Is your LPA fit for purpose?
As you will be aware, a Lasting Power of Attorney (LPA) for property and financial affairs allows the donor to appoint attorneys to manage their finances, which of course includes (unless the LPA is restricted) power to deal with bank accounts and investments. When putting this type of LPA in place it is important to carefully consider exactly how far the attorney’s remit extends.
What can - and can't - an attorney do?
LPAs have their basis in the law of agency and, by virtue of this, the maxim delegatus non potest delegare (a delegate cannot delegate) applies. In this way, the authority of the attorney is limited; they cannot delegate their functions without being granted the express power to do so by the donor.
It is particularly important to be mindful of this limitation in the context of investments. In recent years, investors have shown a preference towards discretionary fund management. Given the fast-moving investment landscape, decisions need to be taken quickly to make the most of short-lived market opportunities. As a result, many investors are choosing to delegate day-to-day investment decision-making to fund managers in order to ensure that they maximise their return.
However, for an attorney to employ a discretionary fund manager this would constitute an act of delegation and, if no express power is contained within the LPA, it won't be within their remit.
Why issues arise around investments
Problems can arise even where discretionary fund management schemes pre-exist the creation of the LPA, as some financial institutions have policies requiring attorneys to enter into new discretionary management agreements. Without the power to delegate to a discretionary fund manager, the attorney will be left to manage the donor's investments themselves which may be a highly undesirable outcome, especially in the context of what has happened over the last six weeks.
Without the necessary authorisation included in the LPA, a time-consuming application to the Court of Protection is required. Either way, the donor's finances are likely to suffer.
It is important to remember that the attorney will not simply be stepping into the shoes of the donor when an LPA is put in place. Rather, they are subject to certain limitations, particularly due to the general rule against delegation.
What's the solution?
Therefore in order to ensure that an LPA is fit for purpose, it is necessary to fully understand the donor's finances (both now and in the future) and consider how the attorney will conduct their role on a practical level. Any necessary powers should be identified and included in the LPA. This, ultimately, is the key to the donor avoiding some potentially costly consequences further down the line, and underlines why professional advice should be taken in respect of the completion of these extremely useful documents.