Mental Capacity, Lasting Powers of Attorney and Transfers of Land

A lasting power of attorney (LPA) is a legal document that plays an invaluable role when organising and dealing with the assets of an individual who has lost capacity. This allows an attorney to make important decisions on behalf of a donor at what is typically a stressful time.

There are two types of LPA in the UK:
1. Lasting power of attorney for health and welfare
2. Lasting power of attorney for property and financial affairs

It is worth noting that LPAs replaced the previously used enduring power of attorney (EPA) in early October 2007. Therefore, EPAs cannot be signed after October 2007, but if signed prior to October 2007, they should remain valid.

As well as other powers, an attorney of a property and financial affairs LPA can usually sign a deed to sell or transfer property on behalf of the donor who has lost mental capacity. Once someone has lost capacity, legally, they cannot sign a deed or a document such as a will, whether they can physically sign or not. Any document they do sign, whilst lacking capacity, shall not be binding nor enforceable.

If there is any suspicion that a person lacks mental capacity, a medical capacity assessment by a medical professional should always be considered before executing a legal document.

Should someone lose capacity and not have a registered LPA or EPA in place at the time they lose capacity, usually, family members or people close to them would need to apply for a Deputyship Order in the Court of Protection. This can be expensive, time-consuming, and emotionally troubling.

Loss of mental capacity can happen to any person at any time. Given the low cost and ease of registering an LPA, it is generally recommended in the industry not to wait until incapacity is on the horizon before putting an LPA in place. This is even more important for donors with a beneficial interest in land.

Donor’s beneficial interest requirement

It is important to differentiate between legal and beneficial interest in land. It is common for joint proprietors of a property to have both legal and beneficial interests in the property, but this is not always the case.

A beneficial interest is an interest which carries the right to income from the property, or a share in it and a right to a proportion of the proceeds of a sale.

In the context of trusts, a trustee may not have a beneficial interest in a property if they are not a named beneficiary under a trust, even though they have legal title to the property. These proprietors hold the property as trustees upon the terms of the trust. They have the responsibility of safeguarding the trust asset, that being the property.

When considering whether an attorney can sign on behalf of a donor who has lost capacity in a transfer or sale of trust property, there is a requirement set out in section 1(1) Trustee Delegation Act 1999 that the donor must have a beneficial interest in the land, proceeds or income, at the time when the act is done.

HM Land Registry’s Practice Guide 9: “Powers of attorneys and registered land” states that where a property is held jointly, evidence is required that the donor had a beneficial interest in the property at the time an LPA is used.

Where a proprietor who lacks capacity has a beneficial interest in the property, it would be prudent for the solicitor acting for the attorney and donor to use the prescribed form of wording in a transfer, charge, or lease as detailed in HM Land Registry’s Practice Guide 9:

“Signed as a deed by (name of donor of the power), who has a beneficial interest in the property at the date of this (transfer, charge, lease etc), acting by their attorney (name of attorney) in the presence of…”

There are several suggested statement templates that can be used in this regard which are detailed in HM Land Registry’s Practice Guide 9.

What can be done when a donor does not have a beneficial interest?

Issues can arise where one or more legal proprietors of a property who do not have a beneficial interest in the property lose mental capacity. On the face of it, an attorney cannot sign on behalf of a donor who has lost capacity where that donor does not have a beneficial interest in the property.

Under section 22(2) Law of Property Act 1925, where a trustee cannot perform their functions as trustee due to a lack of mental capacity, they should be replaced or discharged from the trust before the trustees deal with the legal estate.

Section 36(1) Trustee Act 1925 gives the power to the remaining trustee(s) (or the personal representatives of the last surviving or continuing trustee) to replace, by writing, any trustee, who:

• Remains outside of the United Kingdom for more than 12 months.
• Desires to be discharged.
• Refuses to act.
• Is unfit, incapable, or an infant.

It is good practice to replace or remove a trustee of a trust before any question of their capacity becomes irretrievable, particularly where they are the only or last surviving trustee and where the said trustee does not have a beneficial interest in the property. Replacing or removing the trustee who has lost capacity will allow the remaining trustees to fulfil their trustee duties and to be able to dispose of trust property.

This article is for general information only and does not constitute legal advice. If you are a practitioner looking for help advising a client, please get in touch with CTT’s legal experts.

If you are a business struggling with a similar situation and looking for advice specific to your clients’ circumstances, please do not hesitate to contact our strategic partner CTT Law Ltd. You can call CTT Law on 01926 563 670, and a member of their team will be happy to go through how they may be able to assist you.

This article was submitted to be published by CTT Group as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.