Fiduciary Responsibility: Property vs. Person
Fiduciary Responsibility: Property vs. Person
By Donald D. Vanarelli, Esq.
As a result of age or disability, an individual’s impairments may necessitate the appointment of a guardian. However, the fact that the ward is no longer able to manage his or her own affairs should not deprive the ward of his/her individual liberties. These individual liberties are what our courts have called the ward’s “common-law right of self-determination.”i A guardian is a surrogate decision-maker who is entrusted with protecting the ward’s fundamental personal rights of self-determination. But what standards should the guardian employ in carrying out this important duty?
Although guardianships are compartmentalized into (a) guardianship of the person and (b) guardianship of the property, “property” decisions often have profound effects on the ward’s personal rights.
Examples of “property” decisions that affect personal rights:
- Placement of the ward in a long-term care facility
- Selling the ward’s home
- Making gifts to charity or to 3rd parties
- Using the ward’s funds for incidentals, vacations, entertainment
II. APPLICABLE STANDARDS
The property guardian’s decisions may be guided by various authorities, including statutes and case law. However, all of these authorities incorporate elements of two basic themes: the “best interests” standard and the doctrine of “substituted judgment.” More often than not, these two themes may be at odds with each other, and the application of these competing themes will require thoughtful consideration by the guardian.
A. The Best Interests Standard
Under the Best Interests standard, the guardian should act as a reasonable and prudent person would act in managing the estate. This is an objective standard. In other words, what would a reasonable outsider, looking in at a particular situation, decide is appropriate?
B. The Doctrine of Substituted Judgment
Under the doctrine of substituted judgment, the guardian acts as the guardian believes the ward would act, if the ward were able. This is a subjective standard. The substituted judgment standard places the guardian in the shoes of the ward when making decisions, and calls on the guardian to replicate what would likely have been the decision of the ward.
C. The Substituted Judgment/Best Interests Continuum
Our courts have recognized the tension between the best interests standard and the doctrine of substituted judgment. Thus, the courts have found that wards possess a “right of self-determination, the same as that of competent persons, except that the right of self-determination of… must be balanced… with concern for their best interests.”ii
Our New Jersey Supreme Courtiii has endorsed the concept of a continuum that utilizes the substituted judgment standard as a starting point, and resorts to the best interests standard as a fallback position.
For persons whose personal preferences have been clearly articulated, the “pure substituted judgment” (“pure subjective”) approach is appropriate. Under this approach, the person’s clear wishes are applied.
Where there is some, though inconclusive, indication of a person’s wishes, a “limited best interests” (“limited-objective”) approach is appropriate. Under this approach, the person’s best interests are determined consistent with the prior indicia of personal preference.
Where no indication of personal preference is expressed, the “pure best interests” (“purely objective”) approach is appropriate, based upon an analysis of relevant facts other than the person’s preferences..iv
These tests “represent points on a continuum of subjective and objective information leading to a reliable decision that gives as much weight as possible to the right of self-determination.”v
The substituted judgment standard is considered to be “the solution of first resort,” primarily because it gives effect to the “wishes, views, values and life style” that the incapacitated person manifested during competency.vi In other words,
[t]he incompetence of a [person] should not deprive the [person] of exercising his or her autonomy if the [person], while competent, has clearly expressed his or her preference.vii
In the management of the estate [of a ward], ‘the guardian should be authorized to act as a reasonable and prudent man [person] would act [in the management of his own estate] under the same circumstances, unless there is evidence of any settled intention of the [ward], formed [prior to incapacity], to the contrary.’viii
D. The New Jersey Statutes
New Jersey statutes provide further guidance to the guardian when making property decisions on behalf of the ward. These statutes often incorporate concepts of the “best interests” standard as well as the doctrine of “substituted judgment”:
- A guardian may, in his/her own discretion, use the ward’s income and principal for the ward’s “support, maintenance, education, general use and benefit.”ix
- In making expenditures, the guardian should consider (a) the size of the ward’s estate; (b) the probably duration of the guardianship; (c) the accustomed standard of living of the ward.x
- The guardian may apply to the court for authority to “make gifts to charity and other objects as the ward might have been expected to make.”xi
- The court may approve gifts or other actions in the “best interests of the ward.”xii
- In taking actions regarding the ward’s property, the guardian should take into account any known estate plan of the ward.xiii
E. New Jersey Case Law
New Jersey case law also provide guidance for a guardian’s property management decisions, and recognize the competing concepts of the “best interests” standard as well as the doctrine of “substituted judgment.”
- In managing the ward’s estate, “the guardian should be authorized to act as a reasonable and prudent man would act (in the management of his own estate) under the same circumstances, unless there is evidence of any settled intention of the incompetent, formed while [not incapacitated], to the contrary.”xiv
- Our Supreme Court adopted the following criteria for determining whether to permit gift-making (for Medicaid planning and estate planning):
- the mental and physical condition of the [ward] are such that the possibility of her restoration to competency is virtually nonexistent;
- the assets of the estate of the [ward] remaining after the consummation of the proposed gifts are such that, in the light of her life expectancy and her present condition of health, they are more than adequate to meet all of her needs in the style and comfort in which she now is (and since the onset of her incompetency has been) maintained, giving due consideration to all normal contingencies;
- the donees constitute the natural objects of the bounty of the [ward] by any standard…;
- the transfer will benefit and advantage the estate…;
- there is no substantial evidence that the [ward], as a reasonably prudent person, would, if competent, not make the gifts proposed…xv
- Our Supreme Court has concluded that, “only when the estate contains the resources necessary for the benefit of the ward (best interests), may the guardian make gifts “in the same manner as the incompetent would if able to function at full capacity” (substituted judgment).xvi
New Jersey statutes and case law incorporate the “best interests” standard with the common law doctrine of “substituted judgment.” However, applying these standards to make property management decisions that respect the ward’s personal rights is often a difficult task.
When the guardian is faced with a difficult decision regarding the property management of the ward, it is best to seek direction from the Courts.
i In re Roche, 296 N.J. Super. 583, 588 (Ch. Div. 1996).
ii In re Roche, supra, 296 N.J. Super. at 588 (citing In re M.R., 135 N.J. 155, 167 (1994)).
iii In re Conroy, 98 N.J. 321, 359-67 (1985).
iv Cantor, N., Discarding Substituted Judgment and Best Interests: Toward a Constructive Preference Standard for Dying, Previously Competent Patients Without Advance Directives, 48 Rutgers L. Rev. 1193, 1223-1224 (1996); Pollack, S., Life and Death Decisions: Who Makes Them and by What Standards?, 41 Rutgers L. Rev. 505, 505-506, 518 (1989).
v Roche, supra, 296 N.J. Super. at 589 (quoting M.R., supra, 135 N.J. at 167-168).
vi A. Handler, Individual Worth, 17 Hofstra L. Rev. 493, 508 (1989).
vii S. Pollack, Life and Death Decisions: Who Makes Them and by What Standards?, supra, 41 Rutgers L. Rev. at 519.
viii In re Keri, 181 N.J. 50, 58 (2004) (quoting In re Trott, 118 N.J. Super. 436, 441 (Ch. Div. 1972)).
ix N.J.S.A. 3B:12-43.
x N.J.S.A. 3B:12-45.
xi N.J.S.A. 3B:12-58.
xii N.J.S.A. 3B:12-50.
xiii N.J.S.A. 3B: 12-62.
xiv In re Trott, supra, 118 N.J. Super. at 441.
xv In re Keri, supra, 181 N.J. 50 (quoting In re Trott, supra, 118 N.J. Super. at 441).
xvi In re Keri, supra, 181 N.J. at 58-9 (quoting In re Labis, 314 N.J. Super. 140, 146 (App. Div. 1998)).
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