A law firm which offers more

Call us: 0113 246 0622

Investment powers of attorneys

Comments

The case of Buckley v The Public Guardian has been the topic of much conversation in the last year but despite its unforgettable facts, it sets out some very useful guidance to attorneys (and presumably deputies) when managing the financial affairs of an individual without mental capacity.

Miss Buckley was born in 1931 and in 2010 she prepared a Lasting Power of Attorney for her property and financial affairs appointing her niece to be her sole attorney. From July 2011 had lived in a care home and the niece took over the management of her financial affairs.

Following an investigation launched by the Office of the Public Guardian, there were concerns that whilst Miss Buckley no longer had mental capacity, the attorney had misappropriated money from her using the LPA, rarely visited the care home and there were total losses of approximately £150,000.

The memorable fact of this case however was that the niece had withdrawn £72,000 from her aunts finances and used it to set up a reptile breeding business. The niece claimed that this was a short term investment which would generate a profitable 20% return for her aunt over a 2 year period. The attorney claimed her aunt loved animals and felt that this would be an investment that she would be happy with.

From paragraph 20 of the Judgement, clear guidance is laid down by Senior Judge Lush as to the “investment of funds by an attorney”.

Attorneys investing funds

Senior Judge Lush made it clear that “there are two common misconceptions when it comes to investments.

1) that attorneys acting under an LPA can do whatever they like with the donor’s funds; and
2) the attorney can do whatever they think the donor could or would have done personally, if they had capacity to manage their own financial affairs.”

Both ideas are majorly incorrect.

The test is not what the donor would have approved or done themselves, but what is in the donors best interests. “Best Interests” is a fundamental principal of the Mental Capacity Act 2005 (section 1(5)).

The judge also made clear that the level of care required by the attorney managing the investments should be seen as similar to that of Trustees whose duties are set out in the Trustee Act 2000.

The judgement also made reference to the historical guidance of the COP, “Investing for Patients”. Whilst this guidance and its supporting codes are no longer used by the COP, Lush stated that until such a time as the OPG issues its own new guidance to attorneys and deputies on the investment of funds, he would suggest that, as they have fiduciary obligations that are similar to Trustees, attorneys should comply with the Trustee Act and have regard to the “Investing for Patients” guidance (albeit with some allowance for updating as Lush suggests in his judgement).

A non-exhaustive list of points an attorney should therefore consider when looking after the finances of an individual who lacks mental capacity are:

  1. the suitability of investments – risk versus return.
  2. the need to diversify investments as far as appropriate in the circumstances.
  3. the need to review investments and vary when required.
  4. the need to obtain and consider proper advice from a qualified individual about the way finances should be managed.
  5. consider the donors age and life expectancy.
  6. consider whether any major items of expenditure are anticipated in the future e.g. increase care costs, adaptations etc.
  7. consider whether are gifts or payments to dependants are likely to be made in the future (which will usually involve an application to the Court of Protection for authorisation!).
  8. any tax implications of what is being suggested and the level of risk which is acceptable.
  9. consider the interest of beneficiaries under the donors will or intestacy (is there is a specific legacy in the donors will which needs to b e maintained).

We would also strongly recommend that attorneys and deputies should ensure that any investment products or services they acquire on behalf of the donor, are provided by individuals or firms who are regulated by the Financial Services Authority.

It is also worth reiterating to attorneys that an attorney must make an application to Court if they wish to make gifts from the donor’s funds which exceed the limited scope permitted in the Mental Capacity Act, if they wish to make loans to members of the donors family, wish to make investments in the donors own business, wish to make a sale or purchase at an undervalue or any other transaction where there is a potential conflict between the interest of the donor and the interests of the attorney.

For example, frequently we get asked whether the donor’s funds can be used to build extensions to the attorneys property (typically a child of the donor) to enable the attorney to care for the donor in their own home. Again, we must stress, actions such as this require the Courts permission. We can assist in such applications.

Attorneys must be aware of their role and responsibilities. As Lush states, ignorance is no excuse. Attorneys must therefore be familiar with the provisions of the Mental Capacity Act 2005 and the Code of Practice.

• The full Buckley judgment can be read here: https://www.justice.gov.uk/downloads/protecting-the-vulnerable/mca/orders-court-protection/re-buckley.pdf

• The Mental Capacity Act 2005 can be read at: https://www.justice.gov.uk/protecting-the-vulnerable/mental-capacity-act

For more advice on the duties of attorneys or how to administer the affairs of someone who lacks mental capacity please contact Stephanie Parish on stephanie.parish@clarionsolicitors.com or on 0113 3363355.

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.