Setting up lasting powers of attorney could come back to haunt advisers as claims could be brought against them if the agreement ends up being misused, the chairman of the Solicitors for the Elderly has warned.
Michael Culver, recently appointed chairman of SFE, told FTAdviser financial advisers were at risk of such claims if LPAs set up through the advice firm resulted in lost funds — especially if there was no one else to “go after”.
An LPA allows someone, while they still have full mental capacity, to nominate a trusted friend or relative to make financial or health-related decisions on their behalf in cases of lost capacity.
Financial and property LPAs can include paying bills and handling financial decisions, while control over medical decisions and potential life-sustaining treatments sit under health and welfare LPAs.
The number of people opting for LPAs has increased rapidly in recent years — recent data obtained by law firm Wilsons showed the number of people signing over financial control has more than tripled in the past five years — but this came with an increased amount of misuse, including making improper gifts and not acting in the vulnerable person’s best interests.
Mr Culver thought a rise in the number of LPAs being taken out and the fact financial advisers were not legal representatives could create a situation where advisers were faced with claims from family members of clients who had lost money through the agreements.
For example, SFE had seen examples of where an LPA had been set up where the appointed attorney was a "trusted" next-door neighbour. In fact, the neighbour had been grooming the elderly client for such a purpose and had robbed the client of their funds. In this case, the family claimed against the adviser for compensation.
He said: “More and more people are making LPAs themselves online but one of the main reasons people take proper advice is so if things go wrong, they have an adviser to claim against.
“First and foremost, it is still good advice to encourage clients to take out an LPA. While the arrangement is not perfect, they remain the best vehicle available for managing a person’s money should they lose capacity to do so.”
Common mistakes
1 Children attorneys
According to Mr Culver, most people want to appoint their children as their LPAs. But he stressed it was “imperative” to question if this was the best option.
He added: “I would suggest finding out how good the client’s children are at managing their own money and if they are local to your client.”
Mr Culver also suggested an LPA's available time — such as busy jobs or children of their own — could affect the decision of who should take on this role, alongside the possibility of conflict if the client’s children get into financial difficulties themselves.
2 Structure of the LPA
LPAs can be set up in multiple ways: jointly (where all attorneys must make all decisions together), jointly and severally (where the attorneys can act independently but must keep each other informed) or a combination of the two (where the agreement can require joint decisions on certain aspects or severally on others).
Mr Culver said: “For convenience, most people elect for the jointly and severally option.
“But careful consideration should be given as to whether this is the right course of action if the attorneys do not get along, they live a distance away from one another or are likely to disagree on big decisions.”
According to Mr Culver, advisers should take note it could be more advisable to opt for a hybrid option and limiting the ‘jointly’ part for major assets or decisions.
3 No replacement attorneys
An LPA set up without a replacement attorney could “cause difficulties” according to Mr Culver, as the attorney would need to be replaced if the original died, refused to act, became unwell or bankrupt.
Without an LPA, a Court of Protection application would be the default option which could be costly and time-consuming.
4 Lack of proper capacity
Mr Culver said it was crucial that a proper capacity assessment had taken place in regards to the donor — the client setting up the LPA for themselves.
He said capacity assessments could be “perilous” and stressed consideration should be given as to whether the adviser was qualified to make the decision over capacity.
“People can at first appear perfectly fine, but can often end up not fully understanding the advice or information given.”
He also noted a “huge red flag” could be that the initial request for an LPA had come from a family member, rather than the client themselves.
5 No safeguards or protections
Advisers should also consider building in safeguards — such as the need for attorneys to produce accounts to a third party each year — or a limit on certain decisions, according to Mr Culver.
He said clients often seemed reluctant to put in such safeguards but stressed it was “essential” the LPA included them.
These can include blanket bans on the selling of property or family heirlooms and also restrictions on gifts and loans.
Kay Ingram, director of public policy at LEBC, said: "Advisers need to involve legal advisers in the setting up of LPAs and both professions need to be aware of the potential for abuse of the LPA. This can provide an extra layer of protection for potentially vulnerable clients."
She added the LPA should be established "well before" it was likely to be needed and the adviser and lawyer should fully understand the donor's needs and wishes in order to coach them on the selection of suitable attorneys.
"LPAs will need regular review to ensure that the attorneys are still willing, able and appropriate to act and where necessary new appointments can be made. Making this part of the regular financial review is a good way to ensure arrangements are up to date."
imogen.tew@ft.com
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