When a POA doesn't count (share ownership transfer)...

[Boromir]

Hello all!

A noteworthy point about the scope of POAs. My Mum, who passed away in 2015, owned a small number of shares worth about 3K. Despite preparing a draft Will some years earlier, she and my Dad didn't have a final version registered prior to her passing, so her estate passed to him by default. However, share ownership is a tad more involved. Some years later, with a POA in place for my Dad, I began the process of having the ownership of the shares transferred to him. After some back & forth with various forms, and initially receiving some incorrect info from the share management firm which held things up for a while, I discovered this week that the POA I have (both financial and welfare) is useless for sorting any of this out, so I thought I would post to explain why as the distinction may be relevant in other circumstances (mods, feel free to mention other exampes you can think of, and do correct me if I state anything here incorrectly). So this is what I was told today...

If my Dad still had capacity then he could in theory deal with this process himself, but the key point is that he isn't the registered owner of the shares, so what would be needed is either a Grant of Representation to specify who takes on the management of the remainder of my mother's estate (Probate), or a Trustee Power arrangement (normally just done via solicitor). In other words, my Dad would not be able to fill out all the usual share transfer forms himself (as I'd been trying to do) because he's not the owner of the shares, not unless he has the above additional authority to do so. Alas the people I originally talked to at the management company didn't know this either in regard to how it relates to having a POA. My Dad was deemed to have lost capacity about a year ago; I took on the task of trying to sort out the share ownership transfer without knowing about these ownership issues. Finally having it explained in detail today (by someone at the management company who actually knew the correct procedures), what it boils down to is this:

- Although a full POA allows one to act on behalf of a relative, one cannot use it to carry out some action which that person would not legally have been able to do themselves anyway, prior to their losing capacity.

With hindsight this sounds rather obvious, but the distinction is subtle. In general, when a person dies and there is no Will, then their estate passes to next of kin, typically their partner (if there is one). When it comes to share ownership though, it's much more complicated. Maybe it's doable if one has a financial POA in place and active but the person still has capacity (ie. welfare POA not yet active), but in general in the case of share ownership transfer it's probably best just to ask a solicitor to sort it all out (that will incur some extra fees, but still much easier overall).


Lessons:

1. Make sure a Will is in place, the shares are included and check with the solicitor that the provisions concerning the shares are correct.

2. If it's already too late, ie. the original share owner has passed away and there was no Will, then ask a solicitor to sort it all out.

As I say, one could in theory utilise a finance-only POA to assist the surviving partner to get the ownership transferred, but there are a lot of forms to deal with (some rather confusing, I had to call the management company several times to clarify how to fill them out), and such matters are probably the last thing they want to think about at the time.

Hope this helps! Perhaps not a common scenario, but I was intrigued to discover that the POA as a mechanism does have its limits.

Boromir.

 

[Kevinl]

A friend of mine had almost exactly the same problem, his mum passed away and owner a few shares in the company she used to work for under an employee share deal and some from when the building societies changed to banks.
His dad just assumed the shares were then his and did nothing about them so they were still in mum's name. When his dad passed away he found all this out and handed the whole lot over to a solicitor to deal with, nearly half the value of the shares went in legal fees to sort it out.
The solicitor told him the size of the shareholding doesn't matter the paperwork is the same for ten shares as it is for ten thousand shares, so holding just a few shares can mean the fees can wipe out a lot of the shares value.
I had a few shares again from the building society's conversion to a bank so to keep life simple and as no one had a POA for me I just sold them and bought Premium Bonds. It turned out I did it at the right time as the market crashed a few months later and my building society shares were with the Northern Rock and became effectively worthless.
K

 

[Boromir]

... It turned out I did it at the right time as the market crashed a few months later and my building society shares were with the Northern Rock and became effectively worthless.
K

Thanks for the reply! Perfect examples there. Like you said, I assumed the shares would just be passed over like everything else, but nope, it's a right old pickle. Good move on your own shares btw! My Dad does have a small number of his own shares in some other company (which have never really done very much) so likewise I figure it's probably best just to sell them and pay the resulting sum into his ISA.

Btw, something I also discovered during all this is that probably the best kind of savings investment to have is an investment bond, because according to a financial advisor I spoke to such bonds are normally excluded when the SS calculate whether a person's assets are above the capital limit, infact two different advice charity helplines said one can normally make a good case for bonds to be excluded anyway because they are better retained as a reliable source of regular income. To be genuinely useful though, bonds need to be significantly built up over time, regular payments, etc., and there's usually some period of time (several years) during which any early cash-in incurs hefty penalties. One can have ISAs aswell of course, but they're wrapped up in all sorts of restrictions. If possible, have both.

Boromir.

 

[jugglingmum]

My interpretation of the examples given is that the LPA does allows the attorney to act on behalf of the donor as themselves, and there are no limitations on exercise of powers on behalf of the donor.

However in the case of the share transfer examples quoted, these were not where the donor was acting as himself but rather performing duties as the executor/administrator of the deceased, and executor/administrator powers can only be exercised by the individual who is given them and cannot be transferred.

The issues arose because the legal paperwork was not dealt with as it should have been when the original owner of the shares died, not because there is any limitation of powers in an LPA. The same situation would arise on any assets not transferred out of the name of the deceased by an executor who loses capacity, be it property or funds in a bank account. Which is as it should be, albeit in the examples given it was small sums involved.

 

[jugglingmum]

I can't comment on the shares example, but i do know there are some limitations on the exercise of powers on behalf of the donor. I have POA for my aunt. When i sold her house I wanted to invest the proceeds in a bespoke discretionary investment portfolio, run by a fund manager. I found I didn't have the power to do so and had to apply to the COP.

Yes - I remember you mentioning this, and to my mind this ties in with trust principles enshrined in law in management of and protecting the donor's assets, just like you can't make excessive gifts on their behalf.

The shares example given is not acting on behalf of the donor in respect of the donor's assets, and an LPA cannot assume the previous position of executor/administrator of a deceased estate which was held by the donor, as this position lapses once capacity is lost.

What has caused the initial confusion is the donor is beneficially entitled to the assets, but has not had the beneficial title legally transferred to them, and beneficial title still rests in the estate of the deceased.

The income from the shares belongs to the estate of the deceased until the shares are transferred which can require the estate of the deceased to submit a self assessment tax return.

 

[Kevinl]

When i sold her house I wanted to invest the proceeds in a bespoke discretionary investment portfolio, run by a fund manager. I found I didn't have the power to do so and had to apply to the COP.

I can see why the COP want to know, all investments no matter how well manages are basically a gamble on the stock market and as such can go down as well as up, they also carry management charges which can mean that the investor loses money but still has to pay the wages of the person who got the investments wrong.
Generally speaking the higher the return the higher the risk and fund managers...well that's what Nick Leeson did until he shut down Barings Bank and started the banking crash we're only just getting over, I'm not surprised the COP want to look at who you're investing with.
K