Lasting Powers of Attorney: Practical pitfalls
Lots of people know what a Lasting Power of Attorney (LPA) is and how it can help, especially in the sad but increasingly common scenario whereby a friend or family member has lost capacity to understand and make their own decisions. But people who are appointed as attorneys often find that they have a number of challenges to deal with – including the fact that an LPA might not do what they assume it does.
In part one of our 'practical pitfalls' blog, we consider the process of making a LPA or acting as an attorney and what obstacles you might need to overcome.
Two types – Finances and health
Remember that there are two different types of LPA – one to deal with your 'property and finances', and one to deal with your 'health and care'. You don't have to make both, although many people do. You also don't have to choose the same people as attorney for both. In fact, there might be good reasons to choose different people. If you have a number of assets, properties, investments or business interests, you might choose someone with relevant professional experience to be the attorney for your 'property and finances', such as your solicitor, financial adviser or in some circumstances a business partner. When it comes to questions about your health, you might think a family member or friend is more suitable, as you might feel more comfortable discussing your views about end-of-life care with them.
The distinction between the two types is strict – for example, it is highly unlikely that a bank will accept instructions relating to a bank account from the attorney under a 'health and care' LPA, particularly if they know there is also a 'property and finance' LPA. One is no substitute for the other.
Finances and investments
People often assume that granting someone an LPA over 'property and finances' immediately gives them the power to deal fully with all of their assets. In practice, this is not always the case. On a practical level, financial organisations will often carry out their own checks and procedures before accepting an LPA and giving the attorney information about someone's bank accounts or allowing them to use them. This can be a tricky situation when the donor may already be unwell or has lost capacity. Additionally, where assets are held jointly by the donor and another, even husband and wife, some banks now have a policy to freeze joint accounts to both parties until an LPA can be produced if they query the capacity of either holder.
Moreover, guidance from the Office of the Public Guardian, which oversees LPAs, now states that any attorney needs an explicit power inserted into an LPA to undertake discretionary investments for the donor. This is the case even if the investments already existed before the LPA was entered into. To avoid this becoming a problem, attorneys under LPAs without this power can apply to the Court of Protection for an order that they be allowed to do this. The application requires supporting evidence and can take several months to be approved. It's not a last minute solution so attorneys who think this might be an issue in the future should consider making an application in good time. Our dedicated Court of Protection team can assist with this where needed.
Donors of LPAs also often think that they have given their attorneys the power to make gifts to family members – including large gifts as part of their wider estate planning. However, there are actually very limited powers for attorneys to make gifts, even if the donor of the LPA made such gifts themselves or made it clear that they would like to do this in the future. The guidance states that gifts should only be made on "customary occasions" – such as birthdays or anniversaries and that the size of the gift should not be "unreasonable". This is generally accepted to mean that a substantial gift, such as one which you might consider if you are undertaking estate planning, would require approval from the Court of Protection before it can be made.
As such, making large gifts to individuals during the donor's lifetime would be advised, and therefore an application should be made to the Court of Protection in good time. Evidence showing that the donor of the LPA would have agreed to the gifts whilst they had capacity would assist in the application and so should be gathered at the time of putting the LPA in place.
Disputes and investigations
Sadly, there is the occasional story in the news about an attorney who has taken advantage of the LPA by using the donor's money for themselves. This in itself is a criminal offence as well as a total dereliction of the attorney's duties to act in the best interests of the donor. There are also often a number of disputes about the use of LPAs and decisions taken by attorneys, especially when one family member has been appointed as an attorney and another has not been.
If you are not the attorney but you have a concern about how they might be running the donor's affairs, you can report your concerns to the Office of the Public Guardian. They may choose to carry out an investigation if they believe the concern is serious. The Office of the Public Guardian can also apply to the Court of Protection to remove an attorney who is not acting in the best interests of the donor.
If you would like to discuss making an LPA or if you are the donor or attorney of an existing LPA and would like guidance on how it works, please contact Laura Harper, Sophie Cisler or another member of the Succession and tax team. In part two of our 'practical pitfalls' blog, we will look at LPAs for business owners.