Misuse of lasting power of attorney: Key considerations

We are increasingly contacted by charitable beneficiaries of an estate, who have become aware of actions taken by the person managing the deceased’s affairs under a Lasting Power of Attorney for Property and Financial Affairs which have diminished the value of the deceased’s estate.

The attorney may have transferred some of the deceased’s assets into their own name (solely or jointly with the deceased), or into the names of others.  The attorney may have spent the deceased’s monies or property for their own benefit. This will have usually occurred without the knowledge of the beneficiaries, and only comes to light after the deceased’s death, when the deceased’s estate is worth much less than expected or is missing certain assets.

This article explores the common questions that arise when all signs point to an attorney having misused their position under a Lasting Power of Attorney.

Can attorneys make gifts out of the donor's funds?

Any such gift made by the attorney during the donor’s lifetime must have met the criteria set out in the Mental Capacity Act 2005, (MCA 2005) namely:

• Be given on a customary occasion for making gifts between family and friends.
• To someone related or connected to the person or a charity the person supported or might have supported.
• Of reasonable value, taking into account the size of the person’s estate.

An attorney must seek authorisation from the Court of Protection if they want to make a gift that falls outside the above criteria, or outside of the scope of the LPA. Any gift made to themselves out of the donor's funds that is not in the best interests of the donor, or is not within the guidance in the MCA 2005 (without the Court of Protection's permission) is opening the attorney up to a civil action.

Who should bring a claim against an attorney?

Once an initial concern has been raised, it is important that the executor of the estate is made aware. The executors must collect and get in the deceased’s estate, and administer it according to the law, with due diligence in accordance with section 25 of the Administration of Estates Act 1925. It is therefore the role of the executor to investigate and, if there is credible evidence at all that the attorney has misused their power, to bring a claim against an attorney who misappropriated the donor’s funds for the benefit of the estate.

There is often a further complicating factor; the attorney under suspicion may also be the person named as the executor of the estate. A clear conflict of interest would arise if they were required to investigate their management of the deceased's affairs!

In this situation, the estate beneficiaries may consider seeking to have the executor removed and an Independent Administrator appointed who would be able to carry out investigations in relation to the attorney's conduct.

What should a beneficiary do if the executor will not carry out investigations?

Failure even to investigate issues raised could well amount to a breach of the executor's duties and so, unless there is no real evidence of misuse of the attorney's position, the executors would usually carry out some sort of investigation.

It may well be that, having carried out an investigation, the executors come to the conclusion that they are not prepared to commence proceedings against the attorney either because:

• The investigation produced no evidence which would give the proceedings any reasonable prospect of success.
• That, despite there being such evidence, the amounts in issue are disproportionately small compared with the costs of pursuing the attorney for return of the funds. 

If there is good evidence and the matter is worth the legal costs, an executor can apply to the court for a Beddoe Order to ensure that the costs of pursuing the attorney can be paid for out of the estate.  

But, if an executor will not act, the beneficiaries can consider an application to the court directing that an investigation takes place, or that the executor is removed. 

There is also a potential claim under the Fraud Act against the attorney on which the executors and beneficiaries would require specialist advice. We will address this type of claim in a future article.

What remedy can be sought?

That the attorney repays the monies into the estate to account for the loss suffered by the estate as a result of the attorney's misconduct.

In some instances, funds are missing funds as a consequence of an error made by the attorney. The attorney can account for any mistake.  However, this is a growing area of concern, and it is worth taking steps to investigate as soon as the issue is flagged up in order to avoid further loss to the estate.

If your charity is the beneficiary of an estate and there are concerns about an attorney's conduct during the deceased individual's lifetime, then please do get in touch for further advice on how best to proceed.