An ageing population means more cases of cognitive decline. This puts families and advisors under pressure and, in the case of professionals, it means their duty of care is particularly important.

Longer life expectancy and a UK Baby Boomer generation set to transfer around £4 trillion ($5.3 trillion) of wealth in the next 20 years have created the perfect storm for regulators trying to ensure that lawyers and family guardians meet their duty of care for clients suffering diseases of old age such as Alzheimer's.

A study commissioned by the Alzheimer’s Society suggests that around 850,000 people live with dementia in the UK, with numbers forecast to reach 2 million by 2051. One in three of the current population is expected to get dementia in their lifetime.

As one practitioner bluntly framed it, before all these medical advances, something else always got you first.

Based on these developments, it is no surprise that some of the larger UK law firms are dedicating specialist teams to dealing with elderly and vulnerable people.

Kelly Greig, a partner and later life practitioner at Irwin Mitchell, told WealthBriefing in a recent conversation that capacity work accounts for a “huge amount” of the firm’s business. “Whereas 15 years ago, mental capacity was something done by the private client lawyer, now we are telling our teams it doesn’t matter what sort of work you do," Greig said.

Whether it is selling a property, preparing a will, helping someone with gift giving or tax planning, the question is “do they have the capacity to do it?” Greig said. And if they don’t, what steps does each stakeholder need to take?

While families were less exorcised in the past when an elderly member suffered cognitive decline, today, with more complex family structures, children from second and third marriages, and a prolonged property boom that has forged many more millionaires, people are very much bothered, Greig said. "The impact of you gifting that house away means that I lose out."

This more febrile terrain has ushered in a dramatic rise in lasting powers of attorney (LPA) applications over the last decade and rising numbers of financial abuse cases being reported to the Office of the Public Guardian, the agency set up by the Ministry of Justice to protect the UK’s most vulnerable citizens. (This publication has covered controversies about LPAs here and here, for example.)

LPAs come with enormous power and responsibility. They give a trusted individual complete control over another’s affairs, from controlling their assets and financial affairs to decisions about their future healthcare.

Speaking to WealthBriefing last year, Ann Stanyer, a private client partner at UK law firm Wedlake Bell, said that the volume of elderly clients advised by the firm who have been defrauded by family members and carers involving LPAs was so disturbing that she has urged UK lawmakers to set up a parliamentary report into the regime.

Her concern is bolstered by OPG figures released earlier this year showing that court referral investigations for suspected abuse of elderly people by surged almost 50 per cent between 2017 and 2018.

Irwin Mitchell’s Greig, whose team deals with many removal cases, said: “It usually is your children or your attorney that has misappropriated your assets.”

While Greig, like many legal practioners, is generally positive about LPAs she argues that advisors and families aren't aware of the “fiduciary duty” they embody. “Some people just don’t realise the extent of their obligations,” she said.

“You get people who stand up in court in a removal case and say, ‘I just didn’t know I wasn’t allowed to do that.’  And, of course, the court’s view of that is ignorance of the law is no excuse."

But this lack of understanding is not confined to lay family members.

"We also get attorneys come to us one or two years after they have been appointed as a deputy because they have an OPG investigation, or as a deputy, they haven’t filed accounts. Their defence is, ‘We didn’t know we had to file accounts and we haven’t kept records,’ and that doesn’t wash either," Greig said.

With Office for National Statistics data showing over a third of UK wealth held by over 65-year-olds, it raises the question of what wealth managers and legal practitioners should be more alert to.

Tips and suggestions

Greig's top tip for families is to plan early and seek good advice.

"It provokes strange looks, but we suggest as soon as you are 18 to get a POA in place. I have had 18 and 19-year-olds, who are in road traffic accidents that put them in a coma for six months, putting their affairs completely on hold," she said. People can’t imagine ever becoming temporarily incapacitated, either in a road traffic accident or because they suffer from a stroke out of the blue. It isn't just about getting old.

Likewise, when Mum asked you to sign a POA document 20 year ago, there is little awareness at the time of the weight it carries. When it is needed, a family member should "seek new advice and guidance on what the current law is and what they can do based on the circumstances now," Greig said.

A push to digital

Since the government took the LPA application process online in 2013 as an alternative to a paper-based system, more than 2.6 million people have registered a lasting power of attorney with the OPG. 

It might be more convenient and cheaper to go online, said Greig, but she argued that people filling out online forms meant they they are not seeking advice about what powers they should or shouldn’t have or who they should appoint.

The decision to allow a person to fill out the entire application online just short of signature, with no legal oversight, has fomented debate among legal advisors and elder advocates about how much digital expediency has come at the cost of financial fraud and abuse.

In 2017, the Financial Conduct Authority pushed online LPAs a step further, calling for an “end-to-end digital system” that would allow documents to be filled out and registered completely online on someone else’s behalf without a “wet signature”.

The FCA has defended the proposal as a more efficient joined-up approach for various parties. But practitioners aren't entirely convinced. “We have been particularly resistant to the proposal to get rid of wet signatures,” said Greig, arguing that removing such signatures is open to abuse.

Attorneys don’t get it right either

Some of the financial abuse cases dealt with by Irwin Mitchell are down to the “naivety” of attorneys. “They haven’t bothered to look at their duties and obligations and therefore overreach in the scope of their powers,” said Greig. They might sign a POA at the time, but they are not really “a party to it,” she added, because they have not sought advice themselves.

Managing overseas assets

Whether it is a villa in Spain or an investment bond in the Isle of Man, UK retirees hold considerable assets abroad and, in capacity cases, there is no universal system across jurisdictions for what families need to do to protect or unwind assets. What Spain requires of property owners, for example, is very different to what owners in France need to produce.

“I would advise any client who has mental capacity now, with an asset abroad, to get a POA in place here as your habitual residence that will be your main governing document. I would also advise clients to speak to a lawyer or notary abroad and put a POA in place for every jurisdiction in which you own an asset,” Greig said.

English trust laws governing jointly owned property are alien to European civil law, so having a POA in place in each jurisdiction gives you “peace of mind that if you do need to act quickly you can,” she added.

Protecting a business

With business assets, the capacity team encourages all business owners to look at their governing documents and the corporate or partnership structure to decide what are the governing rules concerning lacking mental capacity.

Often in a partnership, if you lose capacity, the other partners have the right to expel you from the partnership, Greig explained. “Your partnership share is calculated and you are effectively bought out.”

A recent case, involving a rental property business, where one of the partners lost mental capacity, triggered an expulsion notice and subsequent sale that racked up huge capital gains, largely because no POA was in place.

A family’s only option without a POA is to go through the Court of Protection, which can put enormous stress on a business, as procedural delays can lead to unpaid debts, staff being let go, and interest accruing on those debts, Greig said.

With any family business, she advises having a conversation with business partners, and asking the question: "What is going to happen to the business if one of us dies or loses capacity?”

Consider the implications when it is no longer three partners in a business, but two, and you are dealing with another person. “It might be a spouse or another relative with no knowledge or interest in the business.”