Guardian vs. Power of Attorney

The special proceeding of guardianship in North Carolina is used when a person “lacks sufficient capacity to manage the adult's own affairs or to make or communicate important decisions concerning the adult's person, family, or property whether the lack of capacity is due to mental illness, mental retardation, epilepsy, cerebral palsy, autism, inebriety, senility, disease, injury, or similar cause or condition.”  After a hearing before the Clerk of Court (and sometimes a jury), a decision is made on whether the person meets the legal definition of an “Incompetent Adult”. (N.C.G.S. 35A-1101).  The decision will be made regardless of whether a person has previously executed a power of attorney or not.

If a person is declared incompetent, a guardian must be appointed.  The guardian will then stand in as the voice for the “ward” and make decisions on his or her behalf.  In many ways the guardian acts in the same way as an attorney-in-fact would, having the same rights and duties.  So the question often arises, why would someone need a guardian if they already have a valid power of attorney?  This question can be answered by illustration of two common situations.

First, there is the active incompetent person.  A power of attorney gives a great deal of authority to a trusted individual to make decisions on the primary individual’s behalf; but, the attorney-in-fact shares that authority with the primary person.  In other words, both the primary person and the person they appoint can simultaneously make bank transactions, sign contracts, change an estate plan, consent to medical procedures, etc.  The problem arises when a person is losing the ability to make sound decisions, perhaps due to dementia or alzheimers, yet still insists on taking actions that are against his or her best interests. For example, an elderly parent writes checks to bogus charities and other bad actors when the money should be saved or used for medical care.  An attorney-in-fact can take certain actions to mitigate the problem, but ultimately he cannot prevent it from happening.  A guardian, on the other hand, has exclusive authority, which means that the Court takes certain rights away from the ward so that he can no longer cause damage to himself or his property.

Second, there is the abusive attorney-in-fact.  Assuming that the primary person executed a power of attorney at a time when she was competent, she has placed a great deal of trust in her attorney-in-fact.  Perhaps it is a close friend or family member.  Unfortunately, it often occurs that the trusted friend decides to use the power of attorney to her own advantage instead of benefiting the person who gave it.  This is often proven by financial transactions that favor only the attorney-in-fact.  In some cases, the attorney-in-fact can even cause physical detriment to the principal by preventing necessary medical care or failing to provide for their in-home needs.  In these cases, a guardian’s authority can supersede that of the attorney-in-fact.  The guardian can petition the court to suspend the power of attorney. (N.C.G.S. 32A-22(a)).  It is important to note that a health care power of attorney can designate a person to be appointed as guardian should an incompetency proceeding be brought.  If that is the case, the Clerk should appoint the designated person “except for good cause shown.”

One major difference between a guardian and an attorney-in-fact is that a guardian is required to make annual reports to the Clerk of Court, including physical status updates and detailed financial statements.  An attorney-in-fact has no such duty to the court, so there is always a danger of fraudulent or abusive activity going unnoticed.

There are still many grey areas to navigate when both a guardian and an attorney-in-fact are in place, even more so when the principle party has created a trust and appointed a separate trustee.  Typically a guardian will move to suspend the power of attorney to avoid any confusion over who has decision-making authority.  The system isn’t perfect, but it’s designed to figure out what’s in the best interest of the incompetent person and to carry that out in a fair and uniform way.