Attorneys and Investments

An attorney appointed under a Property and Financial affairs lasting power of attorney (LPA) has several different obligations and duties imposed on them in their capacity as attorney.

The overriding principle is that they must act in the best interests of the incapable person (the donor) and this applies to the management of the donor’s investments as it does in relation to all other decisions made on the donor’s behalf.

In making any decision on behalf of a donor, the Mental Capacity Act 2005 requires the attorney to consider what would be in the donor’s best interests, to allow the donor to participate in the decision in so far as they are able, and to consider the donor’s past and present wishes and feelings, beliefs and values in reaching the decision.

Sadly, it is a common misconception that as far as investment is concerned, an attorney can do anything that the donor could have done if he or she had capacity - this is not the case. The attorney has to act in the donor’s best interests; by comparison a person who has capacity to make a particular decision has the freedom to make an unwise decision or one adverse to his interests. For example, a capable donor can choose to invest in a highly risky, unregulated venture while an attorney may not justify such an investment as being in the donor’s best interests.

Choice of investments

Senior Judge Lush in a 2013 court of protection judgment indicated that investments should be made in products regulated by the Financial Services Authority (now the Financial Conduct Authority) and investments services should be provided by FCA regulated firms. This ensures that the investments will be covered by the Financial Services Compensation Scheme up to the limit, then in force. He laid out a number of factors that should be taken into account, including planned expenditure, the return available, and the risk involved.

Investments such as investing in the attorney’s own business would require an application to the court for consent, as would any other investment which caused the donor’s interests and those of the attorney to come into conflict.

Senior Judge Lush also stated that attorneys should consider the standard investment criteria laid down by statute for trustees. These provide that the investor should consider the suitability of the type of investment and the desirability of investment diversification.

Advice should be taken from an appropriately qualified person unless the attorney reasonably concludes that this would be inappropriate or unnecessary.

Any investments should be kept separate from the donor’s own property and should be made in the donor’s name or an appropriate declaration of trust drawn up.

Investments for inheritance tax saving

In a 2015 case where the attorney had invested in inheritance tax saving investments it was stated that the saving of inheritance tax “is not automatically in the donor’s best interests.”

It would be dependent on all the circumstances and on the donor’s wishes and feelings, beliefs and values as to whether such an investment could be suitable. It should be borne in mind that inheritance tax saving will not directly benefit the donor and the usual factors such as risk, potential returns, suitability and diversification should be taken into account in determining whether an investment should be made.

Daniel Boyle

Partner at Brethertons

I am an experienced Solicitor and I am a Partner and Head of Practice Area for Wills, Trusts and Probate at Brethertons. I provide advice in relation to the preparation of Wills, Powers of Attorney and Court of Protection applications to include Deputy appointments and removal of incapacitated trustees, Trusts (to include the creation, taxation and administration), Administration of Estates (including claims for agricultural and business relief) and tax planning to include Inheritance Tax, Income Tax and Capital Gains Tax. I pride myself on producing effective, practical solutions to complex and technical issues and presenting them in a clear and understandable manner. In addition, I endeavor to build long standing relationships with clients and their families and fellow professionals with whom I frequently come into contact with. Brethertons LLP is a pioneering legal services provider practicing all areas of commercial and private client law. With 14 partners and approximately 230 staff, working across four locations, the firm has been part of the community for over 200 years and is renowned not just for its legal expertise, but also for its caring attitude and dedication towards its customers. Brethertons is part of a new breed of legal service providers who focus less on telling customers how complex the law is and more on making it work to their advantage. That means its people, technology, knowledge management and professional development sit at the heart of the business, not on the periphery – they are integral to its customer care. The firm’s legal expertise and knowledge is accentuated through creating unique customer experiences and working together as a team to provide tangible competitive advantage for its customers, in every aspect of its service offering.