Later Life: Who Decides When You Can’t
The reality is the longer retirement lasts, the greater the chance of cognitive decline or dependency. Yet many existing financial plans, investments and pension drawdown plans ignore this fact.
A key feature in our ongoing reviews with clients is Lasting Powers of Attorney (LPA). We consider discussions around LPA essential at the point of setting up pension drawdown, investments or any retirement income plans. In fact, if you haven’t had this conversation with your IFA, it may be time to review your relationship. Pension drawdown specifically relies on flexibility, and it is critical to ensure that someone can act if they are no longer able to do so.
Any investment strategy cannot be changed to reflect the changes in your lifestyle or priorities unless there is an LPA (obtaining a deputyship order is expensive and time-consuming and often not practical). Therefore, not organising LPAs at the outset with on-going review, risks leaving older people unable to adjust investments when life circumstances change. LPAs are the greatest vehicle to maintain control because you choose upfront who makes decisions when you can’t.
One of the most common misunderstandings about LPAs is that once an attorney has been appointed, they can do whatever they wish with the donor’s assets. However, when the donor lacks capacity, the attorney (or attorneys) needs to act in accordance with the Mental Capacity Act 2005 and its code of practice, so actually legally they cannot do whatever they like – there are stringent rules.
Attorneys face many legal limitations, particularly around making gifts or writing Wills, for instance. They are not allowed to write a Will on behalf of a person who has lost capacity unless they have the approval from the Court of Protection.
It is also a common misconception that joint accounts are exempt from mental capacity issues that only affect one account holder. If two people share a joint account and one person loses capacity, unless this person has appointed an attorney to manage the account on their behalf, then the whole account will be frozen.
It is the attorney’s role to act in the donor’s best interest, not their own. So, if a situation arises where the attorney might diverge from the client’s original intentions, it’s important that questions are asked: who is benefiting from these decisions? Depending on the extent of the incapacity, it is important to involve the donor in the decision-making process insofar as they are able to participate. Account must be taken of the donor’s past and present wishes and feelings, beliefs and values. These scenarios play a significant part of our ongoing financial planning reviews with clients.
Sometimes investment decisions need to be approved by the Court of Protection. And, if there is reason to believe that the attorney is not acting in the best interest of the donor, steps should be taken to report the attorney to avoid potential financial harm to the donor.
If an attorney’s investment decisions or risk appetite diverges from the client’s original intentions, the donor’s written wishes should be reviewed. What does the LPA or accompanying Letter of Wishes actually authorise? Any explicit investment limits, preferences, income needs or gifting restrictions. If the donor has documented clear investment instructions or letters of wishes, those should always be followed.
Where the LPA is not clear in certain areas, attorneys must act in line with the client’s best interests — that typically means meeting foreseeable income needs and possibly preserving capital for long-term care.
If an attorney’s decisions appear to conflict with the client’s stated objectives, we will engage with the attorney to understand their rationale, which could be based on tax planning, estate considerations, or changes in circumstances.
We then assess whether the attorney’s actions comply with the client’s risk tolerance and financial objectives, with the overarching consideration of whether a decision is in the donor’s best interests, before reaching a decision with the attorney.
Throughout this process, clear communication and thorough documentation are essential, with regular reviews to ensure the portfolio remains aligned with your goals and the attorney’s legal responsibilities.
Estate Planning Events
By taking a proactive approach to Estate Planning it is much more likely that your assets will be managed and distributed in line with your wishes and values.
To help you understand these issues more clearly, we will be running a series of free Estate Planning seminars locally this June and July. These sessions will explore key elements such as Wills, LPAs and Trusts and explain how they work alongside your financial planning arrangements like inheritance tax, investment management and care fee planning.
Tuesday 23rd June - 2.30pm - 3.30pm - St Peter’s Church, Henleaze
Wednesday 24th June - 10am - 11am - Thornbury URC
Tuesday 30th June - 6pm - 7pm - Stoke Lodge, Stoke Bishop
Wednesday 1st July - 2.30pm - 3.30pm - St Peter’s church, Henleaze
Tuesday 7th July - 10am - 11am - Henleaze Bowling Club
Call 0117 3636 212 or email community@haroldstephens.co.uk to book your place.