whose assets are below $2,000 for an individual and $18,132 for a couple will be eligible. Couples with assets above $18,132 may be required to split their assets and spend down before eligibility.

An individual can have up to $2,000 in cash or other non-exempt resources. An additional $11,500 can be set aside in an interest-accumulating savings account dedicated as a "burial fund." Jointly-held liquid assets, such as joint bank accounts, are considered available to the Medicaid applicant. However, the state cannot force a co-owner to sell a jointly-held parcel of real property. The value of a resource is it's "equity value" (fair market value minus encumbrances). Do not confuse current ownership status with impermissible transfers of assets by the applicant.

Certain resources are exempt and not counted in determining eligibility for Medicaid benefits. These include the person's home, one motor vehicle, household items, personal effects, medical equipment, "hard goods" for burial, including burial space, casket, liner, headstone; and a funeral or burial fund up to $1,500.

The court may enter protective orders without the appointment of a guardian or conservator, or in addition to appointment. The court may appoint a fiduciary whose authority is limited to a specified time and whose power is limited to certain acts needed to implement the protective order.

A petition for a protective order that does not seek the appointment of a fiduciary is subject to all requirements prescribed for appointment (ORS 125.650). This includes a petition, notices, time for filing objections, and hearing on objections. A protective order may be entered only if the court finds that sufficient grounds would have existed for the appointment of a fiduciary.

The court may exercise any power that could be exercised by a guardian or conservator. This includes authorization of, direction to or ratification of:

Before entering a protective order, the court shall consider the interests of creditors and dependents of the protected person and whether the protected person needs the continuing protection of a fiduciary. ORS 125.650(3).

The wise practitioner always checks with the county of venue regarding local court practices. Beyond the statutes, UTCR and supplementary local court rules lurk the most important rules: the unwritten rules and practices of local venues.