Attorneys on LPA’s – avoid the financial consequences of negligence.
If you have been appointed as an Attorney under a Lasting Power of Attorney and you have commenced acting as an Attorney then you need to take great care. An attorney is essentially acting as a Trustee, as such your actions are governed by the Trustee Act 2000.
This states that you are required to appoint an Independent Financial Advisor or Stockbroker and draw up an Investment Policy Statement as this allows an authorised and responsible financial intermediary to manage the investments on a day-to-day basis and that your responsibility is to supervise this management on a regular basis.
As an Attorney, you must ensure that you are fully conversant with what the IFA firm is doing with the investments.
We suggest that this is best achieved by having a spreadsheet prepared from the date you commenced your duties as an Attorney – and having a rolling quarterly valuation of all investment accounts.
As an Attorney (Trustee) you remain liable for any losses if you are proven to be negligent.
Attorneys for an LPA – Doing Nothing is Not a Sensible Option!
James Watt contacted our office, James is an Attorney to his brother who has assets of over £1.5M, half in cash and half in shares and collective equity investments.
James explained that he had spoken to his solicitor who had assured him that there was nothing wrong with holding around £750,000 in one bank account and that as the shares and collective investments had previously been arranged by his brother they should be left as they are. “No need to pay an IFA fees for advice, old chap, everything is fine as it is!”
I have dealt with several people like James over the years, I recognise that whatever argument you put forward, it will be ignored, because they are right, and you are wrong! So, my stock response these days is – did you get that in writing?
The case of Buckley v The Public Guardian sets out some very useful guidance to attorneys (and presumably deputies) when managing the financial affairs of an individual without mental capacity. Clear guidance was set out by Senior Judge Lush as to the “investment of funds by an attorney”.
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 the capacity to manage their own financial affairs.”
Both are incorrect.
The test is not what the donor would have approved or done themselves, but what is in the donor’s best interests. “Best Interests” is a fundamental principle 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 the same as Trustees whose duties are set out in the Trustee Act 2000.
It is also generally understood that if there are significant assets then the Attorneys must take professional advice from an IFA (see previous blog).
What are the risks to James of carrying on as he seems to think he can?
For starters he has far too much deposited with one bank, the bank deposit guarantee scheme is limited to £85,000 (previously £75,000). Not taking any action to protect this amount of cash would quite rightly be deemed negligent.
Leaving the investment portfolio as it was organised by the brother is almost certainly incorrect, this would also be deemed negligent.
As an attorney (Trustee) James would be liable in full for any losses for both the cash and the investment portfolio.
Since mid-January 2018 the FTSE 100 index has lost almost 1000 points – are you listening James?
Another example, this time from a very pleasant gentleman, whose daughter was severely disabled, he enquired about both inheritance tax planning and what he should do as trustee and Attorney. I made a calculation of the inheritance tax due, which was around £450,000. I explained that he needed to establish a special trust for his daughter and appoint both himself and other trustees to ensure his daughter would be well cared for after he had passed this mortal earth.
Instead, he phoned his solicitor who advised him to make gifts out of taxable income, which saved a minuscule amount of tax and would be overshadowed by increases in asset values of his other investments. This gentleman wanted a “get out of jail card”, that is, any excuse for not having to take responsible actions to protect his daughter. Yes, these are uncomfortable matters to deal with, but how could he not properly protect his daughter?
In this case, I wondered how the solicitor could have provided tax advice when his professional indemnity insurance would have precluded it.
I am aware of many similar cases, including an elderly couple, who had an investment portfolio of over £2.5 M, because they had always managed the investments themselves, they could not see the sense of having an LPA, and although the likely inheritance tax bill was over £1M. They did not want to enter into an open-ended fee agreement, which is what they termed carrying out work to reduce their inheritance tax bill to zero, rather than focus on the open-ended amount of tax that would be deducted from their estate.
Our firm specialises in providing advice and guidance for Lasting Powers of Attorney, if you require assistance on a professional basis, please feel free to contact us.
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Ray Best
Like his academic development, writing came late to Ray. He has written several published works, “Inheritance Tax Planning – My Way” and “Shareholder Protection & Partnership Protection” and has had four feature articles published in Tax Adviser magazine, but the publication he is most noted for is the joint collaboration with Tony Granger “Inheritance Tax Simplified”.
