Financial abuse of vulnerable people by those acting on their behalf is on the rise, with investigations into the actions of appointed attorneys soaring to a record high.
With the continuing rise in dementia and a population that is living longer, these figures show how important it is that people understand how to act under a power of attorney, and the need for safeguarding and professional input to the process.
A Power of Attorney is a document by which someone – known as the donor – gives another person – called the attorney – legal authority to make decisions and act on their behalf. A Lasting Power of Attorney (LPA) is one that can be used when someone has become mentally incapable of handling matters themselves. Before 2007, this was done through an Enduring Power of Attorney or EPA.
While a Lasting Power of Attorney covering property and financial affairs can be invaluable for those who are housebound or unable to conduct their own affairs, it provides that authority when someone is at their most vulnerable. It is a legally binding document, recognised by banks and other financial institutions and allows the appointed attorney to make financial decisions on behalf of the individual, subject to any named restrictions. It includes running bank accounts and paying bills as well as managing property, pension, taxes and investments. For those who are self-employed or a company director, an attorney can be appointed to act in business matters.
Anyone over 18 can set up an LPA, and at any point during their lifetime, as long as they have ‘mental capacity’ to make the decisions involved in drawing one up. The attorneys are most usually someone close, such as a family member or friend, who will be available to help manage day-to-day affairs.
When a person loses mental capacity there is no automatic right for spouses or civil partners, or children, to look after their finances. It means that without an LPA, the Court of Protection will appoint deputies, which can be a lengthy and costly process and the deputy may be someone who does not know the individual.
The reported rise in financial abuse most commonly relates to making improper gifts or not acting in the best interests of the vulnerable person. Data shows that 721 applications were made to the Court of Protection to censure or remove attorneys in 2018/19, up from 465 the previous year, with legal action taken against people with power of attorney doubling in the last two years.
Safeguarding investigations also increased, by more than 50%, with nearly 3000 launched during 2018/19 by the Office of the Public Guardian (OPG), the branch of the Ministry of Justice which administers Lasting Powers of Attorney. This is against a backdrop of a surge in applications for LPAs, up from 525,915 applications in 2015 to 810,275 in 2018.
The online process with the Office of the Public Guardian is relatively straightforward, but as reported by the organisation for lawyers specialising in this field – Solicitors for the Elderly (SfE) – the ease of applying through the online process has led to a rise in ‘DIY’ submissions for LPAs, where no professional guidance is given, leading to more risk of attorneys making mistakes or even abuse. If appropriate protection clauses are omitted, attorneys may have too much of a free hand in managing the donor’s affairs.
An LPA is a powerful document and advice at the outset can ensure the LPA is drafted in line with your wishes and to ensure that nothing causes the LPA to be rejected when it is registered.
One of the problems is that personally drafted restrictions made by an individual may not be acceptable or workable leading to it being rejected by the OPG. If the LPA is not registered while mental capacity remains, this could render the LPA void, as it cannot be amended by the person once that capacity has gone.
Equally, trying to give attorneys too much power can make an LPA invalid and cause it to be rejected as there are strict rules surrounding what an attorney can gift, to whom and when, so the LPA must be drafted with these restrictions in mind.
Under Section 12 of the Mental Capacity Act 2005 attorneys have powers to make gifts on behalf of the donor, but only in certain circumstances. It must be a customary occasion when presents are usually given, such as a birthday, and be to a person who is related or connected to the individual. Also, donations to charity may be considered reasonable, if in line with previous donations made by the individual. However, even if the circumstances of a gift are reasonable, they must be appropriate to the circumstances of the individual and attorneys must be acting in their best interests.
This gift-giving provision has given rise to much uncertainty and a group of test cases were put before the Court recently in an attempt to clarify this, in Re Various Lasting Powers of Attorney. The result of the test cases has been clear guidance from the Court to the OPG and those involved in the drafting of LPAs, to ensure attorneys have appropriate authority on how to approach gift gifting. The judgement has summarised this guidance in a decision tree.
It’s also worth remembering that although the primary importance of LPAs is seen as their use for when someone loses the mental capacity to manage their own affairs, they can be used at any time once registered with the Office of the Public Guardian.
As such they are not just a useful document for the elderly and vulnerable; an LPA can equally be useful if an individual is regularly out of the country and wants someone to act for them while they are away, through a person suffering from physical disability to an elderly person who has all their faculties but does not want to have to telephone the bank themselves, as a financial property and financial affairs LPA can be used as soon as it has been registered with the OPG.
This is unlike the other type of Lasting Power of Attorney available, covering health and welfare. This does not come into force until mental capacity has been lost and covers matters such as where someone lives, decisions on medical care and consenting or refusing life sustaining treatment.
An LPA, whether for property and financial affairs or health and welfare, is an essential element of lifetime planning if you want to be sure that someone of your choice is enabled to deal with your affairs. But these are critical documents and expert knowledge can ensure they reflect your wishes. Seeking out professional advice to get things right up-front can ensure you don’t become part of the disturbing statistics on financial abuse.
The Thompson Smith and Puxon Wills and Estates team can advise on Wills, LPAs, Lifetime Planning and the Administration of Estates (Probate). The team can be contacted on 01206 574431 or by email at email@example.com.