Property and financial affairs LPAs: Where are we now?

In reviewing the cases reported from the Court of Protection in the last six months or so, it is impossible to ignore the large number of cases where the terms of lasting powers of attorney for property and financial affairs (LPA PFA) were not clear. Many of the cases related to the removal of unworkable restrictions, and the unravelling of hybrid joint and joint and several attorney appointments.

It is timely to consider these documents as we are six months into the use of the new LPA PFA form, which came into effect on 1 July 2015. The new form makes it clearer to donors what choices are available and how those choices may affect the efficacy of the LPA.

Complex LPA

One of the most surprising recent cases is Re XZ [2015] EWCOP 35. The case considered a pre-1 July 2015 LPA with seven pages of complex instructions to the attorneys under the heading ‘Restrictions and conditions’.

The attorneys were appointed by XZ to act jointly and severally in relation to all decisions, except those in relation to ‘the sale or purchase of any real estate’ and ‘the sale or purchase of any other asset with a value in excess of Canadian $3,000,000’. 

There was also a precondition that the attorneys could not act unless XZ was believed to lack capacity to make the decision himself at the time, two psychiatrists agreed with them, and there was a genuine financial need for the action required. 

Once these conditions were satisfied, one of two further hurdles had to be crossed. The first was the ‘standard threshold’, which included a requirement that more than 60 days must have elapsed since the issue of the psychiatrists’ uncontested opinion. If the opinion was contested, then six months must have elapsed before any action was taken by the attorneys. There was also a ‘protector’ with the power to overrule the psychiatrists’ certification of XZ’s loss of capacity.

Ineffective provisions

The public guardian refused to register the LPA on the basis that most of the conditions, including the 60-day delay, ‘imposed an unreasonable fetter on the attorneys’ power to act’ and were therefore ineffective as part of an LPA. XZ asked for the public guardian’s decision to be reviewed and XZ’s counsel argued that ‘it is no part of [the public guardian’s] statutory duties to police the practicality or utility ?of individual aspects of an LPA’. 

Senior Judge Lush reviewed section 23 of the Mental Capacity Act (MCA) 2005 and paragraph 11 of schedule 1 to the Act, which states that the Office of the Public Guardian (OPG) must not register an instrument containing provisions which would be ineffective as part of an LPA. ?The view of the public guardian was considered by SJ Lush to be ‘paternalistic’. It was concluded that nothing had been argued that meant the ?LPA infringed any provisions in the MCA 2005 ?or the common law: it was not enough that ?the conditions posed practical difficulties. ?The public guardian was therefore ordered to register the LPA. 

Following Re XZ, it seems that, provided the client fully understands the restrictions, the public guardian will not necessarily object to registration. After this case, it also seems fitting to ask how a sophisticated client with complex assets wishing to make an LPA PFA should be advised, especially when the client is a nervous one. The balance between drafting an LPA which is acceptable to such a client and one which will be registered by the OPG and accepted by a bank or other financial institution is a delicate one. A clear course of action is still unclear following this case.

It is this last and most practical stage of obtaining financial acceptance of the LPA which can be hardest to explain to clients, who may never have experienced the effects of temporary or permanent incapacity. The donor needs to appreciate how this will impact the day-to-day use of the LPA for mundane matters such as paying bills and for major decisions such as selling the house.

New form

So, does the new LPA PFA form help? Section 3 now contains warnings about joint appointments. This is useful guidance given that donors often favour joint appointments while not always appreciating how inconvenient they may be. For example, it is rarely understood that if one attorney dies, renounces, or goes bankrupt, the knock-on effect is that the remaining attorneys cannot continue as powers ?of attorney. 

The new LPA PFA form asks ‘How do you want your attorneys to act together?’ The first choice is a joint and several appointment, but the other choices – jointly and the hybrid option of jointly for some decisions and jointly and severally for others – both carry warnings headed ‘Be careful’ which explain the drawbacks. This development is also to be welcomed. 

Another popular restriction sometimes included in LPA PFAs was that it should not come into effect until the donor lost mental capacity. This had two main drawbacks: first, it did not allow the LPA PFA to be used in cases of physical illness, and second, the presumption of capacity under the MCA 2005 made it almost impossible for anyone to say for certain whether the LPA was in force or not.

Clear warnings

The new forms ensure greater clarity around the use of the LPA being postponed. Section 5 LPA PFA asks ‘When do you want your attorneys to be able to make decisions?’ and gives two possible choices. The first option is ‘As soon as my LPA has been registered (and also when I don’t have mental capacity)’ and the alternative is ‘Only when I don’t have mental capacity’. The words next to the first choice give an admirably clear explanation of the advantages of this choice, while the second choice offers a brief but effective warning: ‘Be careful – this can make your LPA a lot less useful. Your attorneys might be asked to prove you do not have mental capacity each time they try to use this LPA.’ These options clarify the intended parameters around the usage of the LPA. 

In Re XZ, SJ Lush discussed the new wording on the LPA PFA form and commented that ‘this warning is what this case is all about’. The warning is also a point rarely picked up by donors, who do not usually have a working knowledge of the MCA 2005 or the operation of banks and financial institutions.

The ‘guidance’ and ‘restrictions and conditions’ from the previous version of the LPA have now been replaced in section 7 of the LPA PFA by ‘preferences’ and ‘instructions’ and marked as optional. It is perhaps disappointing that the rubric here is a little less robust than practitioners had hoped: it merely explains the difference between guidance, which need not be followed, and instructions, which have to be followed by the attorneys. It is comforting to see that the form includes a logo of a lawyer and a suggestion to seek legal advice. It is hoped donors will seek professional advice as the cost is surely less than an application and a hearing.

There is a warning in section 7 about the use of ‘instructions’, but this merely refers to the fact that unsuitable instructions may be removed before registration, rather than the difficulties that may arise with banks and financial organisations. It is to be hoped that donors do as instructed and consult the guidance provided by the OPG. 

Donors can draft a letter of wishes to be signed by the attorneys. This has the advantage of being flexible and can be detailed and updated as circumstances and finances change. Although it is likely to be binding between donor and attorneys, the letter is unlikely to be binding between the donor and the bank or the OPG. Some donors, such as the one in Re XZ, may not be satisfied with this.

It is tempting to say to donors who are excessively nervous that they may prefer not to make the LPA PFA after all and leave things to chance; however, this leaves them open to the delay and extra expense of a deputyship application. Not making the LPA PFA falls outside the spirit of the MCA 2005 and its code of practice, which aims to give individuals a choice and the opportunity to decide what is best for them. The case of Re XZ is surely an example of that spirit.

Elizabeth Eyre is a senior associate at Barlow Robbins @barlowrobbins www.barlowrobbins.com