Lasting Power of Attorney investment decisions
GolfPutt21
Member
Hi all,
This may fall into the realms of legal and for a solicitor but I thought I would check on here.
I have a client who is LPA for her Auntie which is now in play. Her auntie has a total of c£90k invested in 3 separate Stocks & Shares ISAs in multi-asset funds, we are recommending she transfers the ISAs into 1 S&S ISA and invest in a DFM.
The donor has stated instructions on her LPA that states;
'My attorney(s) may transfer my investments into a discretionary management scheme. Or, if I already had investment 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’.
The attorney has told us that she wants to transfer the 3 S&S ISAs into cash ISAs and decline advice to transfer to an alternative S&S ISA policy.
My question is, will the attorney be at risk of not following donors instructions if she is to transfer the S&S ISAs to cash ISAs?
As the current S&S ISAs are not in discretionary managed funds, does that make the instructions irrelevant as it specifically states discretionary management?
I want to make the client aware of her duties as LPA before she makes any decisions which could come back to bite her in future.
Comments
What are the client objectives? If the money is needed to pay for care home fees (for example) then it's possible being in a cash isa for short term funding of care is more appropriate.
If the objective is to maximise growth over the long term as a legacy, and short term needs are met elsewhere, then it could be deemed a poor decision to move to cash.
Those instructions in the LPA are merely a preference and are included because most DFM managers won't manage assets for a donor, unless the LPA has that specific wording.
If the LPA feels cash is a more suitable holding than investing, that is perfectly fine.
As illuded to by @Wildparaplanner, the DFM wording is merely a preference. Even if the LPA wanted to invest in stocks and shares, they could still choose multi-asset funds over a DFM.
The wording is in the PofA as attorneys are not allowed to delegate their decision making powers without it. There were issues many years ago where attorneys were using DFMs and they were not allowed to - so these clauses started springing up. That's possibly why DFMs want to see these clauses these days.
I would imagine moving elder donors money into DFM arrangements would be mostly unsuitable unless there were very clear instructions on the level of risk and objectives to be met.
Many attorneys are in the misapprehension that they can just do what the donor could do, but that is wrong. The attorneys are investing someone else's money so they really should just be thinking like trustees - picking suitable investments to meet objectives without taking undue risk. Their objective is quite clear to do what is in the best interest of the donor. For older donors then cash and cash like investments are probably more suitable than stockmarket managed investments and like SA96 says if there is potential for short term access to money then cash would be most suitable.
Senior Judge Lush set out what you should be aware of in Re Buckley - have a read - https://www.39essex.com/information-hub/case/re-buckley
As an aside, this is why attorneys really should steer clear of business relief without court permission.
On 18 March 2022, the OPG changed its guidance on this and stated that an LPA no longer required a specific reference to DFM.
In a communication from STEP at the time, STEP said "We are delighted that the OPG has responded and confirmed that the delegation of investment management by an attorney to a discretionary investment manager is legally permissible, without the need to retrospectively apply for it through the court. "
That is true, but most DFMs still insist on the wording in the LPA. My DFM sought legal advice and concluded we still need the wording.
That's an interesting view. As far as I am aware, I believe most advice firms will provide advice to an attorney to invest into a business relief solution.
I personally think there is a conflict of interest when you are the attorney and a beneficiary of the estate, but it is possible to seek advice and invest in IHT products.
BB v PP (by the Official Solicitor as litigation friend) [2015] EWCOP 93 provides some indication of how the CoP view BR investments made by attorneys. Admittedly this was in conjunction with a gift of the donor's funds. Whilst it is difficult to find other examples, it is a risk the attorney needs to be aware of, particularly as they are personally liable and in this case, had to pick up part of the costs of the proceedings.
kingsleynapley.co.uk/insights/blogs/dispute-resolution-law-blog/what-are-the-implications-of-poor-investment-decisions-for-attorneys-and-deputies
Forgot the OPG said no need anymore!
I think attorneys doing IHT planning is a clear conflict of interest especially if they are estate beneficiaries. I dont think its safe to do so without court of protection say so.
This is an interesting topic actually.
I am really seeing a rise at the moment in LPAs coming to us as advisers to plan for donors IHT liability.
I have someone lined up for a couple of weeks time to discuss IHT planning and BR schemes for their father and she is sole beneficiary LPA.
Are we saying this is a potential area of concern as an adviser?
I would say you need to consider the following points:
1) Did the client who has now lost capacity shown a history of making gifts and/or has conducted any form of IHT planning before they lost capacity, and is there evidence of this?
2) What level of capital/income will they need to safely provide for them for the rest of their life? (Don't assume they will die in a couple of years time)
3) What level of capital could be invested in a BR scheme with capacity for 100% loss?
4) Does the attorney have suitable investment experience, ideally with high risk investments (such as BR)? If not, then putting money in a BR scheme would likely be unsuitable as the client doesn't have capacity to make the investment decisions and if the attorney saw the value drop by 50% or more, what do you think they would do?
There is probably other questions you want to consider, but if the above kicks out any red flags, then it will need to be heavily documented, and you may want to get opinion from a member in compliance.
Thanks all this is really helpful.
Seems to be a double edged sword as to what is best to do. Think speaking to solicitor is the first port of call.
Has anyone had experience of someone applying to court of protection?