Lasting Powers of Attorney (LPAs) are a fundamental part of virtually all estate planning strategies, providing an essential safeguard against the risk of the client losing capacity to make decisions themselves. It is hugely important, therefore, that private client advisers have a strong working knowledge about LPAs’ scope and effect. This article considers best practice for wealth managers when discussing LPAs with clients.
LPAs were introduced by the Mental Capacity Act 2005, replacing the previous Enduring Powers of Attorney on 1 October 2007. Two different types of LPA can be made:
- LPA for health and welfare: This may only be used once the client has lost capacity. It may give the attorney(s) power to make decisions on matters such as care and medical treatment, and where the client lives. It can also (if expressly provided for in the LPA) enable the attorney(s) to consent to or refuse life-sustaining treatment.
- LPA for financial decisions: This may be used before, as well as after, the client loses capacity. It may give the attorney(s) power to make decisions about matters such as operating a bank account, dealing with the client’s tax affairs, making investment decisions, and selling or purchasing a property as the client’s residence.
- Gifts: Attorneys should tread very carefully when considering making gifts on behalf of the client, and take professional advice as appropriate.
An LPA for financial decisions may allow the attorney(s) to make certain gifts of a reasonable amount to people related to or connected with the client, or to such charities to which the client might have made gifts. Other types of gifts (for example of significant amounts and / or for tax planning purposes) will likely require approval of the Court of Protection.
- Wills: An LPA cannot include power for the attorney(s) to sign a Will on behalf of the client.
The choice of attorney(s) is of great importance, since the client will be relying on the attorneys when the client can no longer deal with their own affairs. A spouse or partner, professional adviser, trusted friend or relative can be appointed.
It is essential attorneys, when agreeing to their appointment, understand and accept the responsibility which will be placed on them as attorneys: they cannot later designate others to act as attorneys in their place.
Discretionary investment management
In recent years, there has been debate about whether discretionary management of investment portfolios can continue after the client has lost capacity. The issues are complex, but for current purposes we would note, to ensure discretionary management can continue even after the client has lost capacity, the client should have an LPA for financial decisions which includes specific authority for that to happen.
Procedure for making an LPA
The LPA must be in a prescribed form and can be invalidated by the most minor error or omission. It is therefore strongly recommended LPAs be prepared by the client’s solicitor, to ensure key issues (including discretionary management of investments) are considered, and all I’s are dotted and T’s crossed.
The LPA must include a certificate confirming the client knows and understands the LPA’s purpose and scope; and is not subject to fraud or undue influence. If there is any doubt as to the client’s capacity, then the certificate should be prepared by a specialist medical practitioner. When raising such matters with the client, advisers should obviously proceed with sensitivity.
LPAs cannot be used until they have been registered with the Office of the Public Guardian (OPG). The registration process takes 8-11 weeks, therefore it would be sensible to arrange registration immediately after the LPA has been signed off. Otherwise, if the client later lost capacity, then the registration process would mean there would be a delay before the LPA could be used.
The OPG’s register can be searched by third parties, but for clients in the public eye there is a procedure whereby sensitive information can be withheld.
Supporting vulnerable clients
Protecting vulnerable clients is a key focus of the Financial Conduct Authority. Advisers need to be alert to signs of potential vulnerability in their clients and understand how best to support and safeguard them.
This applies both before and after an LPA has been signed off; the legal presumption under the Mental Capacity Act 2005 is that a client has capacity unless the converse is established. Nevertheless, advisers should watch out for the following warning signs:
- Dramatic departure from previously stated intentions
- Apparent lack of understanding
- Intensified or erratic emotions
- Making decisions which would lead to a negative outcome or are completely at odds with the client’s best interests
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
Please note this article was originally published by eprivateclient, see here.
© Farrer & Co LLP, February 2023