Chapter 10: Operation of a Conservatorship

I.   Overview

§10.1   A conservator has broad power to handle all assets held on behalf of the protected individual and to make payments from the assets for the health, benefit, and welfare of the protected individual. These include all the powers of a trustee. MCL 700.5423(1). A list of specific powers that the conservator may exercise without court authorization or confirmation, unless the court otherwise provides, is set forth in MCL 700.5423(2). These powers include

• to invest or reinvest funds in accordance with the Michigan Prudent Investor Rule;
• to retain assets in which the conservator has a personal interest;
• to exercise powers and duties relating to stock ownership;
• to hold stock in the name of a nominee;
• to continue and participate in the operation of the protected individual’s business;
• to open a bank account;
• to acquire or lease real estate;
• to repair, erect, or demolish real estate improvements;
• to purchase insurance;
• to pay or settle claims by or against the estate;
• to employ professionals; and
• to respond to environmental concerns.

The statute also authorizes a conservator to sell or otherwise dispose of an interest in real estate, but only with court approval after a hearing with notice to interested persons. MCL 700.5423(3).

A conservator is a fiduciary and must observe the standard of care applicable to a trustee. MCL 700.5416. A conservator’s primary duties are to preserve the protected individual’s assets and to expend them for the support, education, care, and benefit of the individual and the individual’s dependents. The conservator has broad authority to determine the appropriate level and payment method of support. See MCL 700.5425. If the estate is more than ample to provide for these purposes, the conservator may also make gifts that do not exceed, in total for any year, 20 percent of the estate’s annual income to charity and others that the protected individual, other than a minor, might have been expected to make. MCL 700.5426(1). All decisions regarding the use of the protected individual’s assets—withdrawing from or revoking accounts, selecting assets for distribution—should be made with an eye to preserving any estate plan the protected individual established before incapacity. MCL 700.5428.

A conservator also has a duty to determine how much money the protected individual can personally handle and should encourage self-reliance and independence to the extent possible. With court authorization, the protected individual may be permitted to personally maintain a savings or checking account. MCL 700.5407(1).

A conservator’s duties also include avoiding transactions involving a conflict of interest between the conservator’s personal interests and the protected individual’s interests. Any sale of assets to the conservator or to anyone else that involves a substantial conflict of interest is voidable unless the court approves the transaction after notice, the transaction involves a contract entered into (or claim acquired) by the conservator before the person became or contemplated becoming conservator, or the transaction is otherwise authorized by statute. MCL 700.5421(1).

To qualify, most conservators are required to file a bond in an amount based on the value of the protected individual’s assets and income. MCL 700.5410. If the protected individual’s assets exceed $2,000, a surety bond is usually required. A surety executing a bond of a conservator consents to the probate court’s jurisdiction and to being named as a party respondent if the conservator’s breach of duties results in a loss to the estate. MCL 700.5411. Surety bond annual premiums should be paid out of the protected individual’s assets.

A conservator must gather and secure all of the protected individual’s assets and must file an inventory with the probate court within 56 days after appointment. MCR 5.409(B). In fulfillment of these duties, the conservator must locate all bank and brokerage accounts and determine an inventory value for all securities, bonds, and real estate. If the protected individual moves into a different living facility, the conservator is also faced with cleaning out the home.

Title to the protected individual’s property and all assets acquired on the individual’s behalf is vested in the conservator, with the letters of conservatorship serving as evidence of the transfer of title. MCL 700.5419, .5420. Fiduciary investments are subject to the prudent investor rule. See MCL 700.1501 et seq.

A conservator is obligated to pay the protected individual’s bills out of the conservatorship estate, to the extent possible. The protected individual’s obligations include paying the conservator reasonable compensation for services rendered. MCL 700.5413. If the estate is insufficient to cover all expenses, the procedures and priorities set forth in MCL 700.5429 govern. A conservator is not individually liable for obligations incurred on behalf of the protected individual unless the conservator fails to identify their representative capacity or is personally at fault. MCL 700.5430.

The conservator must file an annual account with the court of all receipts and disbursements from a conservatorship estate within 56 days after the end of the accounting period. MCR 5.409(C). The conservator must also prepare and file the protected individual’s tax returns. MCL 700.5423(2)(v).

Any person interested in the protected individual, including the protected individual, may petition the court to terminate or modify the conservatorship. MCL 700.5431. The conservatorship otherwise terminates, in the case of a conservatorship of a minor, when the individual reaches the age of majority or, in the case of a conservatorship of an adult, when the protected individual regains capacity or dies. When the protected individual turns 18 or regains capacity, the conservator must return all assets to the individual’s control, after making final payments of claims and administration expenses. MCL 700.5426(3). If the protected individual dies, the conservator must deliver any will of the protected individual in the conservator’s possession to the court, inform the personal representative or a will beneficiary that the will has been delivered to the court, and retain the estate for delivery to the personal representative. There is no statutory requirement that the conservator be allowed to file a final account or that the conservator be discharged before delivering the estate to the personal representative. If no petition for administration is filed within 42 days of the death and no personal representative has been appointed, the conservator may petition the court for the powers of a personal representative. MCL 700.5426(4).

An attorney representing a conservator needs to be familiar not only with the technical legal requirements but also with the issues relating to practical application of the law. When the conservator is a relative or friend of the protected individual, questions often arise regarding the scope of the conservator’s authority such as, “What may I throw away?” An attorney who serves as conservator also needs to be familiar with such details.