DEFINITION of 'Conservatorship'

A conservatorship is a situation or circumstance wherein the courts determine that an individual is not capable of overseeing and dealing with legal matters, thus the individual appoints someone else, a conservator, to take care of such matters.

The most notable type of conservatorship is the LPS conservatorship, LPS being short for Lanterman, Petris and Short, who are the three senators who passed the mental health conservatorship laws in California.

Read How does Fannie Mae (FNMA) make money? to discover how conservatorships play a role in the operations of Fannie Mae and Freddie Mac.

BREAKING DOWN 'Conservatorship'

The most common sense of the term conservatorship refers to another individual being nominated to care for a person’s legal matters. However, this term also encompasses personal care, so managing financial and legal affairs as well as overseeing daily activities including living arrangements and health care.

How a Conservatorship Is Established

There are two ways a conservatorship is established. In regard to individuals, a conservatorship is established by a court order. In terms of organizations or corporations, conservatorship is established by a statutory or regulatory authority.

For individuals, conservatorship incorporates legal care of a person who is determined to be mentally ill or grossly disabled. This includes those who are suicidal, psychotic, demented or incapacitated to the extent that the person is unable to make legal, financial and medical decisions on his or her own behalf. Elderly individuals, specifically those with Alzheimer’s disease or dementia, are also included among those individuals who may fall under a conservatorship. For conservatorships regarding individuals, mental capacity must be determined by a psychiatrist, psychologist or a medical physician who has extensive experience in diagnosing individuals with any of the above symptoms. Every diagnosis or determination made by these medical professionals must be documented and verified before a conservatorship over an individual can be ordered.

In reference to government control of private organizations or corporations, such as in the case of Fannie Mae and Freddie Mac, conservatorship generally implicates control that is more temporary than complete.

Types of Conservatorships

There are two types of conservatorships. LPS conservatorships, as established by the Lanterman Petris Short Act of 1967, are governed by California’s Probate Code and welfare and institution codes.

Probate conservatorships are governed by the state in which the individual resides or by the state in which the conservatorship is established. In some jurisdictions and states, a conservatorship is referred to as a guardianship, or conservators are sometimes referred to as trustees.