If you have been given power of attorney or appointed as a guardian for someone, you have important responsibilities. Both roles mean that you must act in the best interests of the other person. When you have these responsibilities, you are called a fiduciary, and the tasks you must do are called fiduciary duties. As a fiduciary, you are legally and ethically required to act in the best interests of the person you are helping, putting their needs first. Knowing your duties is the key to understanding both power of attorney and guardianship. How are power of attorney and guardianship different? Let’s break it down.
A fiduciary is legally and ethically required to act in the best interests of the person they are helping.
Power of Attorney
A power of attorney (POA) is a legal document that grants a person, known as the agent or attorney-in-fact, the authority to make decisions on behalf of another person, called the principal.
- Agent (or Attorney-in-fact): The person appointed by the principal to act on their behalf.
- Principal: The person who gives someone else the authority to make decisions on their behalf by signing the power of attorney document.
A POA is commonly used when the principal anticipates that they will be unable to manage their affairs, often as part of an estate plan. The amount of authority given to the agent is determined by the terms in the power of attorney. Acting under a power of attorney is like being an understudy in a play—stepping in to perform the principal’s role when they are unable to do so themselves, but always playing the role just like the principal would.
How is a Power of Attorney Created?
Each state has its own rules for power of attorney documents. In Indiana, the laws governing how power of attorney documents are created, used, and terminated can be found in Indiana Code Title 30, Article 5 (Ind. Code § 30-5). A Power of Attorney is usually drafted by a lawyer and later signed by the principal and witnesses or certified by a notary public. Some businesses and government offices require specific forms that grant power of attorney to an agent and will not accept a copy drafted by a lawyer. For example, the Indiana Department of Revenue requires the use of a Form POA-1 (Indiana State Form 49357) for an agent to discuss a principal’s matters.
Types of POA
A principal can give their agent as much or as little power as they want. This means a power of attorney can be customized to fit the principal’s needs. For example, a POA can be limited to talking to an insurance provider, or it can be broad enough to handle all of the principal’s finances. There are two common types of POAs: Durable Power of Attorney and Health Care Power of Attorney. Each one serves a different purpose. A durable power of attorney usually allows the agent to make decisions on almost anything, except healthcare decisions. In contrast, a health care power of attorney is only for health care decisions. Some people may prefer to have two separate POAs instead of one controlling document because they may trust one person to handle their money but not their health, or the reverse.
- Durable Power of Attorney: A POA that gives a person the power to make decisions for the principal for nearly anything except for health care.
- Health Care Power of Attorney: A POA that gives a person the power to make decisions related only to the principal’s health care.
A POA is commonly used when the principal anticipates that they will be unable to manage their affairs, often as part of an estate plan.
Agent or Attorney-in-Fact’s Duties
The fiduciary duties of agent (or Attorney-in-fact) are limited to what the power of attorney document states. However, the agent must always act in the best interests of the principal. This means that agents must avoid conflicts of interests. A conflict of interest occurs when a fiduciary’s personal interests could interfere with their duty to act in the best interest of the principal. This happens when the fiduciary has competing interests that might lead them to make decisions that benefit themselves rather than the principal.
Guardianship
A guardianship is a legal relationship established by a court, where a guardian is appointed to care for and make decisions on behalf of an individual who is unable to manage their own affairs due to incapacity or minority (a person who is a minor). The person that the guardian cares for is the ward. The guardian’s role is similar to that of a parent, taking responsibility for the ward’s welfare and making decisions as a parent would for a child. It’s not uncommon for guardians to fill the role of parents for minor children. Choosing a guardian for minor children is commonplace during estate planning.
- Guardian: A person appointed by a court to make decisions and care for the well-being of another person who cannot take care of themself (the ward).
- Incapacity: The inability to take care of one’s self or property because of age, disability, physical state, mental state, or illness.
- Minor: A person underage; in Indiana, a person is considered a minor until they turn eighteen (18) years old.
- Ward: A person who is cared for by a guardian because they are unable to manage their own affairs due to some form of incapacity.
How is a Guardianship Created?
The process of establishing a guardianship in Indiana is governed by Indiana Code Title 29, Article 3 (Ind. Code § 29-3). A person wanting to establish a guardianship must first ask the court to appoint a guardian by filing a petition. The petition outlines why the person should have a guardian, who should be guardian, and how long the guardianship lasts. The court must first decide if the person is unable to handle their own affairs. Indiana Code Title 29, Article 3, Chapter 1, Section 7.5 (Ind. Code § 29-3-1-7.5) lists reasons that may cause someone to be found incapacitated, including, but not limited to:
- Insanity;
- Mental Illness;
- Mental Deficiency;
- Physical Illness;
- Infirmity (sickly weakness);
- Habitual Drunkenness;
- Excessive Use of Drugs;
- Incarceration;
- Confinement;
- Detention;
- Duress;
- Fraud;
- Undue Influence of Others on the Individual; and
- Developmental Disability (as defined by Ind. Code § 12-7-2-61).
A guardianship is not automatically granted. The court decides if appointing a guardian is necessary and in the best interest of the individual.
Types of Guardianship
Generally, a guardianship falls into one of two categories: guardianship over incapacitated adults and guardianship over a minor. For an adult, a guardianship may be established because they received a life-changing injury. Likewise, a guardianship established for a minor may occur due to the minor’s parents passing away or abandonment of the minor. Occasionally, a guardianship is established for a minor that extends into the ward’s adulthood. Families with children who have a mental disability may pursue a guardianship to continue caring for their child after they turn eighteen (18) years old.
There are few differences between the two, however, the responsibilities of a guardian reflect the severity of the incapacity. The greater the ward’s incapacity, the greater the guardian’s responsibility will be. However, the end goal of establishing a guardianship is independence. Even if independence is impossible, guardians are encouraged to assist the ward in becoming more independent than they were. A guardianship is not a punishment, but a way to help a person in need.
Guardian’s Duties
A guardian’s duties are more comprehensive than those of an agent or attorney-in-fact. Guardians often have authority over both the personal and financial aspects of the ward’s life, including where the ward lives, how the ward spends their money, and how the ward receives health care. For minors, this may also extend to which schools they attend. Unlike an agent or attorney-in-fact, a guardian is required to report a ward’s health and finances to the court.
A guardianship is a legal relationship established by a court, where a guardian is appointed to care for and make decisions on behalf of an individual who is unable to manage their own affairs due to incapacity or minority.
Compare and Contrast Table
| Power of Attorney | Guardianship | |
|---|---|---|
| Authority | Granted by the principal through a legal document | Appointed by a court |
| Scope of Duties | Defined by the principal, can be broad or limited | Typically comprehensive, covering personal and financial matters |
| Relationship | Agent-Principal | Guardian-Ward |
| Restrictions | Limited by the document and fiduciary duty | Subject to court supervision and fiduciary duty |
| When Used | When the principal is unable to act but has anticipated the need | When the individual is incapacitated or a minor without capacity |
Conclusion
Both power of attorney and guardianship involve managing someone else’s affairs, but they are different in important ways. A power of attorney is more flexible and is set up by the person needing help. It allows them to choose how much control to give. Guardianship, on the other hand, is more strict and is decided by the court when no other options are available. Knowing these differences and duties of each is important for anyone responsible for another person’s care.
Interested in a power of attorney or guardianship? Contact us and schedule your consultation.