||This article's introduction may be too long for its overall length. (April 2013)|
||The examples and perspective in this article may not represent a worldwide view of the subject. (November 2010)|
Conservatorship is a legal concept in the United States of America, where an entity or organization is subjected to the legal control of an external entity or organization, known as a conservator. Conservatorship is established either by court order (with regard to individuals) or via a statutory or regulatory authority (with regard to organizations). When referring to government control of private corporations such as Freddie Mac or Fannie Mae, conservatorship implies a more temporary control than does nationalization. In other legal terms, a conservatorship may refer to the legal responsibilities over a person who is mentally ill, including those who are psychotic, suicidal, incapacitated or is in some other way unable to make legal, medical or financial decisions on behalf of themselves.
Conservatorship is a legal term referring to a person who has been deemed gravely disabled by the court and unable to meet their basic needs of food, clothing, and shelter. There are two types of conservatorships: Lanterman Petris-Short (Lanterman Petris Short act of 1967, referred to as LPS) and Probate conservatorships. They are governed by the state's individual laws. In California, they are governed by the California Probate Code, and Welfare and Institutions Codes. Some states or jurisdictions refer to it as a guardianship, or even a trustee, instead of a conservator.
Conservatorships are generally put in place for severely mentally ill individuals who are gravely disabled, elderly individuals with Dementia or Alzheimer's Disease who lack mental capacity, or individuals with developmental disabilities who may or may not lack mental capacity. Mental capacity has to be determined by a medical physician or a psychiatrist experienced in the field and is documented and provided to the court as evidence.
A limited conservatorship usually refers to individuals who are developmentally disabled, and they can retain more control over their personal affairs than other conservatees if they are capable. For example, they may retain their right to decide where they may live.
A person under conservatorship is a "conservatee," and can refer to an adult. A person under guardianship is a "ward," and can refer to a minor child.
LPS conservatorships begin with a temporary 30 day conservatorship, and if the conservatee remains gravely disabled, the conservator is reappointed for a year and can be renewed annually, or terminated if no longer needed. Probate conservatorships are referred as general conservatorships, and typically do not have a temporary period unless an urgent emergency exists that is creating risk to the person or their estate. Probate conservatorship do not automatically expire as LPS conservatorship do if they are not renewed by the conservator.
A court appointed conservator over the person is responsible for managing the conservatee's placement, medical decisions, and mental health treatment (LPS conservatorships). A conservator over the estate is responsible for marshalling, protecting, and managing the conservatee's assets that remain in their estate. A conservator reports to the court that appointed them, and is monitored by the supervising judicial court in the county in which the conservatee permanently resides.
An example of a conservator's duties includes: locating and marshalling assets such as property and money which belongs to the conservatee, and can use it to buy food for the conservatee, secure and pay for placement in a facility which would take care of the conservatee or treat a mental illness, pay bills for the conservatee, manage property by paying for property insurance, mortgage payments or rent, property clean-up, or pay for a property management company to rent the property. An example of a conservator or guardian's medical responsibilities is that if the court grants medical authority to the conservator or guardian, the conservator can authorize a physician to place a feeding tube used to provide nourishment into the protected person's stomach if they are in medical need of it. It is not uncommon for one person to hold both offices and be referred to as the "guardian and conservator" of the conservatee, even though a conservator or guardian can be appointed over the person only, the estate only, or both. Generally, a conservator or guardian over the estate is only granted if the conservatee has assets that need to be protected, marshalled, and managed. These terms may be found in use in U.P.C. jurisdictions, even though the U.P.C. uses the term "protected person" in either case.
In most states, an outside party or agency must review the facts of the case and submit a report, usually required to be in writing, to the court before the court makes a decision on the request to establish a conservatorship or guardianship. Usually the outside party is a local County Mental Health representative called an investigator. They are often required to be experts in some appropriate field, such as social work, mental health, a medical field, or law. Procedures for conservatorship of an adult are often different from those for minors. LPS conservatorships usually begin in the County Mental Health system and are referred from acute psychiatric hospitals, where Probate conservatorships can results from any referral source if validated with property medical documentation. Mental Health consumers have the right to a Patient's Rights advocate, and are taken through a series of hearings while they are in the acute hospital before they reach the point of needing a conservator.
The court may appoint an attorney to represent the proposed conservatee or ward. If the proposed conservatee or ward is unable to have an attorney-client relationship because of some impairment, the court may appoint a guardian-ad-litem (who is often also an attorney). A guardian-ad-litem does not take instruction from the client, but rather acts on their behalf and tells the court what the guardian-ad-litem thinks is in the best interests of the proposed conservatee or ward, whether or not that is what the proposed conservatee or ward wants. The conservatee has the right to be represented by an attorney, and if they cannot afford a private attorney, they are appointed a public defender that will represent them free of cost.
In the United States, in some states, corporations can be placed under conservatorship, as a less extreme alternative to receivership. Whereas a receiver is expected to terminate the rights of shareholders and managers, a conservator is expected merely to assume those rights, with the prospect that they will be relinquished. Robert Ramsey & John Head, law professors who specialize in financial issues, suggest that an insolvent bank should go into receivership rather than conservatorship to guard against false hope and moral hazard.
At the federal government level in the United States, in July 2008, the failing IndyMac Bank was taken into administrative receivership by the Federal Deposit Insurance Corporation (FDIC) and its assets and secured liabilities transferred to a specially-established bridge bank called IndyMac Federal Bank, FSB which was placed into conservatorship, also by the FDIC.
Again, in the U.S. at the federal level, in September 2008, the chief executive officers, and board of directors Fannie Mae and Freddie Mac were dismissed, and the companies were placed into the conservatorship of the Federal Housing Finance Agency (FHFA) via the determination of its director James B. Lockhart III, with the support and financial backing of U.S. Treasury via Treasury secretary Hank Paulson's commitment to keep the corporations solvent. The intervention leading to the conservatorship of these two entities has become the largest in government history, and was justified as necessary step to prevent the damage to the financial system that would have been caused by their failure. Entities like this are considered too big to fail.
An even more ambitious use of the conservatorship model has been proposed by Duke Professors Lawrence Baxter, Bill Brown and Jim Cox. They suggest that the troubled U.S. banks be placed in conservatorship, that some of their "good assets" be dropped into newly created "good bank" subsidiaries (presumably under new management), and the remaining "bad assets" be left to be managed under the supervision of a conservatorship structure.
- Baxter, Lawrence; Brown, Bill; Cox, Jim (February 27, 2009). "Finally, A Bridge to Somewhere". Huffington Post
- Ramsey, Robert Lee; John W. Head (2000). Preventing Financial Chaos: An International Guide to Legal Rules and Operating Procedures for Handling Insolvent Banks. Kluwer. p. 32. ISBN 90-411-8848-7.
- Ramsey & Head (2000), p.37
- Soloman, Deborah; Reddy, Sudeep; Craig, Susanne (September 8, 2008). "MOUNTING Woes Left Officials With Little Room to Maneuver". Wall Street Journal. pp. A1
- Paulson, Henry M., Jr.; (Press release statement) (2008-09-07). "Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers". United States Department of the Treasury. Retrieved 2008-09-07.
- Lockhart, James B., III (2008-09-07). "Statement of FHFA Director James B. Lockhart". Federal Housing Finance Agency. Retrieved 2008-09-07.
- "Fact Sheet: Questions and Answers on Conservatorship" (PDF). Federal Housing Finance Agency. 2008-09-07. Retrieved 2008-09-07.[dead link]
- Goldfarb, Zachary A.; David Cho and Binyamin Appelbaum (2008-09-07). "Treasury to Rescue Fannie and Freddie: Regulators Seek to Keep Firms' Troubles From Setting Off Wave of Bank Failures". Washington Post. pp. A01. Retrieved 2008-09-07.