Guardianship BulletinThis information is provided for members of the Michigan Guardianship Association (MGA). At the 2019 MGA Spring Conference, a Focus Group of conservators met to determine how a primary sponsor could provide insights to conservators in Michigan. The first several installments of this Bulletin will demonstrate how understanding the Michigan Prudent Investor Rule can help conservators fulfill their fiduciary responsibilities.
Who is involved?
The first significant point made by the Michigan Prudent Investor Rule is that it applies to all “fiduciaries”. A fiduciary includes a personal representative, guardian, conservator, trustee, plenary or partial guardian.
What is included?
This law states that fiduciaries are required to look at the ward’s entire portfolio instead of individual investments. In simple terms, “don’t overlook the forest for the trees.” A conservator can get so caught up in a ward’s bank accounts and investments that he or she doesn’t factor in the real property or other tangible assets, such as antiques or collectibles. Why is that important?
Suppose a ward has $500,000 in assets, with $250,000 in the bank and $250,000 in their primary residence, furnishings and other property. As a conservator, you are in charge of all of that! When you fill out an annual account, the value of the real property is likely going to remain at $250,000 from year to year. That means if you leave most of the $250,000 as cash in a bank account or in CDs, the client’s estate will decrease as you pay their expenses. Would a prudent investor allow his or her funds to gradually diminish? Or would the investor instead try to grow it responsibly so that the funds last as long as possible?
In our example above, suppose you invested some of the $250,000. If those assets grew by 5%, that would give you $12,500 to pay the client’s expenses for the year. When the annual inventory is prepared for the court, you would likely have an easier time explaining how you fulfilled your fiduciary duty — not to mention justifying your fees!
How the Rule Can Help You
The Prudent Investor Rule lays out specific concepts that you must consider before making an investment decision. If you use the concepts in the Rule as a guide, you will be better prepared to justify your decisions. That can be a tremendous help if you are ever asked by the judge why you invested a ward’s assets a certain way. I dealt with a situation recently where an interested party questioned the way a conservator was handling a ward’s assets. The interested party hired an attorney and requested a hearing before the court. Prior to the hearing, we shared with the attorney how we used specific provisions in the Prudent Investor Rule to make financial decisions. When the attorney informed her clients, they were satisfied and canceled the hearing.
Some conservators have thought, “I don’t have to worry about a judge or interested party challenging my decisions if I never change my ward’s investments.” But that is a mistake. Making no changes to an investment is still a decision. Any investment likely has a fee and is subject to risks — like market risk or inflation risk. A conservator will ultimately have to answer for their decision to keep an investment the way it is.
Some conservators use the services of a financial advisor, which is a good idea. You might think that advisors are required to know the Michigan Prudent Investor Rule, but that is not the case. If you use a financial advisor, ask them if they know what the Rule is and if they use it before making recommendations to you. If not, it is best to find a new advisor who knows the Rule. This will give you more confidence that you can explain your investment decisions to a judge or an interested party.
Our next article in this series will help answer the question “How should I invest my ward’s assets?” We will examine key provisions in the Rule that can guide you in making investment decisions for your clients.
Terence Paulauskis has over 20 years of experience helping seniors and the disadvantaged as a paralegal for probate and elder law firms while simultaneously holding insurance licenses in several states. He is Vice President of Wealth Management for Redbridge Financial, licensed by FINRA as a Registered Representative and offers securities through Ameritas Investment Corp. (AIC). Neither AIC, Redbridge Financial, nor their representatives provide tax or legal advice. This bulletin is provided as an overview and for informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary or investment advice. At Redbridge Financial we value the advice provided by attorneys who specialize in probate and elder law. If a situation calls for it, we will recommend an attorney for you, or we can partner with an attorney you prefer.