The misuse of Lasting Powers of Attorney – post-death considerations

We are increasingly contacted by beneficiaries of the estate of a family member, who after the death of a loved one have become aware of actions taken by the person managing their affairs under a Lasting Power of Attorney for Property and Financial Affairs which have diminished the value of the 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 much less than expected or is missing certain assets.

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

Attorney duties

An attorney has a duty of care, good faith, confidentiality and above all a duty to act in the best interests of the donor, i.e. the person who has executed the legal document appointing someone to make decisions on their behalf.  There is also a duty on the attorney to keep accounts and to keep the donor's money and property separate from the attorney's own.  

These duties cease on the death of the donor, but any breach of those duties may not become known until after the donor has died. 

The accounts which an attorney is required to keep recording the management of a donor's property and financial affairs are vital evidence in these situations.  Often, it is found that the attorney has not kept accounts, or that the accounts are inadequate. 

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:

1. Be given on a customary occasion for making gifts between family and friends.
2. To someone related or connected to the person or a charity the person supported or might have supported.
3. 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 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 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.
• 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 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. 

What claims can be brought against the attorney?

• Breach of fiduciary duty: Using the funds without permission and not in the donor's best interests.

• Unjust enrichment: Where the attorney has used the donor's funds for their own benefit.
  
• Negligence: On the basis that the attorney owed the donor a general duty of care to act in their best interests, which they have breached by making unpermitted use of the donor’s funds. There needs to be clear loss to the estate caused by the attorney's negligence.

There is also a potential claim under the Fraud Act against the attorney on which the executors and beneficiaries would require specialist advice. 

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 conduct.

Hopefully, the missing funds were just a mix up and 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 for avoid further loss to the estate.

Equally, if you have acted as an attorney and are involved in a dispute during the donor's lifetime or post death about any actions that were taken, it is important to understand your position and to seek guidance about how to respond to any allegations. 

How we can help

Our team provides advice to both attorneys involved in disputes, and to family/friends of the person who has died who have questions about decisions taken by their loved one's attorney during their lifetime.

Please do get in touch if you have any questions about any of the issues raised above.