Conservatorship Inventories and Accountings
Mark Rubin
Really? Really??? You want to tell us about conservatorship inventories and accountings. And you think anyone will read this piece?
Conservators for adult Protected Persons – different rules exist for certain minor conservatorships – must account for their actions. An accounting starts months beforehand, with an inventory. Arizona law requires inventories in all conservatorships. The Conservator must file certain forms with the court. The Conservator must identify assets “with reasonable detail and indicat[e] the fair market value of each asset as of the date of appointment.”
The relationship between the accounting and the inventory? Here’s a simple example: I am a Conservator. I am accounting from September 15, 2021 through May 31, 2022. (The initial accounting period is nine months.) My starting balances total $75,000. My ending balances equal $50,000. With these numbers I must explain what happened to $25,000.
Of course, accounting periods don’t begin or end with round number balances. But, if the inventory – the starting place for the first accounting – does not reflect actual values for bank and brokerage balances, the accounting will not balance. Ever!
Fiduciaries have 90 days from the date of appointment to complete the inventory. Plenty of time to get date of appointment balances and show them accurately. No rounding or guesstimating about asset values shown on monthly, quarterly, or annual statements!!!
What about real estate and vehicles? We use the County Assessor’s most recent full cash value and reflect the value source. Usually, fair market value is greater, but no statute or rule requires an appraisal. (We try to avoid Zillow and other Internet tools for many good reasons.)
For vehicles we use Kelley Blue Book. Why do we use an Internet source here, and not for real property? No legal referent – like the Assessor’s valuation – exists for vehicles, and rarely do these values matter greatly.
What about income and expenses? No place for them on an inventory, but the court does require a budget. That’s where income and expenses matter.
Debts? The inventory calls for showing debt, but only if it’s associated with an asset. Mortgages and care loans; Yes. Credit card debt; No.
What if money went missing and that’s why the court appointed a Conservator? The Conservator does not account for what the Conservator never had, plain and simple. The inventory document does not exist to share pre-appointment information. (If claims exist against someone for taking the missing money, the Conservator can list the claim. Unknown value, though, unless getting the money back seems highly likely.)
Every Conservator must post a bond, equal to the value of conservatorship assets and one year’s income. So, if the Protected Person has assets worth $75,000 and $25,000 of annual income, the court will require a $100K bond.
(Oh, what is a bond? A promise from an insurance company that, if the fiduciary acts improperly – read the bond for details – the insurer will pay and try to collect what it paid from the fiduciary. Mostly, bonds protect against theft.)
Bonds cost money. Pricing involves black boxes that none of us fully understand; however, the insurer charges more as the bond amount increases.
How do we avoid a larger premium? Restrict the sale or use of assets. Often, we require court approval for the sale or lease of a Protected Person’s home, to reduce the bond premium. This act does reduce the bond premium but if we plan to sell the home, the cost of getting court approval will often exceed the savings.
The bottom line on bond premiums and asset values? The issue involves restricting the sale or use of assets and it has nothing to do with values. The inventory must reflect fair market value, even if that means the bond premium might increase.
This post provides an overview. The inventory and accounting process presents many challenges. I hope this overview helps and am always available to help explain and assist fiduciaries. Mark Rubin 520-623-3038 mark@rubinbernsteinlaw.com