Community Property Concerns in Washington State Guardianships

Three generations of my own family traveling old-school via ocean liner.

The following was presented by James W. Spencer in April 2015 at the KCBA CLE "Advanced Guardianship Issues".

I. Introduction

Washington’s community property laws present unique challenges to guardians where a single adjudicated incapacitated person (“IP”) is married or in a state-registered domestic partnership (“SRDP”), or where a single guardian is appointed for both IP spouses/SRDPs. These challenges mainly arise from the management rights given to both members of the marital or SRDP community over community property.

This presentation identifies some of the greater collision-points between the management of guardianship and community estates, and provides some fundamental tips for anticipating these conflicts before they arise, as well as managing them if and when they do.

II. Community Property: A Refresher

In Washington, the property of spouses or SRDP partners can be categorized in one of two ways: separate or community.

RCWs 26.16.010 & 020 identify separate property as follows:

“Property and pecuniary rights owned by a [spouse/SRDP] before [marriage/registration] and that acquired by him or her afterwards by gift, bequest, devise, descent, or inheritance, with the rents, issues and profits thereof, shall not be subject to the debts or contracts of his or her [spouse/SRDP], and he or she may manage, lease, sell, convey, encumber or devise by will such property without his or her [spouse/SRDP] joining in such management, alienation or encumbrance, as fully, and to the same extent or in the same manner as though he or she were [unmarried/not registered].”[1]

The RCWs go on to define community property as “Property not acquired or owned, as prescribed in RCW 26.16.010 and 26.16.020, acquired after marriage or after registration of a state registered domestic partnership by either domestic partner or either husband or wife or both…”[2]

The ability of spouses/SRDPs to manage community property is then delineated thereafter in RCW 26.16.030 by stating:

“Either spouse or either domestic partner, acting alone, may manage and control community property, with a like power of disposition as the acting spouse or domestic partner has over his or her separate property, except:

(1) Neither person shall devise or bequeath by will more than one-half of the community property.

(2) Neither person shall give community property without the express or implied consent of the other.

(3) Neither person shall sell, convey, or encumber the community real property without the other spouse or other domestic partner joining in the execution of the deed or other instrument by which the real estate is sold, conveyed, or encumbered, and such deed or other instrument must be acknowledged by both spouses or both domestic partners.

(4) Neither person shall purchase or contract to purchase community real property without the other spouse or other domestic partner joining in the transaction of purchase or in the execution of the contract to purchase.

(5) Neither person shall create a security interest other than a purchase money security interest as defined in RCW 62A.9-107 in, or sell, community household goods, furnishings, or appliances, or a community mobile home unless the other spouse or other domestic partner joins in executing the security agreement or bill of sale, if any.

(6) Neither person shall acquire, purchase, sell, convey, or encumber the assets, including real estate, or the good will of a business where both spouses or both domestic partners participate in its management without the consent of the other: PROVIDED, That where only one spouse or one domestic partner participates in such management the participating spouse or participating domestic partner may, in the ordinary course of such business, acquire, purchase, sell, convey or encumber the assets, including real estate, or the good will of the business without the consent of the nonparticipating spouse or nonparticipating domestic partner.”[3]

Because both spouses are giving full authority to manage community property, with the exceptions noted above, a non-spouse guardian is potentially at odds with the competent spouse who shares like management and control over the couple’s community property.

III. Incapacitation of One Spouse/SRDP

A guardian is charged “to protect and preserve the guardianship estate…”[4] which includes an IP’s interest in, and dominion over, all of the IP’s community property. Because community property is the pool of property acquired by both spouses/SRDPs as stated in the aforementioned RCWs, all of the community property becomes subjected to the guardianship, regardless of whether the other spouse/SRDP is incapacitated.[5] As a result, the guardianship proceeding impairs the sole management powers of the competent spouse/SRDP in respect to the community estate because the appointment of a guardian subjects all of the IP’s community property to the guardianship.[6]

If a non-spouse/non-SRDP guardian is appointed, the guardian is charged with the duty of management of all of the property of the ward,[7] including the ward’s fully vested undivided interest in community assets. Disputes concerning management of community assets may arise between a spouse/SRDP and a guardian, with the court being requested to resolve the disputes. There is no provision for the disposition of community property in the event of incapacity of a spouse/SRDP, and Washington case law on this topic is relatively scarce. In any case in which one spouse/SRDP is declared incapacitated and a guardian is appointed, the competent spouse/SRDP should seek appropriate court orders clearly defining the management rights possessed by competent spouse/SRDP.

Even when the competent spouse/SRDP is appointed guardian, that spouse/SRDP’s community property management right becomes subject to the guardianship laws,[8] which require court approval for the disposition of real or personal property.[9] Case law has held that the competent spouse/SRDP, by seeking to be appointed guardian and by inventorying the community estate in the guardianship proceeding, has voluntarily agreed to the restriction on management powers.[10] When representing a spouse/SRDP guardian, that guardian should be advised that their ability to control the disposition of their own community estate is now impeded by the guardianship proceeding.

In selecting a guardian for community property, case law says that good conscience and equity plainly dictate that the courts should try not to burden a competent spouse/SRDP by appointment of a third party to control of community property.[11] It is also important to note that if the spouses/SRDPs have created an estate plan, they may have appointed each other as guardians in their respective powers of attorney. Because the law provides that the court “shall make its appointment in accordance with the principal's most recent nomination in a durable power of attorney except for good cause or disqualification,”[12] it is important to determine whether the IP has made such an appointment.

IV. Incapacitation of Both Spouses/SRDPs

A guardian has a fiduciary duty to the IP to manage his or her guardianship estate for the benefit of the IP.[13] The appointment of a single guardian for both spouses/SRDPs may create a divided loyalty in the duties of the guardian in that the guardian must manage the community and separate estates of both IPs for their individual benefit. On its face, such an arrangement may benefit both spouses/SRDPs, but the appearance of potential conflict and the likelihood of an actual conflict of interest eventually arising is substantial.[14]

Examples of situations in which potential or actual conflicts may exist include one or both spouses/SRDPs having children from a prior relationship, the terms of an estate plan or property agreement or the lack of such planning or agreement, separate property ownership and inheritance intentions/expectations of that property, and even the strength or stability of the marriage/SRDP and the long-term intentions of the spouses/SRDPs as they relate to the relationship.[15] These potential or actual conflicts go on to include benefits eligibility and spend-down/gifting issues, residential decisions and the source of funds to pay for living expenses, and health care and end-of-life decisions.[16] These lists are not exhaustive, but only illustrative of some of the most obvious conflicts that may arise.

Because of these, a petition of guardianship wherein a single guardian is appointed for a married couple or SRDP should give the court pause, and a guardian is best-advised to obtain the advice of counsel when considering such an appointment. In any circumstances where the same guardian serves both spouses/SRDPs, there is always the possibility of a conflict going unrealized until it is too late and something like the death of one of the spouses/SRDPs obviates the issue.[17] Such circumstances can place the guardian and the incapacitated persons in an unworkable situation ethically and practically, often resulting in expensive litigation naming the guardian personally as a defendant or other party. If the guardian senses a possible conflict of interest, he or she should file a request for instructions from the court to assist in identifying, disclosing, and resolving conflict of interest issues at a hearing with all concerned parties.

There are times when the appointment of a single guardian for an IP couple may be more obviously appropriate. These included, but are not limited to, when there exists a competently and mutually executed pre-guardianship estate plan that contemplates the eventual incapacity of one or both spouses/SRDPs that provides resolution to possible conflicts, and when there is a long-term marriage/SRDP with both spouses/SRDPs in a care facility and the parties have little or no estate and have competently executed health care directives.[18]

V. Committed Intimate Relationships

The equitable doctrine of committed intimate relationship (CIR) provides some marriage-like rights and responsibilities to unmarried cohabitants of both different- and same-sex relationships where those relationships meet certain criteria,[19] including the treatment of property that would have been community property had the parties been married as community-like property subject to equitable division upon termination of the CIR or the death of one of the parties.[20]

It is important to note that even if the parties are not married or in a SRDP, case law has implied and applied certain community property principles to such relationships, and legal presumptions may apply. A guardian must be aware that the potential for conflicts, as discussed herein, exists even where the parties are not married or SRDPs.

VI. Conclusion

As the attached cases will show, both a competent spouse/SRDP guardian and a non-spousal guardian face significant challenges in both managing community property and meeting their fiduciary obligations to their ward. If a guardianship estate includes community property, great care must be taken to avoid potential and actual conflicts of interest in the management of community property on behalf of one IP, as well as where a single guardian is appointed for a couple both adjudicated as incompetent persons. In any case where a conflict may arise, the guardian should seek guidance from the court.

Furthermore, competent spouses/SRDPs appointed as guardians must be advised that by availing themselves of the guardianship, they have limited their otherwise (relatively) unfettered management of community property.

Finally, guardians must be aware of the CIR doctrine and its impact on property rights of unmarried cohabitants.

REFERENCES

[1] Revised Code of Washington (“RCW”) 26.16.010 & .020.

[2] RCW 26.16.030.

[3] RCW 26.16.030.

[4] RCW 11.92.040(5).

[5]Estate of Sullivan v. Brashear, 2003 WL 1742631 (Wash.App. Div. 1) (unpublished opinion).

[6] RCW 11.92.040(5).

[7] In re Guardianship of Michelson, 8 Wn.2d 327, 111 P.2d 1011 (1941).

[8] Seattle-First National Bank v. Brommers, 89 Wn.2d 190, 200–01, 570 P.2d 1035, 1041 (1977), and In re Guardianship of Youngkin, 48 Wn.2d 425, 429–30, 294 P.2d 423, 425 (1956).

[9] RCW 11.92.090.

[10] Seattle-First National Bank v. Brommers, 89 Wn.2d 190, 200–01, 570 P.2d 1035, 1041 (1977)

[11] In re Wood’s Guardianship, 110 Wash. 630, 188 P. 787, 632 (1920).

[12] RCW 11.88.010(4).

[13] RCW 11.92.040(5).

[14] Certified Professional Guardian Board Ethics Advisory Opinion 2002-0003: Simultaneous Appointment as Guardian for Both Spouses or Domestic Partners.

[15] Id.

[16] Id.

[17] Id.

[18] Certified Professional Guardian Board Ethics Advisory Opinion 2002-0003.

[19] Connell v. Francisco, 127 Wash.2d 339, 898 P.2d 831, 346 (1995).

[20] Olver v. Fowler, 161 Wash.2d 655, 168 P.3d 348, 668 (2007).