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14 February 2017 | Comment | Article by Roman Kubiak TEP

OPG – Over Prescribed Guidance?

Over Prescribed Guidance

On 7 September 2015, the Office of the Public Guardian (OPG) published an updated version of its guidance, ‘Make and Register your Lasting Power of Attorney: A Guide (LP12)’.

A key update is to the guidance given on the use of discretionary investment portfolios, found on page 28 of the guidance. The OPG has provided suggested wording for the donor to include in a financial Lasting Power of Attorney (LPA) where he/she wishes to authorise attorneys to delegate investment management decisions to a discretionary investment manager, such as a bank or IFA. The suggested wording provided by the OPG is:

‘My attorney(s) may transfer my investments into a discretionary management scheme. Or, if I already had investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue. I understand in both cases that managers of the scheme will make investment decisions and my investments will be held in their names or the names of their nominees’.

The OPG also recommends that the wording of the donor’s authorisation should be checked by the relevant financial institution concerned before the LPA is registered. Different fund managers appear to be taking different stances and understandably the OPG are unable to guarantee that the investment manager will accept the suggested wording. The extra step of asking the investment manager to confirm in writing that they will accept the wording will inevitably incur further costs for the donor.

The guidance indicates that attorneys are unable to use a discretionary management service without specific authorisation and would inevitably have to make investment decisions themselves.A number of attorneys are understandably reluctant to make investment decisions, often lacking the sufficient knowledge or skill to ensure the best protection for the donor’s assets.

The guidance goes on to say that if an LPA has already been registered, without such express permission, the attorneys will have to apply to the Court of Protection. The attorneys will have to make an application for authority to appoint a discretionary investment manager to manage the donor’s investment on a discretionary basis.

The updated guidance has inevitably created an issue for attorneys acting under a registered power that pre-dates the guidance. Some attorneys are already using discretionary investment managers without the specific clause in the LPA; the implications of this change could be serious for them.

The guidance recommends that, in cases where the LPA has already been registered without the required permission, attorneys will need to apply to the Court of Protection (CoP) for the retrospective authority to appoint a discretionary investment manager. This is an expensive and time consuming process and could potentially lead to a loss of considerable investment opportunities for the donor.

If the donor has the required capacity to manage their affairs, then the LPA can be amended. This will also present further costs to the donor and additional time.

The standard clause and the practical difficulties faced as a result of the guidance has been heavily criticised by practitioners, however the OPG’s official position is that a clause is needed. The OPG’s stance tallies with the basic rule of agency, under which express authority is required for an agent to delegate their powers.

The Society of Trust and Estate Practitioners (STEP) is arranging to present a test case to the OPG in the hope that they will determine that the delegation of investment management by an Attorney to a discretionary investment manager is already legally permissible without the need to retrospectively apply for it through the court; and amend its guidance accordingly…..Watch this STEP!

With the addition of the further guidance, it is appropriate to ensure that an LPA is properly considered and correct wording is used prior to registration or when making an application to the Court of Protection for retrospective authority to appoint an investment manager. The OPG suggests, within the updated guidance, that the donor or attorney may wish to seek independent legal advice prior to seeking instruction from the investment manager.

Author bio

Roman Kubiak is a partner and head of the market leading Contested Wills, Trusts and Estates team.

He advises across the whole spectrum of private wealth disputes, with a particular focus on high value, complex and cross-border disputes including: trust disputes, breach of trust claims and applications to remove trustees; will disputes, particularly those with an international element; claims under the Inheritance (Provision for Family and Dependants) Act 1975; and claims for equitable relief under proprietary estoppel, constructive trusts and resulting trusts.

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