In last month’s Financial Update, I provided an overview of the reasons for having a power of attorney to stay in financial control. As well as having a power of attorney in place, it is also essential that it is fit for purpose. A Lasting Power of Attorney (LPA) will give other people (‘the attorney(s)’) the right to manage your affairs if you (‘the donor’) are unable to do so due to mental incapacity. There are two types of Lasting Powers of Attorney, one covering property and financial affairs, the other health and welfare. It is important to consider setting up both.
Attorneys are often expected to make financial decisions, including investment decisions, either under a Lasting Power of Attorney (LPA) or Enduring Power of Attorney (EPA). Since October 2007 any powers of attorney are set up as LPAs. However, if you made and signed an EPA before 1 October 2007, it should still be valid but it is worth reviewing and you may choose to replace it with a LPA.
If a donor delegates investment decisions to a Discretionary Fund Manager (DFM), guidance published by the Office of the Public Guardian (OPG) makes it clear that when a power of attorney comes into effect, attorneys would be unable to continue to delegate these decisions. So attorneys can find that they have more responsibility than they wanted and have to make these financial decisions themselves, unless clear instructions are included in the LPA.
If the donor lacks capacity and is therefore unable to make a change to an LPA/EPA themselves, then the attorney will have to apply to the Court of Protection to allow them to use a DFM. This process can take time, incur fees and could lead to potentially missed investment opportunities or impact income requirements.
Ensuring the investment instructions are fit for purpose
To ensure that an LPA is suitable, the donor should include the relevant instructions in their property and financial affairs LPA if they:
1) have investments in a DFM
2) want to allow an attorney to invest their money in a DFM in the future.
You could include wording like this, provided from the government guide:
“My attorneys 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.”
However the OPG, who hold the register of LPAs, cannot guarantee that your DFM will accept this wording. So you should ask your DFM to confirm in writing that they will accept the wording before you register the LPA.
If the LPA/EPA has already been registered, then the attorney will have to apply to the Court of Protection to allow them to use a DFM.
More clients are also making use of the flexible pension drawdown rules where the DFM is their investment manager, so you need to ensure that you have the correct wording in place. This will minimise the risk of any difficulties for the attorney using your LPA/EPA if you lose mental capacity.
If you do need more information, you can ask for legal advice or check the government website ‘LP12 – Make and register your lasting power of attorney’ for further guidance and use Part A7 for making your preferences and instructions.
What action do you need to take?
If you already have a registered LPA/EPA and have a DFM as your investment manager or feel that you may use a DFM in the future, then you should investigate this with the Court of Protection as soon as possible to ensure that the Property and Financial version of your LPA allows the use of the DFM services.
Alternatively, if you are yet to register the financial affairs version of your LPA/EPA and wish to use a DFM, please ensure you include wording which reflects your wishes and which is also acceptable to your DFM.
We always recommend that you seek legal advice regarding LPAs. You or your legal adviser must register the LPA with the Office of the Public Guardian for it to be effective. However, if you have any questions regarding your existing LPA or want to discuss the benefits of having a LPA, please contact your Origen adviser. We can make sure that our records are updated to show that you have a LPA in place.
This update is intended to be for information only and should not be taken as financial advice.
CA6880 exp 06/2022