Tight, but fluid

It is safe to say that the introduction of lasting powers of attorney (LPA) to replace enduring powers of attorney (EPA) represented, in part, the recognition of flaws in EPAs as a document to assist clients at the onset of incapacity, and beyond.

It is the duty of attorneys to register existing EPAs with the Office of the Public Guardian (OPG) when, and only when they have reason to believe that the donor has become, or is becoming mentally incapable of managing his/her affairs. An LPA on the other hand must be registered in order to be relied upon in situations where mental capacity is in question as determined initially by the type (health and care LPAs can only be used upon loss of mental capacity) and second, by the provisions within the LPA itself.

While the obligations relating to EPAs imply that a person either has mental capacity (according to the statutory definition) or definitively does not and will not regain it - clearly leaving greater scope for abuse - LPAs recognise mental capacity as a 'grey area' and appreciate the possibility of its transience; a person might lose/regain lucidity intermittently.

July 2015 changes

Although structurally simpler, practitioners should note some crucial changes in the new style of LPAs. The requirement to have two certificate providers where the donor does not opt to notify anyone of the application has been removed; somewhat of a compromise perhaps between the lack of equivalent protection in the EPA and the overpopulated, administratively cumbersome safeguards of the old-style LPA.

Practitioners should be cautious when advising clients who wish their LPA to be registered only upon loss of mental capacity. First, mental capacity often fluctuates; this is something that is recognised by the LPA obligations. An attorney might need to prove the donor's capacity, or lack thereof, for every decision or task undertaken; this could be a bank's policy whenever there is any attorney interaction with the relevant account.

The document would become unworkable - quite clearly not the donor's overall intention. Crucially too, any undetected problem with the LPA itself would only be discovered upon the attempted registration when the donor is unable, through incapacity, to make a new LPA.

The donor could instead opt for immediate registration and prepare a letter of wishes (note that the wording cannot appear mandatory to the extent that it is treated as an instruction) or request the practitioner only to release certified copies of the LPA (for the attorneys' use) upon receipt of professional confirmation that capacity has been lost.

The statutory obligations placed upon attorneys remain the same and should be considered in conjunction with general considerations when selecting individuals to act - whether she/he has time for the role, possesses the relevant skills/knowledge, is in good health, is a professional or well-informed of the donor's wishes and so on.

It should be brought to the client's attention that, where first-instance attorneys are appointed jointly and one becomes incapable of acting (death, bankruptcy, physical/cognitive incapacity, renunciation etc.), the remaining attorney(s) cannot continue to act at all.

If this is non-negotiable, the client should appoint replacement attorneys to prevent the LPA becoming unusable. Clients should be made aware, however, that the LPA will need to be re-registered for replacement attorneys to have the power bestowed upon them resulting in additional costs (registration fee and, possibly, advisory fees) the administrative burden, and a gap in the period of time where the LPA cannot be used. The latter could have a significant daily impact upon elderly clients.

Limits

Attorneys are not authorised to leave investments in a discretionary management fund unless there is specific power, by way of instruction, in the LPA to do so. The attorneys would otherwise need to apply to the court for authority or opt for an advisory portfolio. The OPG produced guidance to coincide with the introduction of the new-style LPA, in which practitioners will find suggested wording to include where the donor wishes to authorise his attorneys to delegate investment decisions to a discretionary investment manager.

Generally, the 2013 case of Re Buckley [2013] WTLR 385 provides useful guidance for attorneys when investing the donor's funds. Attorneys have fiduciary duties to the donor, much like trustees to the trust's beneficiaries, and should largely adhere to the provisions of the Trustee Act 2000 and the Standard Investment Criteria referenced therein.

The suitability of an investment should be considered in the light of the donor's personal circumstances - short-term investments, for example, will be most appropriate for those over 80 (or with a life-expectancy of fewer than five years).

Far from a form filling exercise, the preparation of an LPA requires wide ranging considerations with many pitfalls and traps to watch out for.

Katie Doyle is an associate at Penningtons Manches