New security bonds to protect LPA donors

When a person (a ‘Donor’) creates a Lasting Power of Attorney appointing a trusted person (an ‘Attorney’) to manage their financial affairs in the event they are unable to do so themselves, they do not contemplate the possibility that their Attorney could abuse their position by accessing and using the Donor’s money for their own benefit.

Sadly, financial abuse by Attorneys is commonplace and very often not discovered until after the event when there may be no prospect of recovering those misappropriated funds.

Deputy

The position is different when financial abuse is carried out by Deputy. A Deputy is someone appointed by the Court of Protection to manage the finances of someone who lacks mental capacity to do so themselves and does not have a Lasting Power of Attorney. It is mandatory that all Deputies take out insurance (known as a security bond) insuring against loss to the incapacitated person’s as a result of the Deputy’s fraud or negligence. In the event of such loss the security bond can be called in and the funds restored. 

This obvious inconsistency has been a cause of controversy. Retired Senior Judge Lush who presided of thousands of abuse claims in the Court of Protection once commented that he would never sign a Lasting Power of Attorney because of the risk of financial abuse and the devastating effects on family relationships, and would prefer the safeguards afforded by a Deputyship Order, albeit this came with added costs.

Security bond

A new security bond has now been developed to protect Donors under a Lasting Power of Attorney. Although only optional at this stage, this represents a significant development and one that legal practitioners will widely promote to their clients. In addition to financial abuse and negligence, the cover will also include:

• Cover for an honest mistake by an Attorney
• Cover for the Donor if an Attorney carries on with an application when they are bankrupt, or become bankrupt during the tenure of an LPA but don’t report it to anyone
• Cover when an Attorney has ignored or missed a time-restriction contained within an LPA
• 14 day cooling off period for cancellation of the cover by the Donor
• Only one single payment is required for the lifetime of the LPA
• No joint and several liability with other Attorneys
• Substitute Attorneys can be named on the bond from the outset
• Access to a 24-hour Legal Helpline 

Partner Matthew Edwards, the head of our private client team, is a Court Approved Panel Deputy who accepts deputy appointments on a range of cases, including cases involving serious financial abuse. Matthew commented:
“The introduction of LPA security bonds is a welcome and long overdue change in this area of law. Sadly, serious financial abuse amongst the elderly and other vulnerable client groups is surprisingly common and there is no guarantee that it is possible to recover missing funds and restore a person’s estate. A security bond offers the peace of mind that legal recourse will be available should financial abuse and loss occur.”

More information

To arrange a free telephone consultation please fill in the contact form on this page or email us at mail@pinneytalfourd.co.uk or contact us on 01708 229444 (Upminster Office), 01277 211755 (Brentwood Office) or 01708 511000 (Hornchurch Office)

This article was written by Matthew Edwards, Partner in the Private Client Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of August 2020.