How complex can restrictions in a LPAs be?

 In Comment

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Powers of Attorney with complex arrangements – XZ v OPG [2015] EWCOP 35

Case Summary from LawSkills | Private Client specialist trainersIn this case the Public Guardian (PG) refused to register a Lasting Power of Attorney (LPA) with 8 pages of carefully drafted complex restrictions and conditions. He took the view that most of them were ineffective and should be severed. The solicitors asked the court to determine the question and Lush SJ disagreed with the PG. He found the conditions to be impractical rather than ineffective and so the LPA was ordered to be registered. Impracticality is not a reason for refusing to register an LPA. Interestingly, the donor’s case was helped by a provision in the new LPA forms effective from 1 July 2015. Although this case looks at first glance as a victory for the donor, he has put in place an LPA which is essentially impractical.

The facts

XZ, who is in his 70s, has substantial assets including properties in several countries but he lives mainly in London. On 4 December 2013 he executed a Property and Financial Affairs Lasting Power of Attorney (LPA). Under this he appointed three close friends and business associates as his attorneys. Two of the attorneys are American and one is Canadian.

XZ directed his attorneys to act jointly for all decisions in connection with the sale or purchase of any real estate or any other asset with a value exceeding three million Canadian dollars and jointly and severally for all other decisions.

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He then imposed 8 sheets of intricate restrictions or conditions some of which were the subject of the proceedings before Lush SJ. Two solicitors acted as the certificate providers.

The main condition in question was that no attorney should act unless they reasonably believe at the time of the decision that XZ lacked capacity to make that decision and there was a genuine financial need for the action being considered. If that precondition is satisfied then the attorneys had to meet either the ‘standard threshold’ or the ‘emergency threshold’.

The essence of the standard threshold is that a ‘Protector’, a named friend, has to approve the opinion of two psychiatrists that the donor lacks capacity and this has to have continued for at least 60 days.

For the emergency threshold to be met the attorneys must regard the decision as an emergency measure to preserve or realise any asset worth less than 25 million Canadian dollars.

The Public Guardian (PG) refused to register the LPA as he considered most of the conditions imposed an unreasonable fetter on the attorneys’ power to act and were therefore ineffective. When the solicitor asked him to reconsider his view and he refused, an application was made to the Court of Protection (CoP) for a declaration that the LPA did not contain ineffective provisions and an order that it should be registered.

Dominic Lawrence of Charles Russell Speechlys who drafted the LPA said that the purpose of the safeguards was to ensure that (other than in limited emergency situations) the attorneys could not act until XZ’s incapacity had been unequivocally proved by psychiatric evidence and it has lasted for a defined period. XZ specifically insisted on these provisions as he did not want his attorneys taking hasty decisions which he might disapprove of if his lack of capacity was only temporary and additionally his incapacity had to be genuinely proved. XZ does not like to give control to other people, liking to remain “in the driving seat” and would not sign the LPA without these safeguards.

The PG stated that the provisions in question were ineffective because:

  1. Specifying a time delay from the assessment of incapacity to the attorneys having authority to make the decision would prove unworkable and not be in the best interests of XZ. The MCA test is decision specific.
  2. The Protector does not have the expertise to assess the donor’s capacity nor is he named as an attorney, yet he can interfere with the attorneys’ duty to act in the best interests of XZ.
  3. Requiring the agreed opinion of two psychiatrists with various checks by the Protector will lead to time delays and be unworkable.

The law

Section 23(1) of the Mental Capacity Act 2005 (MCA) provides:

The court may determine any question as to the meaning or effect of a lasting power of attorney or an instrument purporting to create one.

Paragraph 11 of Schedule 1 of the MCA provides:

(1) If it appears to the Public Guardian that an instrument accompanying an application under paragraph 4 is not made in accordance with this Schedule, he must not register the instrument unless the court directs him to do so.E+W+S+N.I.

(2) Sub-paragraph (3) applies if it appears to the Public Guardian that the instrument contains a provision which—

(a) would be ineffective as part of a lasting power of attorney, or

(b) would prevent the instrument from operating as a valid lasting power of attorney.

(3) The Public Guardian—

(a) must apply to the court for it to determine the matter under section 23(1), and

(b) pending the determination by the court, must not register the instrument.

The decision

XZ’s LPA had been completed on the forms which were effective before new forms came into effect from 1 July 2015. Lush SJ highlighted that the new form for the Property and Finance LPA (now called LPA Financial Decisions) has a new section 5 and the donor can complete the box prescribing that the attorneys can make decisions “Only when I don’t have capacity”. Underneath this is a warning that this can make the LPA “a lot less useful. Your attorneys might be asked to prove you do not have mental capacity each time they try to use this LPA.” This warning is the essence of the present case in Lush’s view.

Lush acknowledged that having to prove incapacity on each occasion might make the LPA less useful but this is different to the provision being ineffective. Even if some take the view that XZ’s conditions are unwise, XZ appreciates they will make the LPA less effective and his view must be respected.

Lush stated that it was not for the PG to police the practicality or utility of individual aspects of an LPA.” Ineffective means “not capable of taking effect” such as authorising an attorney to make gifts beyond the limited s12 MCA power. The PG had not identified any of the provisions infringed the law in any way, which would make them ineffective; he had pointed out their lack of practicality instead.

Lush declared the LPA did not contain any provision which was ineffective or which would prevent it operating as a valid LPA. He therefore ordered the PG to register the LPA as originally drafted with no provisions severed.

Practice points

  1. Where clients are completing a Financial Decisions LPA great thought needs to be given to which of the new section 5 boxes are ticked. Although matters are improving, financial institutions are notorious for being unwilling to act on attorneys’ instructions and having to prove the donor’s mental incapacity each time may prove burdensome.
  1. If the donor wants detailed restrictions and conditions these may well lead to at best a delay in registering the LPA and at worst, a refusal to register it without severing the ‘offending’ parts. As this case highlights, it is only truly ineffective conditions which the PG can refuse.
  1. Consider if any restrictions or conditions the donor wants are actually practical. Point out to donors that even if conditions or restrictions are possible they may make the LPA less useful. Do average assets require complex restrictions or should the attorneys only be appointed if they are trustworthy?

 

 

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