Does your Lasting Power of Attorney limit your attorney’s investment options?
If you give (donate) someone a power of attorney it means they can make decisions on your behalf if you are unable to make decisions for yourself. There are two types of Lasting Power of Attorney (‘LPA’), one for health and care decisions and one for financial decisions. This blog is about an issue that affects LPAs for financial decisions.
The Office of the Public Guardian (‘OPG’) is responsible for monitoring use of LPAs and also provides guidance on what LPAs should contain. In September 2015, the OPG published new guidance that appears to prevent attorneys from investing the donor’s funds in a fund which gives the fund managers a discretion to make investments, or even to leave funds with the investment managers previously appointed by the donor, unless the LPA includes wording which specifically permits this.
This seems to be an unhelpful and unnecessary prohibition and whether this guidance is correct is disputed. The guidance refers to banks but there are other institutions which offer fund management. The use of investment managers who are given a discretion is not unusual. It is particularly useful for attorneys who need to sell the donor’s house to raise money for care fees. The sale proceeds need to be invested to generate an income and the attorney will rely on the investment manager’s expertise to buy and sell investments.
As many LPAs prepared before 2015 will not include the wording, the legal and investment communities have been lobbying the OPG to clarify the position or to withdraw the reference in the 2015 guidance. Alternatively, they are asking for an easy solution for those who have made LPAs without the wording prior to the guidance being published to update their LPAs.
Stephen Horscroft, a managing associate at Cripps Pemberton Greenish, sits on the steering committee of the Society of Trust & Estate Practitioners Special Interest Group on Mental Capacity who are actively trying to engage with the OPG about this issue and is therefore in a position to keep clients updated on the current position.
What is clear is that some investment managers now refuse to accept instructions from attorneys without specific wording in the LPA. Without the wording, attorneys are left with three options:
- move to another fund manager who will accept instructions (with no certainty one can be found);
- move funds into a standard bank account or investment fund (likely lower returns for the donor); or
- apply to the Court of Protection for specific permission to use a fund manager on a discretionary basis.
A practical alternative – where the donor still has capacity – is to put in place a new LPA that includes the recommended wording.
Does this affect you?
If you made an LPA (or its predecessor, an Enduring Power of Attorney) before September 2015 it may not include the required wording.
If you made an LPA after 7 September 2015, it should include the wording but we recommend that you check your documents.
In either case, if you would like your attorneys to be able to instruct a fund manager to help manage your investments on a discretionary basis, or to continue to use your preferred fund manager, we strongly suggest that you review your LPA (or EPA). If the required wording is not in the document, you should consider making a new LPA to ensure that your attorneys can manage your affairs and enlist professional investment assistance.
If you would like any more guidance on this point, or would like to prepare a new LPA , please contact Nicola Hillyer on 01892 506 014 or at firstname.lastname@example.org.