Unlike other forms of providing for the financial management of the assets of someone with diminished capacity, a guardian’s freedom to act is strictly monitored by the Maryland court. Other disability planning techniques, such as trusts or powers of attorney, are created by the person while competent to act and can be designed as largely free from court supervision. Competent individuals are free to determine the scope of the power and authority that they grant to the surrogate decision-maker who will be managing that person’s asset if they become unable to act for themselves. The scope of authority in a self-settled trust is governed by the settlor’s intent as expressed in the body of the document or by other directives. Similarly, the authority given an agent under a power of attorney is set by its terms. The courts may become involved if the power and authority granted is abused but the nature and extent of the power to act is established by the terms of the document. Guardianships, on the other hand, are creatures of the equity courts and those courts retain an ongoing role in the management of the assets.

The Court of Appeals examined whether the action of a guardian of property to change the beneficiaries on life insurance policies insuring, and owned by, the ward was a fraudulent transfer as to a creditor of the ward. In that case, the Court also examined the core obligation of a guardian of the property and how that obligation defines the scope of a guardian’s authority. United Bank v. Buckingham, __ Md. ___ , 2021 WL 865246 (March 9, 2021) (Getty, J). The case was before the Court of Appeals to address questions of law certified by the U.S. District Court. The Buckingham case was an action brought by the creditor bank against the children of the deceased debtor. The bank sought to invalidate transfers of life insurance policies ownership effectuated by the debtor’s guardian to trusts for the benefit of the debtor’s wife and children.

The first issue is a pure fraudulent transfer question: whether changing a beneficiary designation on life insurance is a “conveyance” under the Uniform Fraudulent Conveyance Act. Md. Commercial Law § 15-201(c) (defining “conveyance”). The Court used an elaborate “plain-meaning” analysis to find that changing a beneficiary designation is, in fact, a conveyance under the Act. The Court buttressed its decision by also examining the legislative intent of the current fraudulent conveyance act and its predecessor enactments as being “’to enhance and not impair the remedies of the creditor.” The Buckingham Court quoting Damazo v. Wahby, 269 Md. 252, 256-57 (1973).

The Buckingham family additionally relied of the sweeping immunity of life insurance proceeds benefitting a spouse, children, or dependent relatives from creditors of the policy holder. Md. Insurance §16-111. That provision, however, protects changes of beneficiary designations “except for transfer with actual intent to hinder, delay, or defraud creditors.” Md. IN. §16-111(d). The “actual intent” language mirrors that of Md. CL §15-207. of the fraudulent conveyance act (“Every conveyance made…with actual intent … to hinder, delay, or defraud present or future creditors, is fraudulent as to both present and future creditors.”). In this case, the change of beneficiary designations occurred after the creditor was known, it had begun collection activity and the debtor was apparently insolvent. Under these circumstances, applying the standard of CL § 15-207 is not a close call. The literal terms of Md. CL §15-207, however, theoretically could defeat any conveyance intended to shield a person from creditors regardless of how remote that possible creditor. Would the “actual intent” provision, for example, apply to a physician purchasing property as tenants-by-the-entirety when solvent and virtually debt-free “just in case?” Despite the sweeping language, the “actual intent” provision, which is taken from the uniform act, is generally not intended to void such transfers. See Robert T. Danforth, Rethinking the Law of Creditors’ Rights in Trusts, 53 Hastings L. J. 287, 330 (2002).

The second issue hinged on the scope of a guardian’s power to act which, in turn, depends on the purpose of guardianship. Judge Getty heroically traced the role of a guardian of the property beginning with the English common law and statutes that existed on July 4, 1776 forward. Article 5 (a) of the Declaration of Rights of the Maryland Constitution adopts the English common and statutory laws as of the-Declaration of Independence, so that is the logical starting point. The conclusion reached by the Court is that the purpose of a guardianship of the property remains constant from colonial times to today: The basic duty of the guardian is: “to ensure the estate of the ward is preserved and not diminished.” The Court reviews the various legislative changes to “modernize” the guardianship statute, from the Henderson Commission efforts up to the present, and concludes that the fundamental purpose remains the same. “Despite several phases of guardianship reform in Maryland over a period of fifty years, the fundamental common law principle of preservation of the estate has remained unaltered.”

. The preservation of the ward’s estate, however, itself has a purpose: “The fundamental duty of a guardian of the property is to preserve the property in the guardianship estate for the benefit of the ward and other persons with an interest in the property.” Seaboard Sur. Co. v. Boney, 135 Md App. 99, 112 (2000).(Emphasis added.). Yet the ability of the guardian to disburse funds without court authorization is limited. Md. Estates and Trusts §13-214 (“Distribution or disbursement of property without court authorization”) permits income or principal to be used for necessities for the disabled individual and his/her legal dependents. Otherwise, court approval is necessary. ET § 13-203 (“Powers exercised by court”). Active court participation of guardianships is a long-established principle: “Lest sight be lost of the fact, we remind all concerned that a court of equity assumes jurisdiction in guardianship matters to protect those who, because of illness or other disability, are unable to care for themselves. In reality the court is the guardian, an individual who is given that title is merely an agent or arm of that tribunal in carrying out its sacred responsibility.” Kicherer v. Kicherer, 285 Md. 114 (1979). It is this fundamentally protective purpose of a guardianship estate that limits the power of the guardian, and subjects the guardian to constant judicial oversight, even when acting would presumably be something desired by the ward.

The Maryland estate litigation attorneys at Franke Beckett LLC handle both contested and uncontested guardianships. For over 35 years, our law firm has concentrated on the law of estates and trusts – including a wide variety of fiduciary litigation. We handle guardianship cases (contested or uncontested), disputes over the meaning of estate planning documents, arguments involving personal representatives or trustees, challenges to documents based on a lack of capacity or undue influence. On a regular basis, we try cases before the Orphans’ Courts and the Circuit Courts of various Maryland counties. We also take appeals to the Court of Special Appeals and the Maryland Court of Appeals. We are not, however, a general litigation firm. We focus on Will, Trust, and other fiduciary litigation. We have deep experience in and knowledge of the Maryland law of estates and trusts, concentrating as a firm on fiduciary litigation, planning and administration. To schedule a consultation with an experienced Maryland estate litigation attorney, call 410-263-4876 to get in touch with our office.