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03 November 2020

Trustees and the vulnerable adult beneficiary

Lorraine Jeffery explores the options available to trustees, both onshore and offshore, where they have concerns regarding a vulnerable adult beneficiary resident in England or Wales.

Trustees tend to sense when something is amiss, particularly if they have been dealing with the beneficiaries for a long time. However, the time to really be alert is when a trusteeship changes as the new trustee may not be as attuned to small changes in a beneficiary’s or their family’s behaviour. These small changes can be early indicators of capacity reducing or financial abuse occurring.

What is the test for mental capacity in England and Wales?

Mental capacity relates to a person’s ability to make decisions for themselves relating to their finances or welfare. It is presumed that a person has capacity until it is shown that they do not. If there is any doubt, and assuming English law is the relevant law, the Mental Capacity Act (MCA) 2005 sets out the test to ascertain whether an individual has capacity to make a decision at the relevant time. The level of mental capacity required to make a decision depends on the decision itself and is also time specific. Capacity can fluctuate, with good days and bad days. The test set out in the MCA 2005 is:

can the person understand information relevant to the decision, retain that information for a period of time, use or weigh the information including the consequences of making the decision and communicate their decision?

What do trustees do if an adult beneficiary with connections in England and Wales loses mental capacity?

In an ideal world, everyone in England and Wales would have a Lasting Power of Attorney (LPA) appointing a trusted and reliable family member, friend or professional to take over their financial affairs in the event they lose capacity (and a LPA doing the same in relation to health and care decisions). If losing capacity is foreseeable, such as early stage dementia, we would strongly encourage a client to appoint an attorney while they still have capacity to do so. Trustees are often in a unique position with a beneficiary and can provide similar encouragement.

When an attorney has been appointed under a LPA made by a beneficiary and the LPA has been registered at the Office of the Public Guardian (OPG), a copy certified as being a true copy of the original should be provided to the trustees and kept on file. Similarly, if a deputy is appointed (see below), the person appointed should provide the trustees with a copy of the final court order confirming their appointment and the scope of their authority.

It is important to understand that LPAs covering finance and property decisions can also be used when a beneficiary has capacity. They may be elderly and frail but fully capable, simply preferring to leave the burden of dealing with their financial affairs to their attorney. The flexibility of LPAs can sometimes muddy the waters for trustees and, because of this, we would recommend that they satisfy themselves that they are dealing with the correct person. This may involve a few telephone calls, video calls or perhaps a visit in person. The latter is preferable, particularly where the beneficiary is infirm or reliant on other people to communicate with the trustees. Every case is different so common sense should be applied.

If the beneficiary loses capacity and no attorney has been appointed, then the beneficiary will not be able to access bank accounts or deal with their financial affairs. This could potentially cause difficulties and possibly financial hardship. An application would have to be made to the Court of Protection to appoint a deputy to run the beneficiary’s financial affairs and this can take considerable time. If it is a complicated or disputed application, an interim deputy will be appointed but it still takes some time to get to that stage. Decisions will have to be taken as to how to legitimately route money to the beneficiary pending the outcome of the court application as they will not have access to their bank accounts.

If, however, the beneficiary has appointed an attorney or equivalent in another jurisdiction, it may be possible to have that recognised in England and Wales.

How do foreign equivalents to powers of attorney or deputyships become recognised in England and Wales?

Different jurisdictions have their own requirements in relation to the appointment of attorneys or their equivalents and local advice should always be taken. If there is a need for a foreign appointment to be recognised in England and Wales schedule 3 of the MCA 2005 may assist. It puts in place a mechanism for obtaining a declaration to have valid foreign ‘protective measures’ (such as the appointment of an attorney or deputy) recognised and used in England and Wales. This can be a very useful and effective tool, particularly if the matter is time sensitive. Additionally, the Hague Convention on the International Protection of Vulnerable Adults sets out a reciprocal arrangement of recognition of signatory state measures for the protection of a vulnerable adult in respect of their finances. However, as England and Wales have signed up to but not yet ratified the convention it cannot yet be relied upon.

Are trustees under an obligation to make enquiries as to the beneficiary’s capacity?

We recommend that in any case of doubt or suspicion concerning a vulnerable adult beneficiary trustees should look to the governing law of the trust, the trust document itself and the law of the jurisdiction in which the beneficiary habitually resides to ascertain their duties and obligations as well as considering whether there are other practical measures which could be taken such as involving relatives of the vulnerable adult beneficiary.

A fair rule of thumb would be that trustees should not make payments to a vulnerable adult beneficiary in the knowledge that these will go to a non-beneficiary. This is distinct from the arrangement of the beneficiary with capacity using the funds to benefit their family, such as paying for school fees, making small gifts or, in some circumstances, making maintenance payments (as set out in the case of Re Various Lasting Powers of Attorney [2019] EWCOP 40 where maintenance payments would be permitted if the donor set out in their LPA their wish that maintenance payments continue in the event they lose capacity). This is because, under English law, a distribution to a non-beneficiary constitutes a fraud on a power. The decision to make the distribution could be undone and it would expose the trustees to a potential claim for breach of trust. Trustees would then have to rely on their exoneration clauses and their lawyers to extract them from the situation. Other governing laws might treat such payments differently.

What if the trustees have concerns regarding the suitability of the attorney / deputy?

Trustees should be alert to signs of abuse which might take different forms:

  • limited or no access to the beneficiary;
  • financial hardship, suddenly unable to maintain their lifestyle or meet expenses with requests from the attorney or deputy for greater financial support;
  • the attorney or deputy is uncooperative or evasive;
  • the family or others show a greater than usual level of interest in the assets of the person;
  • a change of account details into which to pay the beneficiary’s distribution if the trustees suspect that the instructions did not come from the beneficiary, that the beneficiary’s capacity is declining or that the instructions are from someone purporting to be the beneficiary’s attorney when the trustees have no registered LPA on file.

If the trustees have concerns or suspicions regarding an attorney or deputy, the options available will depend on whether or not the LPA has been registered at the OPG or the deputyship ordered by the court.

At the time of the LPA being registered with the OPG, the beneficiary may have stipulated that certain people be notified of the application but, more often than not, the relevant section of the LPA form is left blank. The persons notified, if any, have the opportunity to object at the Court of Protection to the registration of the LPA. However, it is more common for people not to become aware of the appointment until after it has been registered.

With deputyship applications, the applicant must notify at least three people as well as the beneficiary. It is often at this stage that alarm bells are sounded. If they are not suitable for the role, then an objection can be made and it will result in months of legal proceedings.

If the trustees become concerned or have their suspicions aroused after the appointment of the attorney / deputy, the options are to:

  • contact the safeguarding team of the OPG and set out their concerns in writing. The team will decide whether to investigate. During an OPG investigation, it is quite common for all access to the patient / donor to be cut off if they are in a care home setting;
  • contact the local authority’s adult social care team. They will attend the address of the beneficiary and investigate. They are also more willing to involve the police; and
  • apply to the Court of Protection for the removal of the attorney / deputy and the appointment of a replacement. This can be an expensive option but is sometimes necessary.

Trustees can also involve close family members and friends of the adult beneficiary but should proceed with caution if there is a risk that they may be involved and the adult beneficiary cut off from the trustees even more as a result.

There may also be a responsibility or duty to report concerns regarding capacity to local authorities. Whilst this is not the case in England and Wales, there is a duty to report in Switzerland, so trustees should consult advisors in both the jurisdiction (1) where the beneficiary habitually resides; and, (2) where the trust is governed to ensure that they are not falling foul of any duties under local laws.

What if there is no attorney or deputy involved but the vulnerable adult beneficiary needs help?

If there is no LPA or deputyship, then the trustees can:

  • contact family members of the beneficiary whom they believe are not involved to inform them of their concerns, if appropriate;
  • contact the local authority’s adult social care team; and / or
  • apply to the Court of Protection for a deputy (including a professional deputy or a deputy from the court’s panel) to be appointed. It is possible for a trust corporation to be appointed as a deputy in England and Wales.

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