Lasting Powers of Attorney and Discretionary Managed Funds
What are ‘Discretionary Managed Funds’?
‘Discretionary Managed Funds’ refer to when an investment professional known as a Discretionary Fund Manager, commonly known as a stockbroker or wealth manager, builds and manages a portfolio of investments on your behalf. They will consider how much you have to invest, the level of risk you are prepared to take, your financial goals, and your tax position, to make decisions as to how best to look after your invested money. If investments are not managed in this way, then advisers will have to obtain their clients’ instructions each time a change is made to the investments which has practical implications.
Why is this relevant for LPAs?
An attorney appointed under an LPA is not usually allowed to delegate their authority to another person, which would mean that they couldn’t use a fund manager to make decisions about the donor’s finances, however if a particular clause is entered into a property & finance LPA it allows any preexisting discretionary management schemes to continue, as well as allowing the attorney to take advantage of discretionary managed schemes as a way of managing the donor’s finances if they wish to do so. The wording which is entered into the preferences section of the LPA is as follows: - “My attorneys 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.”
Who should consider adding this wording to their LPA?
Even if a donor does not have any discretionary managed funds at the time of making the LPA, their circumstances may change in the future e.g., the donor may decide to invest monies at a later date so having the clause in the LPA would allow this to then continue, or the donor could move into residential care and their home might be sold, the attorneys then, depending on the sums involved and the donor’s likely life expectancy, might be advised to invest the sale proceeds rather than retaining them in cash. At that point whether your attorneys have the option to use discretionary management schemes, or not, could become important.
What happens if there is already an LPA in place but without the relevant clause?
It was not standard practice to include the clause until 2016 so if you have a client who already has a Property and Finance LPA in place but does not include this power, they have 2 options:
1. Take no action: if the donor becomes incapacitated, the attorneys may find that the investments need to be moved to an advisory basis where the investment manager would need take the attorneys’ instructions each time a transaction is carried out, or the attorneys could apply to the Court of Protection to request that they are given the required powers.
2. Make a new LPA including the required wording: this has obvious cost implications but is still likely to be cheaper than if the donor chooses to do nothing and the attorneys eventually must make an application to the Court of Protection to be given the necessary power. Due to the uncertainty over the OPG changing their guidance again in future, the likelihood of the attorneys needing the discretionary investment management powers, and the potential costs and delay in obtaining a court order, the donor may consider this option as the most appropriate course of action.
For advice on the above or any other legal matters, please contact Nicolae Trofin if you live in Bexhill, Battle, Hastings, Rye or anywhere else in East Sussex.
This message was added on Friday 26th February 2021