When lay means laissez faire

This article was first published in Trusts and Estates Law & Tax Journal (September 2018) and is also available at lawjournals.co.uk.

How does the court approve retrospective payments to attorneys who have exceeded their powers?

The Court of Protection in Re HH [2018] has returned to the vexed question of the court’s power to approve retrospective payments made by attorneys who have exceeded the very limited powers of gifting prescribed by the Mental Capacity Act 2005 (MCA 2005). In doing so, the court highlighted the importance of choosing an attorney who is willing and able to comply with the onerous duties attached to the role.

The issues in Re HH

TH had an enduring power of attorney (EPA) for property and affairs in respect of HH, his father, as well as a lasting power of attorney (LPA) for health and welfare. HH lost capacity in around 2010, after which TH began caring for him, at first on a part-time basis alongside professional carers, and eventually full-time.

Lacking, by his own admission, much legal or financial expertise, TH did not get round to registering the EPA until 2013. In the meantime, he managed his father’s affairs much as his father and, prior to her death, his mother had – on a fairly ad-hoc basis, with little planning and no record keeping. He relied on his father’s assets to meet his own costs of daily living and to support his wife and children in Ireland, particularly once he had given up his career as a painter and moved back to England to provide full-time care. TH’s ‘lackadaisical’ approach to the administrative aspects of managing his father’s affairs was, in the judge’s estimation, worn ‘almost as a badge of honour’.

A significant proportion of HH’s liquid capital had been spent in this manner when the intervention of TH’s estranged brother, PH, led the Office of the Public Guardian (OPG) to request that TH make an application for retrospective approval of the sums he had spent. TH sought approval of payments of £88,366.77 made to or for the benefit of TH himself, which he argued should be classified as family care payments. PH argued that only £30,000 of the payments should be approved.

TH also sought approval of another £17,218.56 in gifts, which PH – one of the primary beneficiaries – did not oppose. Finally, TH sought to be absolved of any liability for having breached his duties as attorney.

Powers of an attorney

According to the MCA 2005, an individual acting under an EPA generally has the power to do anything which the donor had the power to do by attorney when they executed the instrument.

An attorney can therefore provide for the needs of individuals other than the donor (including the attorney themselves), and to that end can make payments to family members who are providing the donor with care. Such provision, though, must be limited to what the donor themselves might reasonably have been expected to provide.

An attorney can also make gifts to people (again, including themselves) connected to the donor, but additional restrictions apply. Gifts must be of a seasonal nature or in recognition of important dates, and must be reasonable in size having regard to all the circumstances, particularly the size of the donor’s estate.

Duties of an attorney

Underlying the exercise of the above powers is the fundamental requirement for an attorney to act in the donor’s best interests (s1(5) MCA 2005):

An act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in his best interests.

This is an objective test. MCA 2005 sets out various factors which the attorney must consider in applying it, the relative importance of which will depend on the facts of the case; the donor’s past and present wishes and feelings, so far as ascertainable, are one such factor.

Pursuant to that fundamental ‘best interests’ principle, attorneys are required to act in accordance with the terms of their authority, to discharge their role with due care and skill, to avoid conflicts of interest/personal benefit, and to keep the donor’s money separate from their own.

The court’s powers

The court has the power to authorise retrospectively payments which were made by an attorney after the donor lost capacity, including payments made before an EPA was registered, insofar as they meet the requirements of the best interests test set out above.

It also has the power to relieve the attorney from liability for having breached their duties.

Family care payments

The question of how payments to caregiving family members fit within the legal framework outlined above is one to which the OPG has recently turned its mind, publishing guidance for deputies (with relevance to attorneys) in August 2017. The guidance says that such payments can be in the donor/client’s best interests, provided the deputy considers various factors, as follows:

• the care must be reasonably required and be of a good standard;
• the payments must be affordable, taking into account the client’s resources;
• the payments must properly reflect the input by the carer;
• the care must actually be provided (though temporary interruptions, for example when the client is in hospital, are permissible);
• the payments should be necessary to supplement professional care;
• costs or bills should also be considered;
• the overall family situation should be taken into account; and
• payments should be agreed in consultation with the carer and other family members where possible.

The OPG suggests that calculating the costs of commercial care and reducing them by 20% – a formula from personal injury law borrowed by Senior Judge Lush in Re HC [2015] – may produce an appropriate figure for family care payments, with the discount justified by the fact that such payments are regarded by HMRC as voluntary payments exempt from tax and national insurance.

It should be noted, however, that the guidance of HMRC’s own manual on this point limits the tax exemption to care payments made under a Court of Protection order. The tax position for a carer who is receiving a formal allowance from an attorney (as opposed to a deputy) is not clear cut, and caution should be exercised.

The outcome in Re HH

The court was sympathetic to the sacrifices TH had made for his father, satisfied that he had provided high-quality care, and content that he had acted in good faith. It was, however, critical of TH’s laissez faire approach to his duties as attorney, emphasising (per Senior Judge Lush in Re Buckley [2013]) that ignorance of those duties is no excuse for failure to comply with them.

In considering the sums which formed the bulk of the application for retrospective approval – the £88,366.77 which TH sought to classify as family care payments – the court carefully scrutinised the sums spent in light of the care provided, in line with the OPG guidance referred to above. The court had regard to the ‘commercial costs less 20%’ formula, but pointed out that compliance with the metric is not determinative of a payment’s acceptability:

The starting point is not to find a figure for commercial care after the event, and then to award to the applicant a percentage of that figure, but to scrutinise the payments made in all the circumstances and to determine whether or not it could be said that they were made, or the applicant reasonably believed they were made, in the best interests of HH.

To assist the court, TH divided the application into six periods of time, each reflecting a different level of involvement in his father’s care. This facilitated a robust application of the approach set out above. In relation to the period when TH was his father’s primary, live-in carer, the court approved the sum claimed – £47,320.29 – in its entirety. In relation to the periods where TH’s duties were less intense, the court was slightly more circumspect about his entitlement, and declined to approve payments totalling £17,326.18. All of the gifts were approved.

On the basis that it had no jurisdiction to make an order for the repayment of the non-approved sums, and concluding that it would not be in HH’s interests for the sums to be pursued through litigation, the court ordered that the outstanding debt be taken from TH’s share of his father’s residuary estate.

It was agreed by all parties that TH should be relieved of his duties, with a professional panel deputy appointed going forward.

Lessons for practitioners

The case is an emphatic reminder of the need to choose an attorney with the ability (and inclination) to engage fully with their duties. Even in cases where a donor’s own attitude to their financial affairs is relaxed, it will not be in the donor’s best interests for an attorney to emulate that approach; attorneys must be prepared to be held to a higher standard.

The court in Re HH suggested that, before agreeing to take on the role, attorneys should at the very least read the relevant ‘information you must read’ section of the MCA 2005, and the provisions of the MCA 2005 Code of Practice – an onerous suggestion in itself, given that the latter weighs in at some 300 pages. Once acting, an attorney’s compliance with their duties must be meticulous, and careful records of decisions and spending are essential. If a proposed attorney is also likely to be taking on a caring role, thought needs to be given to whether the combined time commitments of the two roles might prove unsustainable.

The case also highlights the dangers of appointing attorneys in the context of family strife, given the risk that they may be opposed at every turn by family members who disagree with their approach.

In such cases, Senior Judge Lush’s recent comments lamenting the ‘demonisation’ of the deputyship system in favour of LPAs will have a ring of truth – though it remains the case that LPAs will, in most cases, be the more appropriate option, given the significantly higher costs incurred by court-appointed deputies and professional attorneys. In cases where the factors outlined above are present, however, the costs saved by appointing a lay attorney may ultimately prove a false economy, potentially being outstripped by the costs of litigating disputes.

In short, ‘keeping it in the family’ may not always be the best approach to choosing an attorney – particularly in cases where there is conflict and/or a genetic predisposition to financial inefficiency.