What is a Guardian of the Estate?
A Guardian of the Estate is a person appointed by a Court of Law to make the financial decisions related to a Ward’s assets. This person is charged with preserving, protecting, and maintaining the assets.
Because a guardianship of the estate is so closely scrutinized by the Courts to ensure the appropriate use of the Ward’s funds for the Ward’s benefit, the Texas Estates Code requires that a guardian have approval from the Court for all expenses prior to expending those funds.
The Estates Code also requires that any guardian post a “bond” to insure their faithful performance of their duties as the guardian. While this requirement extends to guardians of the person, it is generally a much bigger concern for guardians of the estate. As a guardian you should consult with an experienced guardianship lawyer in Texas to do this.
Guardianship Bond in Texas
What is a Guardianship Bond?
A guardianship bond is essentially an insurance policy that is posted by the guardian to ensure that the estate will be reimbursed if the guardian stole assets of the estate, misappropriated them in some manner, or negligently lost the assets. The bond must cover the liquid assets of the estate (everything other than real estate) plus any income anticipated for the year, because these are the assets that the guardian could potentially steal or lose.
An Example of a Bond for Guardianship:
Leeland McKenzie is 89 years old and has just been placed under a guardianship. His son, Douglas, has been appointed as his guardian of his father, his father’s house valued at $140,000 and his father’s bank account valued at $183,000. Mr. McKenzie has annual income from social security and his pension of $27,000.
In this Example, the guardian Douglas would be required to post a bond covering the $183,000 bank account and the $27,000 in annual income, which totals a bond amount of $210,000.
Who Pays for a Guardianship Bond?
Many times, clients are concerned that they are going to be required to pay the bond amount or put up collateral to secure the bond. Generally, this is not the case. Rather, the bond is taken out through a bonding company, similar to an insurance company. Just like you would pay an annual premium on a homeowners insurance policy, the guardian likewise pays an annual premium on a guardianship bond.
The Guardianship Bond Process & Premium
As with other types of insurance, the bond process is essentially a function of someone’s credit worthiness. The bond company will look at the proposed guardian’s credit history, personal assets, personal debts, etc. in making the determination as to whether they will insure the guardian.
Because the bond premium is an expense of the guardianship estate, the guardian is entitled to be reimbursed for the bond premium out of the Ward’s estate. As a result, the guardian is not required to incur this expense personally.
Payment of Bond Premium Required for Guardianship
An important note about the bonds in a guardianship proceeding: payment of the bond premium is an element required for a guardian to be qualified to serve as the guardian. Until the bond premium has been paid, the proposed guardian will not have any authority to act on behalf of the Ward. If a proposed guardian has questionable credit and may not be able to qualify for a bond, they should discuss this with their guardianship lawyer so that the issue can be addressed before the Court has acted and is waiting for the bond premium to be paid.
Ford+Bergner LLP works frequently with proposed guardians in solving their bond issues. If you have a question related to this topic, please do not hesitate to Contact Us.
Court Approval of Estate Expenses in Guardianship
When seeking the Court's approval of proposed expenditures, the Court will be looking to determine if the expense is 1) reasonable and necessary for the Ward and 2) in the best interest of the Ward. If both conditions are met, the Court will approve the expense.
Since many Wards will have regular, recurring expenses on a monthly basis, the Court can approve a Monthly Allowance. The allowance is essentially a pre-approval from the Court to expend certain sums each month during an accounting year for certain categories of expenses.
For instance, the guardian may know that the Ward's rent for the next year will be $500 per month, his food will cost approximately $300 per month, medications run $250 per month, etc. Because it would be impractical to seek the Court’s approval each month for these recurring expenses, the Court will grant the guardian the right to expend up to the requested amounts each month.
Only when the anticipated expense will exceed the pre-approved amount does the guardian need to go back to Court and ask for additional approval.
Failure to Obtain Court Approval to Spend Estate Funds
If the guardian fails to obtain Court approval prior to spending money from the Ward's estate, the guardian can be held liable for the funds expended if the Court determines the funds were not spent properly or were not reasonably necessary for care or benefit of the Ward. Probate Courts are very concerned about making sure a Ward’s money is spent solely for the benefit of the Ward.
What Happens If a Guardian is Held Liable for Improper Expenses?
If a guardian is determined to be liable for improper expenses, either the guardian or the company that issued the Guardian's Bond will be required to reimburse the estate for those expenses. Generally, such a reimbursement will also mean that the guardian will be removed from serving as the Guardian.
Tracking Expenses, Approvals in Estate Guardianship: Lawyers to Assist
Because of the continual maintenance and monitoring required of guardians who serve over estates of incapacitated Wards, many law firms are not equipped to properly keep track of the expenses of the estate or the approvals required for these expenses. Likewise, many law firms are not equipped to adequately advise their clients on these issues. Ford+Bergner LLP, however, advises clients on these issues frequently, and we will be glad to assist you if you have been appointed as the guardian of the estate of a Ward. Contact us now.