In order to ease their role, an attorney might wish to open a new discretionary portfolio on behalf of the ‘donor’ of the LPA, or the attorney wishes to instruct the investment manager to continue to manage the assets on a discretionary basis after the donor loses mental capacity. In this article Atticus Kidd explores one major pitfall that attorneys and donors should be aware of in this context.
Typically as part of a Wealth Planning review into someone’s financial affairs a planner will recommend that individuals have in place either a Property and Financial Affairs Lasting Power of Attorney (LPA) or the older style Enduring Power Attorney (EPA). Such a Power of Attorney is a legal document that enables a nominated individual (an ‘attorney’) to help make decisions or make financial decisions on your behalf (the ‘donor’ of the LPA/EPA), should you become incapable of doing so yourself. This is particularly important if you ever have an accident or suffer from an illness that means you lose your capacity to make decisions.
Under existing legislation it is not possible for the nominated attorney to delegate decision-making to third parties.
The EPA was replaced with the Property and Financial Affairs LPA from October 2007. An EPA that was signed and witnessed before October 2007 can either continue to be used or cancelled and replaced by a Property and Financial Affairs LPA.
Where a Power of Attorney is in place, there is an existing limitation that it is important to be aware of to ensure that your attorney has the greatest flexibility in managing your financial affairs were you to lose capacity.
Under existing legislation it is not possible for the nominated attorney to delegate decision-making to third parties. This includes financial investments and would therefore require that the attorney manage the donor’s assets on an advisory basis rather than a discretionary basis. This adds various complications where there is already a discretionary managed portfolio in place and means that the attorney has the responsibility for making final decisions with regards to investments which they may not be comfortable or familiar with doing.
Where an existing Power of Attorney is in place without permissions to delegate powers of investment management, the attorney would be required to apply to the Court of Protection for an Order that would allow them to benefit from the use of a discretionary investment service. This can be both a costly and lengthy process with no guaranteed outcome. However, when setting up a Power of Attorney it is possible to insert wording that will allow the attorney to delegate investment decisions to a discretionary investment manager. The Office of the Public Guardian, the body that regulates LPAs and attorneys, has suggested:
It is possible to insert wording that will allow the attorney to delegate investment decisions to a discretionary investment manager.
“My attorney(s) may transfer my investments into a discretionary management scheme. Or, if I already had investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue. I understand in both cases that managers of the scheme will make investment decisions and my investments will be held in their names or the names of their nominees.”
It is advisable to speak with a solicitor when establishing a Power of Attorney in order to ensure that such wording is included in order to provide your attorney with a greater degree of flexibility in managing your investments.
Unfortunately, if you have already established a Power of Attorney it is not possible to amend it but, it is possible to revoke any existing arrangements and make a new Power of Attorney if you still have mental capacity. Once the donor’s mental capacity is lost it will no longer be possible to appoint any new Power of Attorneys so, it is important that you review any existing arrangements with your solicitor and ensure that they are tailored towards your needs.
The information provided in this article is of a general nature. It is not a substitute for specific advice with regard to your own circumstances. You are recommended to obtain professional advice from a professional accountant or solicitor before you take any action or refrain from action.
To meet one of our Chartered Financial Planners to discuss tax and estate planning, please contact your investment manager who will be happy to arrange a meeting.