It’s difficult for attorneys to know if they can spend funds on others. Is it made easier if the donor says they can in the Power of Attorney?
The Public Guardian has recently brought test cases which have resulted in a much-needed set of rules, and a user-friendly flow chart, that attorneys in England and Wales can follow when deciding whether they can spend the donor's funds for the benefit of others.
Lasting Powers of Attorney (LPAs) often include an expression of the donor's intention that the attorneys can use the donor's funds to benefit someone other than the donor, for example family and friends which may also include the attorneys themselves.
The wording used for these expressions varies widely and the Office of the Public Guardian (OPG), which is where LPAs are registered in order to be used by the attorneys, sought clarity as to the meaning and effect of the words in eleven LPAs that it had been asked to register.
All eleven LPAs described the donor's intention as an 'instruction' using mandatory language, like 'must', and one also described it as a ‘preference’ where the attorney does not have to follow them but should bear them in mind. The relationships between the persons to benefit and the donors were broad; largely referencing family but in one case the person to benefit was simply named with no further explanation as to the relationship with the donor. The test cases also included an LPA where the person to benefit was also the attorney.
The prevailing legislation, the Mental Capacity Act 2005 (MCA), limits what an LPA can specify and the OPG must consider whether a prospective LPA contains provisions that would either be ineffective or would actually invalidate the LPA. If the OPG considers the provisions fall into this category it must not register the LPA until the Court of Protection has reached a decision. The Court, in turn, has the power either to sever the offending provision and order registration of the amended LPA or to order the OPG not to register the LPA.
Examples of ineffective provisions would include giving permission to the attorney to make gifts that go beyond the restrictions in s.12 of the MCA, the attorney may make gifts - on customary occasion to persons (including himself) who are related to or connected with the donor, or to any charity to whom the donor made or might have been expected to make gifts, if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor's estate, and those which go beyond what a person can achieve through their attorney and an LPA such as making a Will.
The Court of Protection Judge on examining the eleven sample LPAs concluded that:
- provisions that provide for attorneys to use the donor's funds to benefit persons other than the donor are not invalid as long as they are not linked to a 'customary occasion' as defined by the MCA;
- provisions that provide for attorneys to use the donor's funds to benefit persons other than the donor are not valid if and because they relate to provision for a person whom the donor has a legal obligation to maintain;
- provisions that provide for attorneys to use the donor's funds to benefit persons other than the donor may be valid as a written statement of the donor's wishes as long as they are expressed in terms of wishes, but they would be ineffective if they were expressed in mandatory terms, i.e. as instructions;
- provisions that provide for attorneys to use the donor's funds to benefit the attorney themselves are not invalidated by the attorney's fiduciary obligations; and
- provisions that provide for attorneys to use the donor's funds to benefit the attorney themselves are valid because any conflict has been authorised by the donor and the attorney must in any event act in accordance with the donor's best interests.
The judgment was supported by a helpful flow chart, a ‘decision tree’, which aims to help navigate attorneys through the everyday decisions they face when considering if they can spend the donor’s funds.