Law firms will often suggest to those making a Will that it makes sense to appoint an attorney at the same time, in case of the client’s future mental incapacity.
Making provision for powers of attorney has become more popular, but using those powers properly is an issue which legal and financial advisers must be on top of.
One important area is the extent of an attorney’s powers of investment. Financial planners and wealth managers have faced compliance issues on the question of whether a client’s Lasting Power of Attorney should have explicit permission to outsource investment decisions. While clearly prudent to cover this, in any new LPA, the question remains what to do where there is no such provision included.
Guidance by the Office of the Public Guardian says that express instructions are needed to invest or continue investing in a discretionary fund management scheme. Professional bodies now consider this to be wrong, as we have done, and it is being challenged.
It is now thought that the attorney should not have to apply to the Court of Protection for retrospective consent, where this permission is missing, whether or not he delegated investment decisions before the guidance was updated last September.
Attorneys themselves have a duty to consider investments where they are acting for clients not able to understand and give instructions themselves. This includes taking into consideration basic risk issues within a portfolio such as diversity of investments.
AIM schemes, which offer tax incentives for medium-term equity holdings in the Alternative Investment Market, remain a popular tax planning vehicle for attorneys. This is because they can achieve relief from inheritance tax, after the two-year holding period, without losing either control of the capital or access if it should be needed.
But a complication arises if the attorney is a main beneficiary of the client’s Will, or is married to one, as they may then benefit from any IHT saving, directly or indirectly.
In such cases, the attorney needs to make an application to the Court of Protection for approval to make an AIM investment.
It is still open to the attorney to argue that the decision is in the best interests of the client – which it may well be, especially if the AIM investments are balanced with a good spread of cash and sound portfolio principles.
If the attorney is not likely to benefit, no problem arises. A little-noticed Court of Protection judgement last September (Re MM) highlighted this important principle.
Some advisers have decided to stop AIM investments by attorneys, in any event, even though that goes beyond what is required.
It is also important for attorneys to consider gifts, IHT planning and the terms of the Will.
There are limits to the powers of attorneys to make gifts. Their power is essentially to make gifts on customary occasions, for reasonable amounts, and with reference to the value of the person’s estate.
In IHT planning, it is reasonable for the attorney to consider any steps the client may already have been taking in this area, or to choose steps which might sensibly be taken without prejudicing the client’s financial security.
The Will itself may include specific gifts, such as a house. So the attorney must ensure they do not dispose of such a gift, or that if they do, steps are taken to replace that provision in a new Will or Statutory Will.
It is important to note that the test for making your Will is different from the test for running your financial affairs. So a client may have capacity to make a Will even though they need an attorney for financial decisions. But if the client loses capacity even to make a Will, the attorney can apply to the Court of Protection to make a statutory Will.
So professionals have a clear duty to flag up the need for legal advice to attorneys.
Published: 23 June 2017
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