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By Jonathan Reed
Most parents tell their children that most or all of what the parents leave when they die will go to them.
Unfortunately, we often get calls like this: "My mother (or father) seems to be getting a bit senile or crazy. She is taking strangers into her house. She has substantial money, but my sister and I are afraid someone is going to take advantage of her."
If the Parent has a Trust:
In a situation like this I try to figure out if the adult child talking to me has good objective evidence that the parent is probably not mentally competent to look after his or her own financial affairs. If the answer is yes, then I ask if the parent has his or her assets in a trust. This is because most trusts are set up with the person who sets up the trust being trustee. Most trusts also have provisions for removing the original trustee upon evidence of incompetency to be a trustee. These provisions vary from being in the sole discretion of some relative such as one or more children to requiring medical affidavits. Most trusts also provide that the original trustee may resign in favor of the successor trustee, which in our example would mean Mom allowing one of her children to take over her financial affairs.
If there is an existing trust, then the question is whether all of the assets are in that trust. If not, can the parent be talked into transferring the assets outside of the trust into the trust?
Now, if all of the assets are in the trust, the adult child can ask the parent to voluntarily resign as trustee and to allow the successor trustee, usually one of the children to take over. This sometimes works. If it doesn't the children can invoke the provisions in the trust providing for the original trustee becoming mentally disabled and announce that the new (successor) trustee is taking over.
Then the successor trustee advises any banking or other institutions holding the parent's money that the parent is no longer trustee and has been replaced by the successor trustee. If the parent agrees or confirms this, there is no problem. But if the parent claims he or she is still competent and is still the trustee, the institution holding the money will probably freeze the account and advise all concerned that nothing is leaving the account without a court order.
Here in Las Vegas, Clark County, Nevada, the probate court handles this sort of trust dispute. If both sides hire competent attorneys and both sides produce conflicting medical affidavits, the legal contest can be very unpleasant, expensive, and lengthy.
If the Parent Does Not Have a Trust:
If the parent does not have a trust, (or has significant assets outside the trust) the only way the concerned children can obtain control over the parent's finances is for the children to Petition the Court to appoint one of them Guardian over the Estate (Property) of the Parent. This procedure, even if the parent doesn't object, is not simple. The Guardian must be a state resident so if none of the children are Nevada residents, but the parent is, a Nevada resident co-Guardian will have to be appointed. Periodic accountings will have to be made to the Court.
Again, if the parent objects and hires a competent attorney and obtains favorable medical affidavits, the procedure can be bitter, expensive and lengthy.
What Does it Mean to be Competent?
There is no one definition of competence. The issue of competence usually comes up in one of three different situations.
MENTAL COMPETENCE OF A WILL WRITER-After Dad dies his three adult children learn he has willed his entire estate to his "girlfriend," an attractive woman 30 years his junior who he spent the last few years of his life with. Naturally, the "kids" think Dad wasn't in his right mind when he wrote the will. Generally, if a judge thinks Dad understood that his kids were "the natural object of his affections" and made a deliberate choice to leave his estate to girlfriend, even if his judgment was influenced by the woman's charms, girlfriend wins. The writer of a will doesn't have to be that sharp. A writer of a will must have "testamentary capacity," which is not a real tough test of mental ability. However, if there are medical records showing mental incapacity or if the girlfriend was Dad's "caretaker" the adult kids have a good chance of winning.
MENTAL COMPETENCE OF A TRUST WRITER-Most courts hold that the writer of a trust must "have capacity to enter into a contract." This is a somewhat tougher test because for someone to have "contract capacity" they have to be better able to look after their own interests.
MENTAL COMPETENCE OF A LIVING PERSON TO HANDLE THEIR OWN FINANCIAL AFFAIRS-While an elderly person with money is still alive it sometimes happens that their adult children become concerned. Maybe Dad is losing money speculating in financial markets. Maybe Dad's much younger girlfriend is getting Dad to buy her many expensive gifts. In this case the children can ask a court to set up a guardianship of Dad's property with a guardian accountable to the Court. Or, if Dad wrote a trust earlier, depending on what is in the trust, it may be possible for one or more of the adult children to take over Dad's financial affairs without court intervention.
How do the Attorneys Get Paid?
Courts generally approve reasonable attorney fees when the attorney is hired by a trustee of a trust or by a court appointed guardian. In the situations discussed on this page the parent's attorney is almost always going to get paid out of the parent's money even if the parent's attorney loses and a successor trustee is appointed or a guardian is appointed.
However, if the adult child hires an attorney to try and take control away from the parent and the child loses the legal battle, the Court is likely going to take the position that since adult child was wrong, the adult child has to pay for his or her own attorney.
For this reason, a trustee of a trust with assets, can get good attorneys to work on a legal battle without paying all of the attorney fees upfront or as the case goes along. On the other hand, a lawyer working for an adult child challenging the parent's control of the parent's own property is going to want to get paid upfront or as the case goes along because if the child loses, there is no reason why the parent's money should go to paying for what turned out be an unjustisfied challenge.