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Financial Abuse and Lasting Powers Of Attorney

In 2018 it was reported in the Law Society Gazette that investigations into the actions of attorneys and deputies appointed under the Lasting Power of Attorney (LPA) procedure had soared by more than 40% in the previous year. According to figures from the Office of the Public Guardian (OPG) 1,729 investigations into the actions of attorneys and deputies were carried out in the 2017/18 financial year- up from 1,119 the previous year. The figures were published after a Freedom of Information request and led to a call for more education about what people can and cannot do under a power of attorney.

A Lasting Power of Attorney is a legal document (“LPA”) that lets an individual (known as “the donor”) appoint one or more people (known as “attorneys”) to help them make decisions or to make decisions on their behalf.

What Are the Two Types of LPA?

1. Property and financial affairs, and

2. Health and welfare.

This article relates primarily to property and financial affairs.

The donor has to be 18 or over and have mental capacity when they make their LPA. The attorney needs to be over 18. They could be a relative, friend, professional or partner. Choosing an appropriate attorney is extremely important because the LPA gives them power to make decisions about the donor’s money and property, including the donor’s bank/building society accounts and property/investments. The donor must be able to trust the attorney to make decisions in their best interests.

Sadly, not all attorneys do act in the best interests of the donor, whether through their own ignorance of the rules governing LPAs, or because of deliberate financial abuse. In both cases, their actions usually affect elderly and/or vulnerable donors, and can also sometimes have implications for others.

What Are the Rules for an Attorney?

There are strict rules relating to what an attorney is able to do with the donor’s money and other assets under an LPA. The most important principle is that the attorney must act in the best interests of the donor at all times.

An attorney must generally keep the donor’s finances separate to his own. The attorney can use the donor’s money for the following purposes only:

1. To look after the donor’s home and buy anything they need day to day, for example, food, and

2. They can spend reasonable amounts of money on gifts or donations.

There are strict limits on gift giving. An attorney can spend money on:

  • Gifts to a donor’s friend, family or acquaintance on occasions when they would normally make such gifts, for example, birthdays and Christmas, and
  • Donations to a charity the donor would not object to, for example, a charity they have donated to before.

For any other type of gift or donation the attorney must make an application to the Court of Protection, even if the donor has given them before. These include: letting someone live in the donor’s property without paying market rent (anything they pay below the market rate is a gift); interest free loans (the lack of interest is a gift), or selling the donor’s home for less than the market value.

It is essential that the gift is proportionate to the size of the donor’s estate, i.e. it should be comfortably within what the donor can afford. Relevant considerations will include the following:

  • Did the donor used to give gifts of this value when they had mental capacity?
  • Would the gift affect the donor’s ability to meet their living expenses, including care costs, now and in the future?
  • Will the donor have enough funds for the remainder of their life?
  • Does the gift reflect what the donor has said they want to leave people in their will?

If the donor has mental capacity, they should decide whether to give a gift. If an attorney is unsure whether the donor does have capacity to make a gift, they could arrange a mental capacity assessment by a GP or psychiatrist to find out whether the donor has capacity to make their own decisions. This may be particularly important when deciding to give gifts of some value. The OPG may ask what steps the attorney took to establish whether the donor had mental capacity.

Conflict of Interest

An attorney must not take advantage or gain personal benefit from their position. A potential conflict of interest could arise for the attorney, for example, if arranging a loan to himself from the donor, which will also necessitate an application to the Court of Protection.

If the attorney is buying and selling property he will need to obtain legal advice if he is selling the donor’s property for less than the market value, or they want to buy the property themselves, or they are giving it to someone else.

Attorneys cannot give the donor’s assets away as gifts, or spend their money on gifts, to avoid care home fees, or so that they qualify for state benefits. This is known as “deprivation of assets”.

If an attorney gives a gift on the donor’s behalf that is not of reasonable value they could be breaking the law.

It is important for an attorney to keep records, including about any gifts that they make on behalf of the donor, and to document their actions and decisions.

Powers of the OPG include: launching an investigation; giving the attorney a warning; asking the attorney to pay back money or return gifts; applying to the court to have the attorney removed, and reporting the attorney to the police or other organisations. Abusing your position as attorney might amount to a fraud.

Possible ways of trying to combat financial abuse by an attorney could include contacting the OPG if financial abuse is suspected. The OPG may launch an investigation. Frequently, however, possible financial abuse only comes to light after the donor’s death, in which case it may well fall to the donor’s executor to investigate the attorney’s actions and, if necessary, take appropriate action to try to recover monies on behalf of the deceased’s estate. It is not just the donor who may be impacted by any financial abuse on the part of his attorney, but also the beneficiaries of his estate, who may find that their inheritance has been significantly reduced as a result of the attorney’s wrongful actions.

For useful and practical guidance relating to LPAs and the rules relating to attorneys, click here.

Protecting Your Children's Inheritance

For many couples making their Wills, it often seems natural and right to them that they should leave everything to each other and for their assets to pass to their children only if their partner should die before them. But is this always the best thing to do? If either or both of them have children from another relationship, the answer might be no.

No control

Clearly, there is a need for couples to make appropriate financial provision for one another, but this does not always mean that they have to leave all of their assets to their partner outright. If they do, they will have no control over those assets after their death and there is no guarantee that they will ultimately pass to their chosen beneficiaries, such as children, in the event that they die before their partner.

Children from previous marriages

Take the example of a couple who have both been married before and have children from their previous marriages. They own their home jointly, as beneficial joint tenants, which means that when the first of them dies, the house will automatically pass to the survivor, regardless of any contrary provision in their Wills.

They both want to make Wills to provide for each other and (ultimately) for their children. They make “mirror” Wills in which they leave their estates to each other but, if their partner predeceases them, then to their children or their respective children. They both want their own children eventually to receive an inheritance, following the second partner’s death.

Sometime later the husband dies. The matrimonial home passes automatically to the wife outright because they owned it as joint tenants and the survivor inherits the whole. His other assets pass outright to his wife under the terms of his Will. His children from his first marriage do not inherit anything. Everything now rests on the wife’s Will, to ensure his children receive their intended inheritance on her death.

No provision for late husband's children

The wife later remarries and has little contact with her step-children. She decides to make a new Will to reflect her new circumstances. The new Will provides only for her new husband and her own children; it does not make any provision for her late husband’s children, even though she inherited all of his assets which he ultimately wanted to pass to his own children. There is nothing that the step-children can do about it.

Their step-mother’s family will eventually inherit everything, including their late father’s assets. It is all so unfair, and not what their late father had intended. This situation could have been avoided if their father had dealt with things differently.

Tenants in common

Rather than owning their matrimonial home jointly, as joint tenants, they could still have owned the property jointly, but as tenants in common. This means they would have owned their own percentage shares in the property which they would have been free to leave by Will to their respective children. The Wills would have provided that, when the first of them died, the survivor would be able to continue living in the matrimonial home for the rest of their life (still enjoying the benefit of their partner’s share) but, on the partner’s death, their share in the home would pass to their own children.

Life interest

It is also possible to make a similar provision in relation to other assets, including money. This is known as a “life interest” and is commonly used in Wills in circumstances where couples have children from other relationships that they want to ensure will inherit some or all of their assets following their partner’s death. It is relatively simple and can save a lot of heartache.

“Be Wary Who You Appoint As Your Executors”

The role of an executor is an important one; the executor is entrusted by the testator with the administration of their estate, which usually entails collecting in the estate assets, discharging the liabilities, preparing estate accounts and ensuring that the estate is distributed to the beneficiaries in accordance with the terms of the will. However, the role can also include more delicate tasks, such as organising the funeral/wake (together with an appropriate memorial), or disposing of the contents of a house.

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An executor is an important role

Given the importance of the role, it is surprising how many testators appoint two or more individuals as their executors (often family members such as children) who they know do not get on, or may even be positively hostile towards each other. Unfortunately, this can and does lead to difficulties and delays in applying for the grant and administering the estate. One of the executors may seek to take control of the process by removing financial or other documents from the deceased’s home without their co-executors’ permission and then trying to apply for the grant of probate alone, or by removing articles from the deceased’s home and refusing to grant access to the other executor.

One or both of the executors may decide to lodge caveats at the probate registry in order to prevent the other from obtaining the grant to the estate, leading to a stalemate situation. In extreme cases it can become necessary for the “wronged” executor to apply to the court to remove the other executor from his post altogether, but this is costly and time-consuming.

Not essential to appoint a family member

It is essential that a testator considers very carefully whether the executors he is contemplating appointing in his will are capable of cooperating with each other. If he has any doubts, it is best to reconsider the matter. The will draftsman should also be alive to the issue of potential conflict between executors and, in appropriate cases, be willing to offer the testator advice on the subject, so as to avert any problems occurring later on.

It is not essential for a testator to appoint family members, or friends, as executors. Some testators seem to feel obliged to appoint all of their children as executors, even when they are aware that there is a real potential for conflict between them. No testator wants his or her estate to be locked in a dispute caused by the executors, resulting in legal costs being incurred unnecessarily.

The same importance ought to be attached to identifying suitable executors of the will as to the beneficiaries of the estate, as they are the individuals who will jointly be responsible for carrying out the testator’s last wishes.

Estranged Children & Inheritance

Estranged Children and the Inheritance (Provision for Family and Dependants) Act 1975

The long-awaited judgment of the Supreme Court in the case of Ilott v The Blue Cross and others, was given on 15 March 2017.

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The case had caused some controversy back in 2015 when the Court of Appeal substantially increased a lump sum award to Mrs Ilott from her late mother’s estate, despite the pair’s long estrangement and Mrs Ilott’s very clear wishes to exclude her daughter from her Will and to benefit three charities instead. Her estate was worth approximately £500,000. The original award had been £50,000 but the Court of Appeal increased this to £163,000. Many people felt that Mrs Jackson’s wishes should have been respected and her daughter sent away empty-handed. However, the Supreme Court upheld Mrs Ilott’s original award of £50,000.

Long period of estrangement

The basic facts of the case were that Mrs Ilott was Mrs Jackson’s only child. When she was 17 years old, Mrs Ilott left home secretly to live with her boyfriend, of whom Mrs Jackson did not approve. Mrs Ilott went on to marry this boyfriend (without telling her mother at the time) and they had five children together. This began a long period of estrangement between Mrs Ilott and Mrs Jackson, which lasted for a period of 26 years, until Mrs Jackson died.

Although there were attempts at reconciliation over the years, they failed. Mrs Jackson made several Wills during this period, none of which made any financial provision for her daughter. The reason for this was the estrangement between them. Mrs Ilott’s financial circumstances were modest. She and her family lived in a house rented from the Housing Association. They were in receipt of state benefits, some of which were means-tested. Mrs Ilott wanted to buy her home and she was entitled to a discount as a sitting tenant.

The two dominant factors in this case were the estrangement between Mrs Ilott and Mrs Jackson, and Mrs Ilott’s very straitened financial position.

Reasonable financial provision

Following Mrs Jackson’s death, Mrs Ilott made an application to the Court for reasonable financial provision from her mother’s estate under the Inheritance (Provision for Family and Dependants) Act 1975. The Act permits certain individuals, including a child of the deceased, to apply to the Court for an order for financial provision from the deceased’s estate on the ground that the deceased’s Will, or the operation of the intestacy rules (if there is no Will), does not make reasonable financial provision for the applicant. If the Court is satisfied that reasonable financial provision has not been made for the applicant, it may make one of a number of orders, including a lump sum payment to the applicant out of the deceased’s estate.

At the initial trial, the court was satisfied that Mrs Jackson’s Will did not make reasonable financial provision for Mrs Ilott. It awarded Mrs Ilott a lump sum of £50,000 from her mother’s estate.

Court of Appeal

After several appeals and a cross appeal, the case came before the Court of Appeal for a second time. On that occasion, the Court of Appeal held that the original judge had made two fundamental errors of principle and increased the lump sum award of £50,000 to £143,000, plus a further £20,000 to be paid in one or more instalments. The Court of Appeal was concerned about the impact of the lump sum of £50,000 upon the state benefits that Mrs Ilott and her family received; it wanted to preserve their entitlement to benefits. It felt that the award of £50,000 would have little or no benefit to Mrs Ilott because of the impact on her benefits. The award of £143,000 was specifically intended to enable Mrs Ilott to buy the house she lived in, without affecting her state benefits. The option of a further award of up to £20,000 was also designed to avoid any impact on benefits.

Supreme Court

The animal charities appealed the Court of Appeal’s decision to the Supreme Court. The Supreme Court had to grapple with the fundamental question: what constituted “reasonable financial provision” in the circumstances of this particular case? They made it clear that reasonable financial provision means such provision as it would be reasonable for the applicant to receive for maintenance. It is designed to meet recurring expenses, being expenses of living of an income nature. The Supreme Court stated that, although the concept of “maintenance” is wide and flexible, and is not limited to subsistence level, it relates to meeting the everyday expenses of living, as opposed to giving an applicant any or every thing which he or she may wish to have. The power conferred by the Act is to provide for maintenance, not to give capital to the applicant.

The Supreme Court commented that some judges might legitimately have concluded that the very long and deep estrangement meant Mrs Jackson had no obligation to make any provision for her independent adult daughter but, as it was, the judge was perfectly entitled to reach the conclusion that he did, namely that there was a failure to make reasonable financial provision. What reasonable financial provision meant in this case would be coloured by the nature of the relationship between mother and daughter.

The Supreme Court found that the original award of £50,000 was not an award of little or no value to Mrs Ilott. That was because Mrs Ilott had put forward a strong case that she was unable to maintain the ordinary domestic equipment on which every household depends to function adequately, including essential white goods, basic carpeting, and the replacement of broken beds. The Supreme Court found that these items fitted perfectly within the concept of maintenance; the replacement of essential household items is the maintenance of daily living. If a substantial part of the award of £50,000 were to be spent in this way, the impact on the Ilott family’s benefits would be minimised because they would not for long be retaining capital above the ceiling at which entitlement to some of their benefits is lost.

No guidance

The judgment of the Supreme Court does not make it any more difficult for independent adult children to claim reasonable financial provision from a parent’s estate, but it does highlight some of the difficulties that applications by adult children, in particular, can pose. In particular, the current law offers no guidance as to the factors to be taken into account in deciding whether an adult child is deserving or undeserving of an award of reasonable maintenance.

For example, what weight should be given to facts such as the self-sufficiency of the adult child (albeit their reliance on state funds), their lack of expectation of inheriting anything, their lack of contribution to their parent’s wealth, and their lack of care and support for their parent? None of these issues are dealt with in the Act. The fundamental right to leave one’s property to whoever one wishes must also be considered.

Nahajec v Fowle

Since the publication of the Supreme Court’s decision in Ilott, judgment in a similar claim by an independent, adult child, has been given. The case of Nahajec v Fowle concerned Miss Elena Alicia Nahajec, the 31 year old daughter of her deceased father, Mr Stanley Nahajec. Mr Nahajec had not made any financial provision for his daughter in his Will and, in fact, had deliberately excluded her and his two sons from his Will, leaving his entire estate to his long-standing friend and executor, Mr Stephen Fowle. Mr Nahajec even left a note to his executor, with his Will, explaining why he did not wish to make any financial provision for his three children, the main reason being that (according to him) he had not had any contact with them for 18 years and he did not believe that they had any interest in his welfare. He also stated that his children were of independent means and did not need any financial provision from him.

Failed to make reasonable financial provision

However, notwithstanding the terms of Mr Nahajec’s Will and accompanying note, His Honour Judge Saffman found that Mr Nahajec’s Will failed to make reasonable financial provision for Miss Nahajec, in all the circumstances, and decided to exercise his discretion to award Miss Nahajec a lump sum of £30,000 from his estate. The net value of Mr Nahajec’s estate at the time of his death was £265,710.

Miss Nahajec accepted that she did not have a relationship with her father after her parents’ marriage broke down when she was 11 years old, although this was not for want of trying on her part. The relationship had been rekindled for a short period, between 2006 and 2009, but there was no contact between them from 2009, until Mr Nahajec’s death in 2015, because Mr Nahajec apparently disapproved of his daughter’s boyfriend. The judge considered that the reason behind the absence of a relationship between Miss Nahajec and her father was an issue that fell to be decided by the Court: was the reason as a result of her attitude towards her father, or Mr Nahajec’s attitude towards his daughter, or a combination of both?

Ambition to become veterinary nurse

Miss Nahajec lived alone in rented accommodation and had two jobs, including employment at a veterinary surgery. She was in receipt of working tax credits. She had debts of about £6,600, largely as a result of her taking time off work for a serious health condition. Her ambition was to become a qualified veterinary nurse and, to this end, she was working additional unpaid hours at the veterinary surgery in order to gain necessary experience. She would have to re-take her GCSEs, and then take a two year diploma in veterinary nursing costing about £11,350. Miss Nahajec wanted sufficient financial provision from her father’s estate to enable her to undertake this course of study with a view to qualifying as a veterinary nurse.

Ambition was genuine

The judge found that Miss Nahajec regretted the absence of a relationship with her late father and that she had made efforts to try to rekindle her relationship with him over the years, but without success. He also found that her ambition to become a veterinary nurse was genuine; it was a reasonable and realistic ambition. If she were to qualify as a veterinary nurse, that would enhance the quality and financial stability of her life. Miss Nahajec received a very modest income and was in straitened financial circumstances.

Award of £30,000

The judge found her to be an honest witness and accepted her evidence. He considered all of the factors in section 3 of the Inheritance (Provision for Family and Dependants) Act 1975 and concluded that Mr Nahajec’s Will failed to make reasonable financial provision for his daughter; he then went on to consider what financial provision ought to be made for her reasonable maintenance. He decided to award her a lump sum of £30,000, based upon capitalisation of maintenance.

In conclusion

It is clear from these two cases that successful applications by estranged adult children for reasonable financial provision from a deceased parent’s estate are difficult but not impossible; they need to be considered on a case by case basis and the reasons behind the estrangement looked at carefully. Estrangement, in itself, is insufficient to defeat a claim by an adult child.

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14 Sep 2018

Estranged Children & Inheritance

Estranged Children and the Inheritance (Provision for Family and Dependants) Act 1975

The ...

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