Investing under a Power of Attorney
Re Buckley (unreported 22 January 2013)
An attorney acting under a lasting power of attorney (“LPA”) does not simply step into the donor’s shoes and make investment decisions in exactly the same way as the donor. Under the Mental Capacity Act 2005 (“the MCA”) an attorney must follow the core principles, make decisions in the donor’s best interests and follow the Code of Practice as well as being aware of the limits and extents of his authority. Where an attorney exceeds his authority or mismanages the donor’s affairs it may be necessary to apply to the Court of Protection for the LPA to be revoked.
In Re Buckley, the Public Guardian successfully applied to revoke an LPA in light of concerns which had arisen about the conduct of the sole attorney (the niece of the 81-year-old donor). Investigations had revealed that (inter alia) the niece had invested almost £90,000 of the donor’s own money into her own reptile breeding business and had taken almost £45,000 of the donor’s capital for her own personal benefit. The niece did not oppose the application or appear at the hearing and the Judge found that she had contravened her authority and acted in a way that was not in the donor’s best interests.
In his judgment, Senior Judge Lush provided guidance on the responsibilities of an attorney acting under an LPA when investing a donor’s funds. He recommended that attorneys and their financial advisers should adopt (suitably updated) criteria adopted by the old Court of Protection prior to the enactment of the MCA. The Judge indicated that two important factors in looking at the suitability of investments are the donor’s age and life expectancy and that where a donor is over 80 short-term investment strategies will usually be appropriate.
Other factors that attorneys should consider are:
- whether any major items of expenditure are anticipated
- whether any gifts or payments to dependants are likely to be made
- what type of return is appropriate (high income, long term capital growth, or a mixture of the two)
- the level of acceptable risk for the proposed investment,
- whether there is an existing portfolio and if so, the tax and costs considerations that may affect decisions as to when and how investments should be changed,
- whether the investments will be sold when the donor dies, or whether the beneficiaries of his estate are likely to want the investments as they then stand,
- the interests of beneficiaries of the donor’s estate and how testamentary provisions might affect the composition of investments (in cases where the capital available for investment is over £100,000).
The Judge suggested that attorneys have fiduciary obligations that are similar to those of trustees and that, in the absence of specific guidance from the Office of the Public Guardian on the investment of funds, they should comply with the provisions of the Trustee Act 2000 as regards the standard investment criteria and the requirement to obtain and consider proper advice.
In emphasising the need for attorneys to avoid conflicts of interest the Judge made the following points:
- Attorneys should keep the donor’s money and property separate from their own or anyone else’s. Thus, wherever possible all investments should be made in the donor’s name. If this is not possible, the attorney should execute a declaration of trust or other formal record acknowledging the donor’s beneficial interest in the asset.
- Subject to a sensible de minimus exception an application must be made to court for an order under section 23 MCA in any of the following cases: (a) gifts exceeding the authority conferred on attorneys by section 12 MCA (b) loans to the attorney/members of the attorney’s family (c ) investment in the attorney’s own business (d) sales/purchases at an undervalue (e) any other transactions where there is a conflict between the interests of the donor and the interests of the attorney
- Attorneys should be aware of the law regarding their role and responsibility and should be familiar with the provisions of the MCA 2005 Code of Practice and the “information you must read” section of the LPA itself.
Given the fiduciary relationship between the donor and the attorney and the obligation on the part of the attorney to act in the donor’s best interests, it is important that the person who is appointed as attorney understands how he should go about making investment decisions and where the limits of his authority lie.
When choosing an individual to act as attorney it is sensible for the donor to give some thought to the proposed attorney’s skills and their experience of managing significant amounts of money.
Sometimes it may be appropriate to include a supervisory provision in the LPA, for example, a specific requirement for the attorney to seek independent financial advice or for accounts to be produced to a named accountant/tax adviser. While this cannot completely rule out the possibility of deliberate abuse by an attorney it will reduce the likelihood of mismanagement by those who do not fully understand the decision-making framework.