Cross-border incapacity issues are a ticking time bomb

Date: 30 Sep 2015

Bumblebee Design

James Ward, head of private client at Seddons, says that with the proportion of elderly UHNW individuals growing faster than ever, having a power of attorney in place has become essential.

Is financial abuse of mentally incapacitated people, by family members or carers a big issue? Do the issues change if you are UHNW?

If anything UHNW are most at risk as they have most to lose. Given the complex nature of the financial affairs of UHNWs, decisions can be incredibly difficult to unpick and reverse. However, mental incapacity is not a switch; it doesn’t appear overnight. The loss of capacity is likely to occur over a number of months or even years. It is common with dementia that a full diagnosis does not take place for two years. In this time, coherent decisions may be slowly becoming more difficult for UHNW individuals and they may find themselves being manipulated by family, friends and work colleagues. This is a hard situation to avert as often the UHNW clients losing their capacity will be in denial while at the same time being happy to accept “help” when offered.

What can UHNW individuals do to protect themselves against financial abuse or loss of assets?

If the UHNW client has settled trusts or has companies owning the key assets, it is important to make sure that any power of attorney is lodged with them, so they are aware of who can make decisions if there is a loss of capacity. When drawing up such documents, it is important to choose their attorneys wisely. It is common for spouses and children to be named as attorneys. However, UHNW individuals should be careful whom they name and how the attorneys are to operate. With significant assets at stake, I am always wary for the eventual beneficiaries to be named as attorneys. This can be quite a conflict of interests without some sort of accountability in place. I recommend choosing at least one professional attorney and also having decisions of significant value decided by all attorneys rather than either one or a majority.

How can mental incapacity interfere with succession planning?

In the UK, it is currently not possible for attorneys to make gifts over £3,000 per year or small gifts at birthdays and important anniversaries without approval from the court of protection. This makes succession planning very difficult, however, with the proper advice, not impossible.

Will laws vary in different jurisdictions?

The relevant mental capacity law is that of the habitual residence of the individual. This can be very complicated if the client is trying to use an overseas capacity law to manage property in a different country. With this in mind, I always recommend an individual drafts powers of attorneys in every jurisdiction they own property. This will overcome cross-border discrepancies.

What are the issues specific to the UK?

All UHNW individuals with property in the UK should have a UK lasting power of attorney which states the document will be governed by the Mental Capacity Act 2005. This document can then be used without any reference to the court of protection which makes any decision making quicker and cheaper.

What trends do you see in the industry?

Cross-border loss of capacity is going to be a real issue over the next few years as many UHNW reach old age.