Ethics Advisory Opinions

Opinion 2002-0001 - Fee Surcharges

Brief restatement of question(s) posed:

1. May the CPG charge a mark up of a contractor's charge, for the CPG's own fee for contract administration?

    

2. Does it make any difference if the markup is disclosed in a fee schedule or the fee declaration of the CPG?

A contractor's charge is the amount billed to the guardian by a third party for goods or services provided to the guardianship or on the guardian or ward's behalf.

Directly applicable SOP's, statutes and other law or standards:

RCW 11.92.180

A guardian or limited guardian shall be allowed such compensation for his or her services as guardian or limited guardian as the court shall deem just and reasonable.

 

In all cases, compensation of the guardian or limited guardian and his or her expenses including attorney's fees shall be fixed by the court..."

Case Law: Estate of Larsen, In re Larsen, 103 Wash. 2d 517, 694 P.2d 1051 (1985)

Standards of Practice:

3.1 The guardian shall avoid self dealing, conflict of interest, and the appearance of a conflict of interest. Self dealing or conflict of interest arise when the guardian has some personal, family, or agency interest from which a personal benefit would be derived. Any potential conflict shall be disclosed to the court immediately.

 

3.2 All expenses paid or incurred on behalf of the incapacitated person by the guardian shall be documented, reasonable in amount, and incurred for the incapacitated person's welfare.

 

3.3 All compensation for the services of the guardian shall be documented, reasonable in amount, and incurred for the incapacitated person's welfare. The guardian shall not pay or advance himself/herself fees or expenses except as approved by the court.

 

3.4 Provision of compensated services other than guardianship services to an incapacitated person by the guardian shall be considered a potential conflict of interest, which must be fully disclosed.

 

3.6 The guardian shall disclose to the court and interested parties all compensation, fees and expenses requested, charged, or received in a guardianship case.

 

6.9 There shall be no self interest in the management of the estate by the guardian; the guardian shall exercise caution to avoid even the appearance of self interest.

 

Analysis:

Any arrangement that provides compensation to a professional guardian that is not approved in advance by the court is contrary to law and SOPs. Undisclosed fees are forbidden.

There is no distinction between a markup as described and any other fee for service. The requirement that compensation be reasonable in amount includes the expectation that there be a connection between the amount charged and the work required.

A professional guardian charging hourly fees, or asset management fees would be double billing by charging an additional markup. Although in theory, the professional guardian could maintain billing practices that avoid double billing, in practical terms it is very unlikely that such practices would have sufficient transparency.

In adding on to bills for services rendered the professional guardian would create a conflict of interest. The guardian would have an incentive to provide unnecessary services and to use vendors because their billing forms or practices are amenable to the guardians markup practices.

The use of private contractors to provide financial and personal assistance typically and properly billed as guardianship services is certainly permissible. Such arrangements can not be used to evade employer taxes or other requirements.

Opinion:

In general, the practice as described fails in many ways to meet the cited standards. Primarily, the evasion of disclosure requirements, court supervision of activities and court approval of fees, and the maintenance of a close correlation between services provided, costs of those services and benefit to the estate.

It may be argued that these problems can be cured by disclosing all markups of contractor fees and seeking approval from the court. This argument fails as described below.

Once the practice of marking up bills for contracted services is established, it is likely to lead to abuse. Guardians commonly hire professionals for all manner of services from pharmacy deliveries to care provision to home re-modeling. The practice of adding a surcharge to all such bills would result in undue amounts of compensation to the GPG.

CPG's Charge fees based on billable hours, flat asset management fees or transactional fees. Combining this practice with a surcharge arrangement creates a high likelihood of double billing and imposes an unnecessary burden on the court in sorting out the billing methods in evaluating the reasonableness of fees.

A CPG who receives a markup has an actual conflict of interest that would be virtually impossible to cure. That is, the GPG has a financial incentive to choose more expensive contractors, and to order more work. Additionally, the CPG would be limited to contractors willing to participate in the arrangement. Again, the court would not be able to fully evaluate whether or not this was occurring without imposing additional expense on the estate, as by appointing a GAL.

Summary of opinion:

The practice of "marking up" contracted services to recover expenses of administration is not permissible. Professional Guardian can recover fees for such services as effectively, more transparently, and without conflicts of interest by posting the time involved and billing hourly.

There __ is _X_ is not a Minority Report