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Elderly woman signing a conservatorship documentUnder certain circumstances individuals need to have decisions made for them. Sometimes that’s because the person is unavailable or incapacitated. Other times, the person is no longer competent to make their own choices, a situation that sometimes arises with an elderly parent. When this happens, the two most common solutions are the legal offices known as power of attorney and the conservatorship. With power of attorney, you voluntarily assign authority to a third party. You give it freely, define its boundaries and can revoke it at any time. A conservatorship is involuntary. It is assigned by the court, and you can only have it revoked through a formal hearing. Here’s how they work.

Making arrangements for a loved one whose abilities may be compromised should be done with the expert help of a financial advisor.

What Is Power of Attorney?

Power of attorney is a legal assignment that you can make. It lets a third party stand in your shoes for the purpose of making any legally binding or legally protected decisions. For example, say you assign someone financial power of attorney. This means that they can access your bank accounts, pay your bills, manage your debts, check your credit and otherwise act in your place when it comes to financial matters.

When someone holds your power of attorney, third parties will give them the same authority and access that you would have in person.

This is an entirely voluntary assignment. You can give someone power of attorney by choice and can rescind it at any time. You can also specify the scope of a power of attorney assignment.

A general power of attorney means that someone has the authority to act in your place in virtually any matter. They can sign contracts on your behalf, make financial decisions and generally act as your proxy in almost all situations. For this reason, general power of attorney is relatively rare. Instead, most people will assign specific power of attorney.

A specific power of attorney means that someone has the authority to act in your place in a specific area, for a specific issue, for a specific amount of time or generally under any other conditions that you name. For example, you might give someone power of attorney to negotiate a specific contract for you. This means that they can sign a deal that binds you for that negotiation, but couldn’t generally access your bank accounts. Or you could assign someone power of attorney while you are traveling and will be unreachable, but give an assignment that automatically ends on the date of your return.

The most common types of power of attorney are financial (assignments that deal with specific financial matters, or which generally give the power of attorney access to your banking and finances) and medical power of attorney (assignments which allow someone to make medical decisions on your behalf, generally while you are unconscious or otherwise incapacitated).

Someone with power of attorney cannot contradict or override your own decisions, but they can change your decisions at will. For this reason it is rarely (if ever) a good idea to assign someone power of attorney when you will be available to make your own decisions. At best that can lead to confusing, conflicted authority.

You do not need any formal process to assign power of attorney. In most cases you need only to sign a document specifying the assignment and have it officially notarized by a notary public. However, you cannot assign power of attorney if you lack the capacity to make legally binding decisions. For example, someone who is heavily medicated might not be considered competent to understand his own actions. In that case, a court might strike down any power of attorney that the person assigns as invalid.

You also cannot revoke a power of attorney assignment if you lack mental competence at the time, since once again you will not have the ability to take legally binding actions of any kind. However, in practice, courts are generally less strict about the conditions under which someone can revoke power of attorney than assignment.

What Is Conservatorship?

Conservatorship documents being signed

A conservatorship is a legal assignment that a judge or hearing officer will make. In a conservatorship, the court will take away certain legal rights from one person, known as the “ward,” and assign them to a third party, known as the “conservator.” Like power of attorney, a conservatorship covers the authority to make legally binding decisions. However, a conservatorship can be significantly more sweeping. A conservator assumes the power to make personal, financial or medical decisions for their ward. For example, a conservator may assume the authority to manage his ward’s finances, sell his property and even tell his ward where to live.

Courts can assign either a general conservatorship or a specific one. In a general conservatorship, the conservator can make virtually any decision for the ward’s personal, medical and financial life. For this reason, general conservatorship are more rare, but not as rare as general power of attorney. With a specific conservatorship, the court gives the conservator authority over specific aspects of the ward’s life. For example the court might assign a financial conservatorship, in which the conservator gets to make decisions about the ward’s money and property but not his medical or personal decisions. In either case, the conservator has a fiduciary obligation to the ward.

Unlike with power of attorney, a ward cannot overrule the decisions made by the conservator. In most cases, the ward loses all authority to make these decisions at all. For example, in a financial conservatorship only the conservator would have access to the ward’s money and financial decisions. The ward would have no authority in those matters and would need the conservator to sign off on any withdrawals, loans, payments or other transactions.

Judges will assign a conservatorship when they believe that the ward is no longer mentally competent to make their own decisions. Often, the judge will also need some sort of showing that this incompetence makes the ward a threat to themselves or others. In this case “incompetence” has a specific legal context. It means that the individual cannot understand the nature and quality of their actions. For example, an elderly person suffering from dementia or an individual suffering from severe mental illness may be considered legally incompetent. It is not enough for someone to make decisions that appear (or even are) misguided in the opinion of third parties.

A ward cannot rescind a conservatorship. It can only be ended by court order, which means that the ward must file a formal legal challenge with a hearing. At the hearing the ward must prove that circumstances have changed and they are no longer incompetent. Absent this proof, the conservatorship remains in place indefinitely.

A conservatorship will override power of attorney if and when they conflict.

The Bottom Line

Son holding his ailing fatherPower of attorney is when you voluntarily assign someone the right to make legally binding decisions on your behalf. A conservatorship is when the court assigns someone the right to make those decisions for you. While you can rescind power of attorney at any time, only a court order can rescind a conservatorship.

Tips on Estate Planning

  • Everyone can use some help making good decisions from time to time, and that’s particularly true in the complex world of finance. That’s where a financial advisor comes in. Finding one doesn’t have to be hard. With SmartAsset’s matching tool you can find a financial advisor near you to help you make the best decisions possible when it comes to money, planning and more. If you’re ready, get started now.
  • If you prefer to go it alone, use SmartAsset’s asset allocation calculator to determine how to best split your money between stocks, bonds and cash. The calculator bases its recommendation on your risk profile and offers a breakdown of each asset class.

Photo credit: ©iStock.com/Daisy-Daisy, ©iStock.com/10255185_880, ©iStock.com/KatarzynaBialasiewicz

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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