Key considerations for Deputies and Attorneys investing on behalf of mentally incapable individuals

Managing the finances of someone who lacks mental capacity is a significant responsibility – and one that demands care, diligence and a clear understanding of the legal framework and financial landscape.

Being a Deputy or Attorney for someone who has lost mental capacity involves making a myriad of decisions, many of which are of a sensitive and delicate nature with countless number of considerations. Invariably, mentally incapable people do not have a prospect of earning income from employment or enterprise in the same way as a mentally capable person would. It means their financial provision will be dictated by the performance of their investment assets.

We act as Deputy and Attorney for many individuals via our Trust Corporation. The vast majority of these individuals will have received a compensation award but, other than state benefits, will not have any other means of financially providing for themselves. Accordingly, it is of overwhelming importance to them that their money is invested wisely and with strong budgetary discipline.

Deputies and Attorneys need to consider a number of important issues before investing funds on behalf of a mentally incapable person (‘P’) to ensure what is put in place represents their best interests.

What action(s) would be in the vulnerable person’s best interests?

Every financial decision must comply with the Mental Capacity Act 2005, which requires deputies to act in P’s best interests at all times.

In practice, this means:

• Understanding P’s current and future financial needs, including care costs and long‑term security
• Considering P’s past and present wishes, values, and beliefs
• Consulting family members (or others close to P) where appropriate
• Avoiding unnecessary risk or decisions that prioritise administrative convenience over P’s welfare

To ensure regulatory transparency, it’s essential to keep a clear record of all decisions made in your capacity as a Deputy – including the rationale behind each investment choice and how it aligns with P’s best interests.

What does this look like in the context of investing funds?

There are a number of issues that need to be considered:

Life expectancy

The funds must last as long as possible, but there is no obligation to leave surplus behind. Consideration of P’s life expectancy is important to understanding what it is we need the fund to provide for. Cash flow forecasting or modelling is a useful exercise here.

Experience tells us that with a high level of care and quality of life, clients are living longer than expected and so a degree of caution is always advisable when it comes to life expectancy.

Both income and capital expenditure needs

Following on from the above life expectancy considerations, it is important to know what is likely to leave P’s estate from year to year by way of expenditure, both in terms of value and timings. Locking funds into termed products can backfire if there is a need for access to the funds before the maturity of the term.

Additionally, investing funds and then drawing them from the investments shortly after can be a costly exercise. Care should be taken to ensure sufficient liquidity/free access to funds over a reasonable period at the start of an investment period to allow the funds the time to grow beyond the initial investment costs. A period of three to five years is often sensible.

Risk

Because P cannot consent to risk, deputies must adopt a cautious, responsible and proportionate approach by adopting the following principles:

• Avoiding speculative or high‑risk investments
• Ensuring the level of risk is appropriate (with respect to P’s financial resilience)
• Considering the impact of potential losses on P’s quality of life

Any views previously expressed by the protected person regarding their preferred investment style or risk appetite should also be taken into account wherever possible.

Typically, investments for incapable people sees the adoption of a low-medium risk profile. Where along that spectrum the portfolio ultimately rests will depend principally on the time the investments are expected to be left to grow.

Investments which are to expect frequent withdrawals will need to be of lower risk due to the impact of needing to withdraw during poor market conditions. This becomes more of a factor once the initial cash reserve has been exhausted.

Compromise in settlements

Even where a claim for compensation is settled at a theoretical 100% recovery, the litigation process will often see clients not recover every penny of what they need. Taking an injury litigation case is risky – and so it is often sensible to concede on some points to avoid going to a contested hearing and to ensure a good result overall.

However, we often find cases are settled at a compromise and the Deputy knows they have a deficit from the beginning. This often poses the greatest problem for investing; does the Deputy invest at a greater risk to achieve better results, or do they take less risk because they can ill afford to lose value?

In these cases, it is important to take some risk or the funds will simply not adequately provide for P’s needs. A reasonable cash reserve and a carefully designed annual budget can allow the investment funds in the background to grow and address some of the deficit.

In practice, only so much will be possible – and so the Deputy will have to skilfully navigate the expectations of P and family to achieve the sacrifices that will be needed to make everything work.

Cultural or religious considerations

Occasionally, we will know that P has/had, or would have been expected, to have strong cultural or religious views on investments. Consideration over ethical investing, or perhaps investing in Shariah approved products, should be made in these instances.

A Deputy or Attorney must always prioritise the financial needs of P – and where it is not thought possible to achieve the financial performance needed with ethical or Shariah investments, it may be wise to seek the blessing of local religious leaders to invest in a way that is not compliant with P’s faith.

Where P’s views would be in clear favour of ethical or Shariah compliant investments, there may be a need to remove expenditure from the budget to make the lower returns ‘work’ for P.

Tax efficiency

Tax efficiency is an important consideration for during P’s lifetime. Inheritance tax liability is not typically a direct consideration – except for instances where it is abundantly clear that P has, and will always have, surplus against their needs.

Normally, the focus on tax efficiency is to ensure as much of P’s money can go towards their provision as possible. There are times where capital gains are unavoidable, but the type of investment product should be chosen to meet P’s specific circumstances – e.g. a bond (on-shore or off-shore) or a general investment account (or combination).

Existing financial commitments

When P has dependents, the management of their finances should include consideration for the needs of others. For instance, the needs of P’s spouse/partner and children etc. should be included within P’s forecasted expenditure needs.

Extent of client involvement

The extent to which P is involved in the investing process will be case specific. For some clients, it is important for them to know that everything is in order. It can be good for them and can help them develop their skills to manage the money over which they remain capable.

For others, it could be a source of great anxiety or cause a vulnerability that would not be in their best interests, and so their involvement should be much more limited.

Practical considerations

What powers does the Deputyship Order or Lasting Power of Attorney grant?

It’s important that Deputies and Attorneys remain aware of the scope of their authority – in other words, what they are and aren’t permitted to do on P’s behalf under their specific Deputyship Order or power.

Consequently, it’s a good idea to review the scope of your powers before making any decisions. For example:

• Does the order expressly permit investment decisions?
• Are there restrictions on the types of investments allowed?
• Is Court approval required for certain transactions, such as discretionary portfolios or property purchases?

If the order does not provide sufficient authority to perform the action in question, it may be necessary to apply to the Court of Protection for additional powers.

What does the Office of the Public Guardian expect?

The Office of the Public Guardian (OPG) requires deputies to follow the standard investment principles (as set out in the Trustee Act 2000), which include the following: 

• Suitability and diversification – deputies must ensure investments are appropriate for P’s circumstances and that funds are spread across different asset classes to manage risk
• Seek expert advice – except for small or straightforward decisions, deputies should obtain regulated financial advice from an FCA‑authorised adviser experienced in vulnerable client work

How would P’s current and future financial position be impacted?

A holistic and sustainable investment strategy requires a clear picture of P’s financial needs – both now and in the future. This should encompass:

• Short‑term liquidity for daily living costs and emergencies
• Medium and long term planning, including care fees and inflation
• Balancing income and capital growth to ensure sustainability

Cash flow modelling is often recommended for this purpose and may be requested by the OPG during supervision.

Are there any costs involved?

Deputies must factor in any costs associated with the planned investment and ensure related fees (for example, investment or advisory fees) are reasonable and proportionate.

They must also confirm that any charging structures are clearly understood and avoid any potential conflicts of interest.

Finally, all decisions should be recorded and justified – including why a particular adviser or product was chosen above alternatives.

What records need to be kept?

The OPG places significant emphasis on transparency – and so as standard, Deputies should maintain detailed records of:

• All advice received
• Best‑interest consultations
• Investment reviews and performance
• Decisions to rebalance or adjust the portfolio

These records will be invaluable during the annual reporting process and help protect the Deputy if any decisions later come under scrutiny.

Would the decision require Court approval?

Certain financial actions on P’s behalf may require an application to the Court of Protection, including:

• High‑risk or unusual investments
• Property transactions
• Situations where family members disagree with the proposed investment
• Gifts or settlements involving investment assets

Our specialist Court of Protection team are able to offer personalised advice on whether Court approval will be necessary in your individual circumstances and support you throughout the application process.

How we can help

Investment decisions for Court of Protection clients are rarely straightforward; Deputies must balance legal duties, financial responsibilities and P’s personal circumstances to ensure the best long-term approach for their loved one.

Our friendly and experienced Court of Protection Solicitors are committed to providing clear, practical guidance to help Deputies make compliant, well‑reasoned decisions that safeguard P’s long‑term wellbeing and security.

If you’re looking for advice on how best to support a vulnerable person or would like an expert opinion on a specific investment decision, we’re here to help. Get in touch by contacting 03333 058375, or via email at [email protected], to speak to our team.