All You Need to Know About Guardianship Bank Account Rules

What is a guardianship bank account?

A guardianship bank account is a special type of deposit account that is generally used to hold the funds in a bank account that the legal guardian or conservator of a person (referred to as the "ward") manages. The accounts are used by guardians of minors and adults who are disabled by physical or mental impairment. The primary purpose of a guardianship bank account is to ensure that the funds in a bank account for a person under legal guardianship are still available when needed after the guardian or conservator passes. When a guardian of the estate qualifies for the appointment, the court typically will issue an order directing that the entity holding the funds have the funds placed in a guardianship account.
While guardianship accounts in some jurisdictions must be held by a special type of entity, in Alabama , guardianship accounts may be held in any financial institution that is insured by an agency of the United States, except credit unions.
In legal guardianship, the court appoints a fiduciary to manage the property of a person under legal guardianship. Generally, the guardian is required to open a deposit account and deposit funds into the deposit account that are intended solely for the benefit of the person who is under legal guardianship. The deposit account is generally subject to certain restrictions, including that the guardian may not commingle the assets of the person under guardianship with those of the guardian. The funds placed in the deposit account may be income from the property actually receiving the benefit of the account or the proceeds of money acquired on behalf of the person under guardianship.

How to establish a guardianship bank account

In order to open a guardianship bank account, you must have your authority from the court in the form of a Letter of Guardianship. There is no bank that gives account numbers and checks to people without bank orders, which is basically the Letter of Guardianship.
So, on the day you are appointed as Guardian of a person, or a Guardian of the estate, you should go to court and request a Letter of Guardianship. On the day you are appointed as Guardian of the estate, you will also be appointed of the person, and you will need the Letters of Guardianship to pinch them together and present to the bank.
The bank may give you a hard time about the Letters of Guardianship. However, I have never heard of a bank that would not issue the Letters of Guardianship if it was advised to do so.
So, if you have your Letters of Guardianship, you just bring them to the bank and open an account.
If the minor has funds that need to be invested, you will likely need a court order directing the bank in how to invest. Again, focus on your Letters of Guardianship to do what you need to do, and then file for instruction when needed.

Obligations of the guardian by law

If the court has appointed a guardian of a bank account, the guardian must follow the law and the terms of the court’s order. The key responsibility is that the guardian must use the funds remaining in the account for the benefit of the ward (the person with a disability who has a guardian) and file periodic reports with the court about the use of those funds (unless the court has ordered otherwise). To put that general statement in context, let’s discuss some of the details.
Fiduciary Duties
The guardian appointed by the court has a fiduciary duty to the ward at all times, and must act in the best interests of the ward. Of course, what is in the best interests of the ward may also be in the best interests of the guardian, as when a ward pays for a guardian’s services. Because these interests may overlap, it is important that the guardian follow the duty to the court and account for the use of the funds.
Discretionary Distribution and Withdrawal of Funds
There are only a few circumstances in which the guardian might be able to withdraw or use funds from a bank account. In the vast majority of cases, especially with bank accounts, the guardian is not able to withdraw funds or make a distribution from the account without a court order to do so. When a court order is required, a request is typically made to the court by filing a petition with the court explaining to the court why the guardianship funds should be used for a certain purpose.
Periodic Accounting to the Court
Similar to the responsibilities of a conservator, the guardian of a bank account must provide periodic accounting to the court detailing the funds the guardian used during the previous period and a current accounting of the account balance. A recipient of an annual accounting filing will receive a notice concerning the filing and requesting any objection to the accounting.
When a court appointed guardian must account to the court will vary slightly from state to state. In Minnesota, for example, the court requires guardians of bank accounts to file annual accountings with the court within 60 days after the end of each accounting period. For other states, the time periods in which the guardian must file accountings could be different from Minnesota.
Failure to properly file accountings and provide financial reports to the court can result in the guardian being removed, and sometimes being held in contempt prior to removal, or even facing potential criminal charges.

Limitations and rights on a guardianship bank account

The court is required to establish rules and requirements for guardians to manage the finances and properties of persons under a legal disability. Prior to 2009, those rules and requirements were found in Chapters 171 and 172 of the Probate Code. However, the Court’s authority to manage guardianship estates was transferred to the Probate Rules in 2009.
These rules require oversight of the actions of the guardians from the court and the court monitors the guardians to ensure the best interests of the incapacitated persons are being met. For that reason, all transactions in guardianship accounts, including deposits, withdrawals, transfers, and purchases, are subject to scrutiny by the court.
In California, there are no spending limits on guardianship accounts, but any expenditure must meet the needs of the adult ward. Guardians may not make purchases for the ward that are considered "luxuries" or purposes improper to a minor child. (Prob. Code § 2543(f).) These purchases include cigars, cigarettes, cosmetics, ornamental objects and jewelry of little practical or useful value. (Prob. Code §2543(f).)
Trustee’s , conservators and guardians have a continuing duty to account to the court for the income and property and their administration.
Guardians are entitled to reimbursement for reasonable expenses related to the performance of their duties; however they will be scrutinized by the court if the accounting is not supported with sufficient evidence. The original source documentation should be retained for at least four years frequently the review of the bank statements, canceled checks, receipts, invoices, etc. will not provide enough detail to support the expenses claimed. Finally, consider the expertise of the guardian and their fees. If they are not well versed in accounting they may need to retain the services of an accountant to ensure that records are kept properly.
As stated above, any transaction regarding guardianship accounts is subject to the courts review and limitations. This includes deposits into the accounts. These accounts are limited to deposits of the adult wards" personal funds and/or income. If the adult ward has received a personal injury settlement, the settlement proceeds belong to the adult ward, but may be subject to a Court approval.

Common pitfalls and solutions

Despite best intentions, many guardians run into issues. Some of the most common mistakes guardians make have to do with bank accounts.
For example:
It’s easy to become overly focused on one piece of the puzzle (like making sure that you have the funds when needed) and forget about other aspects of the position.
You’d think this would be something a guardian could handle. It’s just math, right? It’s keeping track of the money that goes in and out of the account.
However, it is also vitally important to remember that your responsibility as guardian requires you to do more than add and subtract. You need to maintain records and ensure that the funds are used only for the benefit of your ward.
Here are some ways to protect yourself and your ward from common pitfalls:
Monitor the balance regularly.
One of the easiest ways to stay on top of the account is to check the balance frequently. This will help you identify what expenses are paid from the account, any missed payments and any transactions that you cannot explain.
Review the bank statements – and request copies from your bank at least quarterly.
Your first responsibility is to ensure that your ward’s bills get paid. That means you need to know when payments get deducted from the account, so you need to review the bank statements. At least quarterly, review each entry in the bank statement, looking for unexplained or unusual transactions, inconsistencies and missed payments.
Work with a CPA or accountant.
When you are acting as guardian for someone with significant assets, it may be worth hiring a CPA or accountant to help manage the account. (You will need to get court approval to spend money on these kinds of services from the estate.) Not only do CPAs and accountants understand investments and taxes and can help you manage the assets, they can also help you maintain careful records. If you ever have to account for what you did as guardian, this is essential.

Guardianship account alternatives

Many clients have asked if there are alternatives to opening a guardianship checking account for assets. Typically, there is no option other than to open a guardianship bank account. However, for advanced planners, there are alternatives that can be used for assets rather than a guardianship bank account.
An example of an option to a guardianship bank account is the Durable Power of Attorney. A Durable Power of Attorney is a written document that authorizes one or more legal representatives to act on behalf of a principal in regard to a specific property, property subject to a particular power, or all of the property of the principal . There is also a Medical Power of Attorney which designates someone to make health care decisions on your behalf.
Trust funds are also an option to a guardianship bank account. A trust requires a Settlor (or Grantor or Trustor) create a trust instrument. The Trust will name the trustee and set out the powers that the trustee has with regard to the trust assets. The trust also names the beneficiaries who are to receive distributions of the income or principal from the trust.
The Durable Power of Attorney, Medical Power of Attorney or a trust may be better options than a guardianship if the estate planning was advanced enough to anticipate the need for a guardian.