Informal family agreements are common, especially in close-knit families or those involved in farming and land management. These arrangements often work well while everyone involved has mental capacity and remains in agreement. However, these well-meaning arrangements can become complicated if one party loses mental capacity, particularly when a family member involved in the arrangement is also acting as an attorney under a power of attorney.

While informal family agreements might seem straightforward and rooted in trust, they can lead to complex legal and ethical dilemmas once someone loses mental capacity to make decisions for themselves. For example, an elderly parent may allow their adult child to live with them rent-free in exchange for support and companionship or in farming families, a parent may lease land to a child at a reduced rate as a gesture of support or future succession planning. These agreements, though often undocumented, may function well for years. But what happens when the parent loses capacity?

Mental Capacity and the Role of the Attorney

Once a person loses mental capacity, they are no longer able to give informed consent to continue or amend these arrangements. At this point, their appointed attorney under a lasting power of attorney must step in to make decisions on their behalf. This is where a conflict of interest can arise—particularly if the attorney is also a party to the informal arrangement.

For instance, if a daughter who has been living rent-free with her mother becomes her mother’s attorney, she is now in a fiduciary relationship and is required to act in her mother’s best interests.

The question then becomes: is continuing to live rent-free in her mother’s home still in her mother’s best interests?  In a fiduciary relationship, the attorney must not profit from the relationship and must avoid conflicts of interest.  Continuing to live in the property on a rent-free basis allows the daughter to profit from the relationship and her mother lacks capacity to continue to consent to that arrangement.

When Does It Become a Conflict?

The law is clear that attorneys must always act in the donor’s best interests, not their own. If the arrangement directly benefits the attorney—such as receiving discounted rent, using land for profit, or avoiding care costs—it becomes a potential conflict of interest.

Attorneys cannot simply ignore the issue and continue these informal agreements once the donor loses capacity. Even if the arrangement was previously agreed, the attorney must assess whether it remains appropriate and justifiable now that the donor lacks capacity to continue to confirm or update their wishes.

Formalising Arrangements Through the Court of Protection

Where a conflict arises or there is doubt about the best interests of the arrangement, attorneys are expected to apply to the Court of Protection. This is particularly necessary in scenarios involving significant financial implications, such as:

• Living in the donor’s property rent-free or at a reduced rent
• Leasing farmland or other assets from the donor
• Receiving a financial or practical benefit from a care arrangement

The Court of Protection can authorise the continuation of these arrangements if it determines they are in the donor’s best interests. Without such authorisation, the attorney may be in breach of their responsibilities, opening themselves up to scrutiny or even removal.

How can we help?

Lawyers in the Care and Protection Team at Wollens specialise in Lasting Power of Attorney and Court of Protection matters. If you have any family arrangements in place that may be of concern, get in touch with the team and we can help you protect arrangements in the future, advise on your role and responsibilities as an attorney, and help you through the process when a family member loses capacity.

You can also complete an online enquiry form. One of the Wollens team will contact you as soon as they are available.