essica Negyal, a solicitor in the private client and tax team at law firm Boodle Hatfield, unpicks the complexities facing those taking on powers of attorney and the safeguards of which they need to be aware.

Jessica Negyal, a solicitor in the private client and tax team at law firm Boodle Hatfield, unpicks the complexities facing those taking on powers of attorney and the safeguards of which they need to be aware.

A property and financial affairs LPA can be used to appoint an attorney to make decisions about the donor’s property and finances on their behalf and in their best interests at a time in the future when the donor lacks the capacity to make those decisions themselves (for example as a result of dementia, a stroke, injury or mental health problems). Increasing numbers of people are creating LPAs, in part due to the ageing demographic. But do all attorneys acting under an LPA know what their duties and responsibilities are especially in relation to investing and making gifts?

An attorney acting under a property and financial affairs LPA has to make decisions about investing the donor’s savings. There are common misconceptions that attorneys can do whatever they like when doing so and that they should make decisions that they thinks the donor would have made. 

So what are the important points for an attorney to remember?

An attorney acting for an incapacitated donor has fiduciary obligations and is required to act in the donor’s best interests.  They must comply with their duties and act within the scope of the powers set out in the LPA. The authority is subject to the Mental Capacity Act 2005. They must also have regard to the Code of Practice (which can be found at http://www.justice.gov.uk/protecting-the-vulnerable/mental-capacity-act).

The attorney must exercise care and skill as is reasonable in the circumstances when investing the donor’s assets (this duty of care is greater where attorneys have specialist knowledge/experience).

There is no guidance for attorneys on the investment of funds but Senior Judge Lush said in the recent Court of Protection decision of Re Buckley (Judgment dated 22 January 2013) that attorneys should comply with provisions of the Trustee Act 2000, i.e:

Have regard to the standard investment criteria i.e the suitability of the investments and the need to diversify insofar as is appropriate in the circumstances. 

Review the investments from time to time and consider whether they should be varied. 

Obtain and consider proper advice about the way in which their investment powers should be exercised.

Two of the most important factors when considering the suitability of investments are the donor’s age and life expectancy.

Attorneys should ensure that any investments or services provided for the donor are provided by individuals or firms who are regulated by the Financial Services Authority.

Attorneys and their financial advisors should have regard to the criteria historically approved by the Court in “Investing for Patients” (last produced in 1998 so there should be some allowance for updating).

Additional factors to be considered by an attorney when making investments on behalf of a donor include:

·         whether any major items of expenditure are anticipated or should be planned for;

·         whether any gifts or payments to dependants are likely to be made;

·         the type of return required;

·         the level of acceptable risk;

·         whether there is an existing portfolio (if so, the tax and cost considerations that may affect decisions about whether to change it and how quickly); and

·         if the capital available for investment is over £100,000 ($150,000) and when invested, it will adequately satisfy the donor’s current and future income and capital requirements, the interests of the beneficiaries under the donor’s will or intestacy should also be considered.

Attorneys must remember to keep the donor’s money and property separate from their own. Where possible all investments should be made in the donor’s name.

Subject to a sensible de minimis exception, an application must be made to Court for an order in any of the following cases:

·         gifts that exceed the limited scope of the authority conferred on attorneys by section 12 of the Mental Capacity Act (see further below);

·         loans to the attorney/members of the attorney’s family;

·         any investment in the attorney’s own business;

·         sales or purchases at an undervalue; and

·         any other transactions in which there is a conflict between the interests of the donor and those of the attorney.

Making gifts

What authority does an attorney have to make gifts of the donor’s money?

Attorneys’ powers to do so are limited as follows:

·         A gift to charity is permissible (at any time of year), if the donor previously made gifts to that charity or might be expected to make gifts if they had capacity.

·         Gifts to individuals can only be made on customary occasions (births or birthdays, weddings or wedding anniversaries, civil partnership ceremonies or anniversaries, or any other occasion when friends, families or associates usually give presents) and they can only be made to people who are related to or connected to the donor.

·         The value of the gift must not be unreasonable having regard to all the circumstances and in particular the size of the donor’s estate.

If an attorney wishes to make a gift that is outside these limitations, such as for tax planning purposes, he must apply to the Court of Protection for permission. The Court will look at the donor’s particular circumstances in deciding whether to grant permission. 

Key point

It is vital that attorneys are aware of the law regarding their role and responsibilities.  Information is provided on the LPA itself and an attorney should also be familiar with the Code of Practice. Ignorance is no excuse.