Powers of attorney (POA) enable one person (the attorney) to manage the financial affairs of another (the granter). However, being presented with a POA does not always mean that professional advisors can do anything the attorney asks. There are some key questions you should ask yourself before relying on a POA to take instructions from an attorney.
1. Can I take instructions from the attorney?
You should ask to see a certified copy of the POA. This will include a certificate of registration and copy of the POA which has been registered by the Office of the Public Guardian. It can be certified by the granter of the deed, a solicitor, a stockbroker or certain other professionals. All of this should be supplementary to your usual AML processes, and you should seek the usual ID from the attorney.
2. I am satisfied I can take instructions from the attorney - am I in the clear?
Not necessarily. While the attorney may be appointed to act on the granter's behalf, that does not necessarily mean that they can do everything which the granter could have done for him or herself. The attorney can only do what the POA empowers them to do.
3. Can the attorney make gifts or invest on behalf of the granter?
Powers of attorney are strictly construed, and attorneys only have the powers which have been granted to them. If the attorney wants to make gifts on behalf of the granter, the document must expressly state that the attorney has the power to make gifts.
4. Is the attorney authorised to make gifts to this particular person?
An attorney might be granted the power to make gifts on behalf of the granter to family and friends, to charities, or to others. The proposed recipient of the gift must be within the classes listed in the power of attorney. The attorney may also be granted the power to establish a trust and gift the granter's assets to a trust. This can be effective tax planning, but the attorney can only do it if they have the powers.
5. Can the attorney make gifts to themselves?
Yes. Although the attorney does have a duty of care and fiduciary duty to the granter and must not benefit financially from the appointment, it is also possible for the attorney to be granted the power to make gifts to themselves. Generally, the gift will be valid provided the attorney is acting reasonably and in good faith – and has the power to make gifts.
6. Can I take the attorney's instructions to invest?
The attorney must also be granted the power to invest on the granter's behalf, and to employ agents such as financial planners or investment managers, if those things are being instructed. It is crucial to check these powers are included in the document before any work is carried out. It is possible that a general power might satisfy this requirement, but if in doubt you should seek advice.
7. There is more than one attorney – do I need to speak with all of them?
Often attorneys will be appointed to act individually, in which case you can take instructions from one attorney. However, it is possible for attorneys to be appointed to act only jointly. In that case they could be required to make decisions unanimously, or by majority. It is crucial to check the POA to understand the basis on which the attorney(s) are appointed.
8. Is the proposed action in the best interest of the granter?
Attorneys have certain duties and responsibilities to the granter. There is also a Code of Practice for attorneys provided by the Scottish Government. An attorney must act in the best interests of the granter at all times and must not take any action unless it will benefit the granter. Even in a situation in which the attorney is acting within the powers granted to them, it is sensible to consider whether the attorney is acting in accordance with these duties and responsibilities.
9. What happens if the attorney acts without the power?
Gifts made by attorneys who do not have the power to make them are void. That means the gift is treated as though it never happened. Leaving aside any recourse the granter may have against the attorney who is acting beyond the scope of their powers (or indeed the professional advisors facilitating that), a gift made in these circumstances would not even achieve the desired outcome of, for example, getting the asset out of the granter's estate for tax planning purposes. In addition to these practical problems, The Office of the Public Guardian may investigate unauthorised actions and seek recovery of the sums into the granter's estate.
10. How do I avoid these pitfalls?
It is essential that all professional advisors who are taking instructions from attorneys carefully consider the terms of the power of attorney. If you are in any doubt about whether the document gives the attorney the power to invest, or to make gifts, on behalf of the granter – or indeed to do anything which they are instructing you to do - then you should seek legal advice.