Attorneys and investments

Misconceptions about managing a donor’s investments

An attorney appointed under a Property and Financial affairs lasting power of attorney (LPA) has a number of different obligations and duties imposed on him or her in their capacity as attorney. The over-riding principle to be borne in mind by an attorney in discharging their functions is that they must act in the best interests of the incapable person (the donor) and this applies to management of the donor’s investments as it does in relation to all other decisions made on the donor’s behalf.

Best interests decision making

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.

As reiterated by a court of protection judge, 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 had capacity. This is not the case as 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 could 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 investment 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 (as occurred in the case under consideration) 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.