Briefing 2: Financial Decisions under the Mental Capacity Act 2005

This briefing is one of a series about the Mental Capacity Act 2005 (MCA) which came into force on 1 October 2007 and provides an overview of the main structures and safeguards of the MCA.

1. Introduction
2. Meaning of capacity
3. Best interests
4. What are financial affairs?
5. Lasting Powers of Attorney
6. The Court of Protection
7. The Public Guardian
8. Independent Mental Capacity Advocates
9. Further information

1. Introduction

The MCA creates a framework within which to provide both empowerment and proper protection for people who cannot take all decisions for themselves. It contains provision for deciding whether people have the mental capacity to make decisions for themselves and for making decisions on behalf of people who lack the mental capacity to make such decisions. These decisions can be financial decisions or health and welfare decisions. This briefing is concerned with financial decisions.

2. Meaning of capacity

The meaning of capacity is discussed fully in Mental Capacity Act 2005 Briefing 1: Overview and Key Provisions of the Mental Capacity Act 2005. The MCA explains what is meant by incapacity. It provides that "a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or disturbance in the functioning of, the mind or brain."

The MCA also provides that "a person is unable to make a decision if he is unable: (a) to understand the information relevant to the decision (b) to retain that information (c) to use or weigh that information as part of the process of making the decision, or (d) to communicate his decision (whether by talking, using sign language or any other means)."

There is a presumption that a person has capacity unless it is proved otherwise. In addition, a person is not to be treated as unable to make a decision unless all practicable steps have been taken to help him nor should a person be treated as unable to make a decision merely because he or she makes an unwise decision.

3. Best interests

The MCA states that anything done or decision made on behalf of an incapacitated person must be done or made in that person’s best interests. In deciding what is in the person’s best interests, the decision must not be made merely on the basis of the person’s age or appearance nor should account be taken of any condition or behaviour which might cause other people to make unjustified assumptions. In addition, the following matters should be taken into account:

• Whether it is likely that the person in question will at some time have capacity and, if so, when;

• The person’s past and present wishes and feelings (particularly any written statements);

• The beliefs and values likely to influence the person if he had capacity and any other relevant factors;

• The views of anyone named by the person as someone who should be consulted in relation to the issue in question; and

• Anyone caring for the person, the donee of a power of attorney granted by the person or any deputy appointed for the person by the court (see below).

Therefore any decisions made in respect the financial affairs of an incapacitated person must be made in his or her best interests. If there is any dispute about this, an application can be made to the Court of Protection for a ruling. Mental Capacity Act 2005 Briefing 3: Structures and Safeguards under the Mental Capacity Act 2005 explains in more detail the functions and procedures of the Court of Protection.

4. What are financial affairs?

Anything that relates to an incapacitated person’s finances, including bank accounts, overdrafts, credit cards, savings and property can be dealt with under the MCA. Special rules apply to the following:

Contracts
English common law allows wide scope to make a contract and generally will not interfere in the bargain reached by the parties if, on an objective basis, it appears that agreement has been reached. Therefore, a contract made by someone without mental capacity will still be binding if the other party reasonably believed the person to be of full capacity at the time of its making. The test of capacity is whether the person was capable of understanding the general nature and effect of what he or she was doing. Therefore, it will be dependent on the type of contract and its complexity; for example, buying a bus ticket is very different from selling a house.

A contract will be invalid if it is shown that the other party should have known that the person did not have capacity, unless the contract was for the purchase of "necessaries". These are defined as goods suitable to the condition in life of the person concerned and to their actual requirements at the time of the sale or delivery. In these cases the contracts will be binding, even if the buyer lacks capacity, but the buyer will only be required to pay a reasonable price.

It is very difficult to show that the person contracting did not believe the other had capacity.

Wills
A person making a will must have capacity at the time they decide what to do with their estate and at the time they sign their will. If a person does not have capacity to make a will, and would otherwise die intestate, a statutory will can be made under the auspices of the Court of Protection.

Social security
A person receiving state benefits can nominate another person to cash benefits for him or her. The agent only has this limited role and has no authority to spend the money on behalf of the person in question.

A person can also be appointed by the Department for Work & Pensions as an appointee for the purposes of making and receiving a claim for benefits on behalf of a claimant. This procedure is not available when the Court of Protection has appointed a receiver. The appointee can spend the money claimed for the benefit of claimant.

5. Lasting Powers of Attorney

Before the Act came into force, these used to be called Enduring Powers of Attorney (EPAs).

A person, when possessing the legal capacity so to do, can appoint an attorney or attorneys to act for him or her in relation to his or her financial or property affairs. This is known as an ordinary power of attorney and ceases to have effect if the person appointing the attorney loses capacity.

The Enduring Powers of Attorney Act allowed people to appoint attorneys whose appointment continued even after the person lost capacity. The Act has now replaced EPAs with Lasting Powers of Attorney (LPAs). The main difference between an EPA and an LPA is that now an attorney can be allowed to make health and welfare decisions as well as financial decisions.

An LPA is a power of attorney under which a person (the donor) gives to another person (the donee) authority to make decisions on property and financial affairs and personal welfare matters and which provides for such decisions to be made in circumstances where the donor no longer has capacity. Both the donor and the donee must be over the age of 18.

An LPA must comply with certain formalities. It must be in writing, executed as a deed and witnessed by a third party. It needs to include information about the purpose of the instrument. The donor must name the person or persons to be appointed as attorney(s), state that he or she has read the information and intends to confer authority on the attorney to make decisions when he or she has lost capacity and state whether anyone, and if so whom, should be notified of any application to have the LPA registered. The donee must state that he or she has read the information and understands the duties under it. The instrument must also contain a certificate from a prescribed person that in his or her opinion the donor understands the purpose of the document and no fraud or undue pressure is being exerted.

The LPA must be registered with the Public Guardian in order to become valid. Therefore an attorney will not have authority to act on behalf of a person who loses capacity if at that time the LPA has not been registered. An LPA does not take effect unless and until it has been registered with the Public Guardian. An application to register an LPA can be made by the donor or the donee. It is done by sending the original document with a completed application form and the applicable fee together with appropriate medical evidence confirming that the donor has lost capacity. If and when the donor regains capacity, an application can be made for the LPA to be revoked.

6. The Court of Protection

The Court of Protection supervises the framework set out in the MCA. In particular it has the power to:

• Make declarations as to whether a person has capacity to make a particular decision or to make decisions about a particular thing;

• Make decisions and appoint deputies to make decisions on a person’s welfare, including deciding where a person is to live and giving or refusing consent to health treatment;

• Make decisions and appoint deputies to make decisions on a person’s property and affairs;

• Rule on the validity of LPAs; and

• Determine the meaning or effect of an LPA.

7. The Public Guardian

The Public Guardian’s Office duties include:

• Registering LPAs and deputies;

• Supervising deputies appointed by the Court of Protection;

• Providing evidence to the Court of Protection; and

• Providing information and guidance to the public.

The Public Guardian also works with a range of agencies, such as the police and social services, in order to be able to respond to any concerns which may be raised.

8. Independent Mental Capacity Advocates

The Act provides for an independent mental capacity advocate (IMCA) service. The main functions of an IMCA are to:

• Provide support to the person whom he or she has been instructed to support so that the person may participate as fully as possible in any relevant decision;

• Obtain and evaluate relevant information;

• Ascertain what the person’s wishes or feelings would be likely to be, and the beliefs and values that would be likely to influence that person, if he or she had capacity;

• Ascertain what alternative courses of action are available in relation to the person; and

• Obtain a further medical opinion where treatment is proposed and the advocate thinks that one should be obtained.

The service is restricted to those who do not have representation in the form of (a) a person nominated by the individual (by whatever means) as a person to be consulted in matters affecting his or he interests, (b) a donee of an LPA or EPA created by the individual or (c) a deputy appointed by the Court of Protection.

Although the MCA would permit a broader group of people to receive IMCA services on a discretionary basis, funding for the scheme has been calculated on a very limited basis. The Government intends the service to apply in the first instance only to "those who have no family or friends".

9. Further information

This legal briefing relates only to the law of England and Wales in force at the time of writing. It is a brief outline of the law and is not a substitute for detailed advice.

For further information about the work of Mind's legal unit, please refer to our information sheet, Introduction to the Legal Unit. This is also available in hard copy (T: 020 8519 2122).

The Office of the Public Guardian (OPG) is the first point of contact for anyone seeking advice or information about the MCA (T: 0845 330 2900). Its website (www.publicguardian.gov.uk) contains a range of information about the Mental Capacity Act, Lasting Powers of Attorney and how to make an application to the Court of Protection.

For more detailed advice on any of the issues discussed in this briefing you should take advice from a solicitor specialising in this area of the law. Details of where to seek specialist advice can be obtained from the Law Society (www.lawsociety.org.uk, T: 0870 606 2555) or from Community Legal Advice (www.communitylegaladvice.org.uk, T: 0845 345 4345). Alternatively, you could contact your local Law Centre or Citizen’s Advice Bureau, who may be able to help.

Michael Konstam
Legal Unit
Mind
Granta House
15-19 Broadway
London E15 4BQ

January 2008