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Using Guardianships to Collect Debt

Posted Monday, January 26, 2015 by John S. Palmer

An interesting article in this morning’s New York Times asserts that it has become common for NY nursing homes to seek guardians for patients who owe them money. Entitled “To Collect Debts, Nursing Homes Are Seizing Control Over Patients” it states:

Lillian Palermo tried to prepare for the worst possibilities of aging…she arranged for her power of attorney and health care proxy to go to her husband, Dino, eight years her junior, if she became incapacitated. And in her 80s, she did…

But one day last summer, after he disputed nursing home bills that had suddenly doubled Mrs. Palermo’s copays, and complained about inexperienced employees who dropped his wife on the floor, Mr. Palermo was shocked to find a six-page legal document waiting on her bed.

It was a guardianship petition filed by the nursing home, Mary Manning Walsh, asking the court to give a stranger full legal power over Mrs. Palermo, now 90, and complete control of her money.

The article is well worth reading. It notes that there are legitimate reasons why a nursing home may petition for guardianship, such as to stop financial exploitation of a patient, and quotes a lawyer who represents nursing homes as stating that “guardianship is a legitimate means to get the nursing home paid.” But at least one judge has ruled that bringing a guardianship petition solely to collect debt owed to the petitioner violates the intent of New York’s guardianship statute.

I am not aware of this being an issue in Washington State and that may be due to several statutes that I think discourage using the guardianship process in this manner. For example, Washington’s power of attorney statutes contain a provision stating:

A principal may nominate, by a durable power of attorney, the guardian or limited guardian of his or her estate or person for consideration by the court if protective proceedings for the principal’s person or estate are thereafter commenced. 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.

Furthermore, Washington’s guardianship statutes explicitly state that a person’s “liberty and autonomy should be restricted through the guardianship process only to the minimum extent necessary to adequately provide for their own health or safety, or to adequately manage their financial affairs.” In order to help ensure the court orders the least restrictive alternative available, the guardian ad litem (appointed to evaluate the need for a guardian) must “investigate alternate arrangements made, or which might be created, by or on behalf of the alleged incapacitated person, such as revocable or irrevocable trusts, durable powers of attorney, or blocked accounts” and include in his or her report a “description of any alternative arrangements previously made by the alleged incapacitated person or which could be made, and whether and to what extent such alternatives should be used in lieu of a guardianship, and if the guardian ad litem is recommending discontinuation of any such arrangements, specific findings as to why such arrangements are contrary to the best interest of the alleged incapacitated person.”

According to the Times article, it looks like New York may have similar provisions in its law. It says a “court evaluator” (probably a GAL or its equivalent) “reported that Mr. Palermo was the appropriate guardian, and questioned why the petition had been filed.” The billing dispute ended when the New York Department of Health (the agency administering NY’s Medicaid program) recalculated the amount Mr. Palermo must pay the nursing home for his wife’s care; it raised the copay, but not as much as the nursing home asserted it to be. The guardianship petition was withdrawn when the arrearage established by the DOH was paid, after Mr. Palermo had incurred more than $10,000 in legal fees contesting it.

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