All Power Corrupts?

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Lasting Powers of Attorney (LPAs) have been getting their fair share of column inches this summer, mainly due to well publicised comments from former Senior Judge Denzil Lush made last month on BBC Radio 4 (if there ever was a better name for a Judge then legalmatters has yet to hear it).

Following on from his retirement from the Court of Protection (COP), Judge Lush recently shared his views that LPAs were fraught with opportunities for abuse. Specifically, he commented that due to the ‘devastating effect’ it can have on family relationships, he would never choose to sign an LPA himself but rather would instead prefer the costly alternative of a court appointed Deputyship.

LPAs enable a trusted individual to make decisions on behalf of someone who is unable to do so or has lost mental capacity. They can be a vital element of later life planning when considered and drafted effectively, providing peace of mind for those who need it the most.

After 20 years at the coalface of the COP, Judge Lush is undoubtedly one of the most respected figures in the profession (and, as it happens, a thoroughly nice chap) but whilst his comments are certainly food for thought, it is important to consider them in context.

In light of the 2.4 million LPAs registered in England and Wales, around 6,000 cases concerning abuse have been brought to the courts; a comparatively tiny proportion. Having spent two decades dealing with the fallout of family disputes and fraudulent behavior, Judge Lush is understandably cynical of the process, in the same way that very few Personal Injury lawyers cycle a pushbike to work. They are more wary than anyone of the risks and consequences.
But to discount LPAs entirely is unhelpful and unfair. With the risks he highlights, there are also great benefits for vulnerable individuals of any age, providing them with both stability and peace of mind knowing that decisions will be made by someone that they trust.

It seems instead that rather than throw the baby out with the bathwater, the issue is perhaps not ‘don’t appoint an attorney’ but instead ‘don’t appoint the wrong person as attorney’. If an individual does find themselves in a position where they do not have an appropriate (and above all, trusted) friend or family member to appoint, there is always the option of appointing a professional attorney to undertake that role in any case.

LPAs are important documents delegating major powers and should not be taken lightly.

The relaxing of the safeguards that were previously in place have undoubtedly exacerbated the issue of misuse. But this just strengthens the argument that these types of documents should be implemented with proper qualified, regulated, legal advice.

Rather than focus on the negatives of the LPAs, it has instead been suggested that the public should be educated as to their importance. Whilst their negative impact will often make headlines (goodness only knows the Daily Mail loves a scoop), cases arise every day where an LPA could have prevented a dispute ending up in court. Increasing awareness would improve attitudes towards later life planning, as well as encouraging people like you to understand the role of an attorney. In turn, this would lead to greater and more careful contemplation when you come to making the decision, therefore reducing the risk of problems arising in the first place.

The most effective way to ensure that you’re making the right decision is to seek professional advice. Not something that can be rushed, LPAs require careful consideration and will be unique to the circumstances of the individual, accounting for specific needs and requirements.

The cynical among you may find it interesting to learn that these comments were made in the foreword to his new book on the subject. Reports that his next publication will be called ‘Crystal Ball and other reasons why I don’t need a Will’ are yet to be confirmed.

As professionals, Accountants, Financial Advisers and Wealth Managers are often asked for advice which may be outside their area of specialism. As well as guiding you through the process, talking to an expert at legalmatters can help clear up any concerns you or your clients may have.

Working collaboratively and effectively with Accountants, Financial Advisers and Wealth Managers is a key aspect of the legal services that legalmatters provides. We believe that clients benefit greatly from combined financial and legal advice.

For more like this, Follow Us on LinkedIn, or if you have an immediate query, call us on 01243 216900 or email us at info@legalmatters.co.uk.

GoT

Winter is coming; be prepared. The legal lessons we can learn from Game of Thrones…

As Game of Thrones season 7 is fully underway, the shenanigans of the inhabitants of Westeros are attracting viewers in record breaking numbers. Whether or not this fictional romp of dragons, zombies and war is your cup of tea, once you remove the fantasy element, you are left with the very bread and butter of a private client practitioner’s workload; family relationships, wealth and death. A tenuous link? Perhaps, but undoubtedly these universal themes are very much at the heart of both worlds.

Admittedly, the level of death is a little more frequent and varied than the average probate practitioner’s workload. Her Majesty’s Courts and Tribunal Services have a difficult enough job processing paperwork without having entire family dynasties wiped out in one fell swoop (one can only imagine the Oath drafting…)

But on a serious note, the programme highlights that death will not always present itself in the chronological order of a family tree. Even despite the wealth of information in the public domain, we are still faced with clients who do not have a Will as they believe their wealth will automatically be inherited by their children on their death. The Intestacy Rules will only go so far in handing down your estate to your lineal descendants but, of course, there is so much more to a Will then simply enshrining this course of events.

Warring offspring? Dubious marriage choices? Unruly illegitimate children? All in a day’s work in the Seven Kingdoms yet in the real world, these issues are just as much cause for concern for our clients today. If you are worried about protecting the family wealth (however big or small) correct estate planning can prepare for such eventualities and ring fence funds for your intended recipients without the worry of funds falling into the wrong hands.

Indeed, so many of the show’s main conflict points could have been easily avoided and managed had the characters’ legal affairs been put in order.

Had the ‘Mad King’ been furnished with a fully registered Lasting Power of Attorney, then his appointed attorneys could have stepped it at the first sight of faltering capacity and a much cheerier (and less bloody) outcome could have been achieved by all.

A Lannister always pays their debts, and loans and gifts are indeed an excellent form of estate planning if done in the right way. A flexible family trust is a great way of allowing for loans and repayments to be made to and from the family pot of money. Running out of blood descendants? A trust also allows for the person setting it up (the ‘settlor’) to add friends or charities into the mix.

There is certainly a stark solution for making provision for ‘blended families’ (with children born from different relationships) in a straightforward manner, without having to lose your head.

Whatever your family situation, legalmatters will find the right solution for you to ensure that your death does not leave any nasty surprises for those left behind.

An appropriate, professionally prepared and properly executed Will can provide security for your family, during an already emotional time. There is a time and a place for drama and conflict, and your death shouldn’t be one of them. Make a Will, make your wishes clear, because goodness only knows transferring the ownership of a dragon is an administrative nightmare at the best of times!

As professionals, Accountants, Financial Advisers and Wealth Managers are often asked for advice which may be outside their area of specialism. As well as guiding you through the process, talking to an expert at legalmatters can help clear up any concerns you or your clients may have.
Working collaboratively and effectively with Accountants, Financial Advisers and Wealth Managers is a key aspect of the legal services that legalmatters provides. We believe that clients benefit greatly from combined financial and legal advice.

For more like this, Follow Us on LinkedIn, or if you have an immediate query, call us on 01243 216900 or email us at info@legalmatters.co.uk.

LPAs and clauses to enable discretionary management of funds

Are you able to continue to manage your clients’ assets in the event of their mental incapacity?  Do you know what you should be looking for in a Lasting Power of Attorney (LPA) for Property & Finance in order to ensure that you and your client can avoid costly court applications?

What’s the problem?

Controversy currently surrounds whether express instructions need to be contained within a Property & Finance LPA where your client has (or may in the future have) funds managed by a discretionary fund manager (DFM).  A recent case involving HSBC has highlighted the problem and has led to guidance from professional commentators to say that, if the Bank can cause an issue with it, then there is every chance that we could have similar problems with other DFMs.

The issue is that an LPA without express provision carries the risk that DFMs may not be able to make discretionary investment decisions without an application to the Court of Protection.  This is because (in the absence of express power in an LPA) only attorneys can make these decisions and they cannot delegate them.

Action

We recommend a careful review of all existing LPAs to make sure that there is a clear basis for a DFM’s appointment.  The guidance we have had is that a DFM should only accept engagements where this is the case.

Some financial organisations have taken a formal line and have their own specific wording, which is fine if you know where the investments are at the time and also if you can be sure they will never be moved.   For example, HSBC came up with wording but it was very specific to them.

Our suggestion

Therefore, we are warned to be mindful to check with any current DFM to see if our proposed wording (below) will be sufficient or if they have other requirements.

Recommended wording is:

“My attorney(s) may transfer my investments into a discretionary management scheme, even though this means that investment decisions will be made by the managers of the scheme and my investments will be held in the name of the managers of the scheme or their nominees.  Alternatively, where prior to my loss of mental capacity to make financial decisions, I already had my investments managed in a discretionary management scheme, I want the discretionary management scheme to continue, even though this means that investment decisions will be made by the managers of the scheme and my investments will be held in the name of the managers of the scheme or their nominees.”

What if there is no relevant provision in your client’s LPA?

There are of course lots of LPAs out there with no such provisions about discretionary fund management.  The question therefore is will the DFM be able to continue to make decisions?  Different organisations have different approaches and it may be that some are not bothered by the absence of the express power (but if LPAs without express powers have been accepted by DFMs then we would suggest that it is more by luck than judgement!)  Worse still, an unhappy beneficiary of the donor’s estate may challenge the action of the attorney for not considering the risks.

If a DFM refuses to accept an LPA without sufficient powers, then the next steps depend entirely on whether or not your client still has mental capacity:-

  • If they do, they should be advised to revoke the earlier LPA and re-make it.  The downside is that there are additional fees for drafting the replacement as well as the additional registration fee (£110) payable to the Office of the Public Guardian (OPG) on registration.
  • If they don’t, a Court of Protection order will be needed.

Best practice

The reality is that we know about the case with HSBC and both the OPG and the Society of Trust and Estate Practitioners (STEP) have produced guidance, hence the profession should be alive to it.  Our point is that firms shouldn’t just draft the LPA blindly with nothing in the instructions paragraph – they should at least consider whether or not these kinds of clauses (and indeed any others) should be included.  This is where we add value in providing cost-effective, yet robust and bespoke services to your clients.  Making an effective and useful LPA is about more than simply typing in names and addresses.

Until more is known, ‘best practice’ for practitioners is to take a pragmatic approach and to follow such practice notes and guidance as are recommended by the OPG and STEP.

Conclusion

The risk with all of this is that if the LPA doesn’t contain the right powers the fund manager could reject it and then a Court of Protection order would then be needed – with the subsequent costs, delay and potential financial loss while the attorney is unable to delegate those functions to the DFM.  Without a prudent approach, lawyers, advisers and even attorneys could find themselves at risk of non-compliance and negligence.

If you have clients who you need assistance, we are happy to help.  Please contact us at legalmatters on 01243 216 900 or lucy.thomas@legalmatters.co.uk.