‘We often see attorneys coming unstuck in relation to bank accounts and savings,’ says Sarah Wood, Partner, the wills and probate team with QualitySolicitors Parkinson Wright. ‘There can sometimes be a lack of understanding of the role of an attorney when it is taken on, so it is very important to navigate these issues carefully and seek legal advice if you are unsure of a proposed action.’
In this article, Sarah highlights some of the common pitfalls when you are dealing with the donor’s bank accounts and savings under a power of attorney.
You have a fiduciary duty
Your primary duty is to act in the best interests of the donor, exercising diligence and integrity in their financial matters.
This involves understanding the donor's preferences and instructions regarding their finances, and making decisions that are consistent with their wishes, to the extent possible.
The authority granted by a power of attorney is a fiduciary duty, requiring you to prioritise the donor's interests above your own and avoid any conflict of interest. Clear communication with the donor, financial institutions, and other relevant parties is important to ensure transparency, accountability, and compliance with legal obligations.
Legal framework and penalties
The Mental Capacity Act 2005 sets out the legal framework for a lasting power of attorney, outlining the requirements for creating, registering, and exercising powers.
You must adhere to the principles outlined in the Act, which include acting within the scope of authority granted, promoting the donor's best interests, and considering their past and present wishes and feelings. Failure to comply with these legal requirements can have serious consequences, including civil penalties.
The Office of the Public Guardian oversees the registration and supervision of lasting powers of attorney, and you will be subject to their scrutiny for your actions.
Any breach of fiduciary duty, financial misconduct, or abuse of authority may result in legal proceedings, financial penalties, and your removal as an attorney.
Common pitfalls with bank accounts and savings
Several common pitfalls can arise when managing bank accounts and savings under a lasting power of attorney, which highlight the importance of careful attention to detail and adherence to legal requirements.
- Failing to register the lasting power of attorney with the financial institution can lead to complications and delays in accessing and managing the donor's accounts, as each organisation will require proof of the attorney's authority before allowing transactions.
- Ignoring or disregarding any limitation of powers specified in the power of attorney can result in unauthorised transactions or decisions which may expose you to legal liability and a potential dispute with other stakeholders. For example, an LPA may include a specific limitation that the attorney must only make low-risk investments to ensure the security of the donor’s retirement funds. If the attorney decides to invest in high-risk investments to attempt to generate higher returns, disregarding the limitation, this can lead to multiple problems with the attorney potentially liable for any losses due to the unauthorised actions.
- Disagreement among attorneys can lead to inefficiency or delay. For example, if two attorneys (siblings) are appointed jointly, they must agree on all financial decisions. The donor owns a large family home and has moved into a care home. One attorney believes that selling the house is the best course of action to save the costs of maintenance and insurance, while the other attorney opposes the sale because of its sentimental value and potential future appreciation, arguing that renting out the property could provide an ingoing income stream. Failure to decide on a course of action could result in delays obtaining funds necessary for care.
- Insufficient record keeping can make it challenging to track and account for financial transactions, increasing the risk of errors, disputes, or allegations of financial misconduct.
- Missing a deadline can lead to additional costs and complications. For example, if attorneys fail to file the donor's tax return on time, it can result in penalties, fines and interest charges from HM Revenue and Customs (HMRC). A missed deadline can also trigger scrutiny from the regulatory body, leading to legal complications, and, in some cases, investigations into the attorney's handling of the donor's finances.
- Failing to consult donor about decisions, particularly when the donor still has the mental capacity to express their wishes, can lead to actions which are inconsistent with the donor’s preferences or best interests. This in turn can cause distress and a sense of loss of control for the donor, resulting in family conflict and sometimes even complaints or a legal challenge.
- Liquidity problems can arise if funds are locked into high-interest, long-term investments like bonds or fixed-term deposits. Although these investments can offer attractive returns, they often come with restrictions or penalties for early withdrawal. This lack of liquidity can create problems when funds are needed for immediate expenses, such as care costs, medical bills, or equipment. If the attorney has not planned for sufficient accessible funds, they might find themselves unable to meet the donor's short-term financial needs.
- Poor investment decisions may be made by attorneys who lack expertise in financial matters, leading to financial losses or excessive risk exposure for the donor. Instead, engaging an independent financial advisor (IFA) can mitigate these risks, providing professional guidance tailored to the donor's specific needs and goals. Failing to seek professional advice when appropriate could also lead to legal consequences for the attorneys if they are found to have breached their fiduciary duty.
Strategies to mitigate risk
You must adopt proactive measures to mitigate the risks involved and ensure you uphold your duties effectively, for example, you should:
- carefully review and understand the scope of your powers to ensure compliance and avoid exceeding your authority;
- maintain effective communication with the donor, all financial institutions, and other family members to ensure transparency and accountability - this should include regularly updating the donor and seeking their input where feasible;
- if you are acting jointly with other attorneys, you should try to maintain communication, engage in constructive dialogue at all times to resolve disagreements amicably, and document your decisions;
- establish thorough record-keeping systems to ensure transparency, accountability, and compliance with your legal obligations; and
- engage IFA assistance where appropriate.
It is important to stay informed about relevant legal obligations and seek professional advice where appropriate.
How we can help
Our private client solicitors can assist you in navigating the complexities of a lasting power of attorney, from drafting and registering the document to advising on the ongoing management of a donor’s financial affairs. This will minimise the risk of common pitfalls that we often see in practice and safeguard the interests of the donor.
For further information, please contact Sarah Wood or a member of the wills and probate team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.