The Purpose and Legal Standing of a Power of Attorney in Relation to a Foreign Pension or a Discretionary Trust

What would you do if life suddenly took a turn and you became unwell or unable to make decisions about your finances? This is where a Power of Attorney (“POA”) becomes invaluable. A POA is a legal document that allows one person (the “Principal”) to grant authority to another person (the “Attorney”) to act on their behalf in specific circumstances, ensuring important matters continue without interruption.

In the context of Foreign Pensions or Discretionary Trusts (“Fiduciary Structures”), a POA can be a vital tool for maintaining continuity if a pension scheme member, settlor, or beneficiary (the “Parties”) is temporarily or permanently unable to act. However, while the POA is binding between the Principal and the Attorney, trustees are not obliged to follow its instructions if they believe doing so would not be in the best interests of those involved.

Although POAs are widely used in both personal and commercial contexts, their application to Fiduciary Structures requires careful planning. Complex legal frameworks, scheme rules, and fiduciary responsibilities can limit how and when a POA may be exercised.

The Purpose of a POA

A POA can serve several important functions when applied to Fiduciary Structures:

• Maintaining continuity of administration: If a Party becomes ill, incapacitated, is travelling, or otherwise unable to act, a POA ensures that administration continues seamlessly.
• Facilitating cross-border transactions: Managing a Fiduciary Structure often involves investment instructions, documentation, and administrative approvals across jurisdictions. A POA allows these processes to proceed efficiently, which can be handy, particularly when dealing with investment managers or financial institutions.
• Representing members in pension matters: A pension member can use their POA to give instructions, make elections, or handle benefits administration. This is especially valuable where illness prevents direct action.
• Avoiding unnecessary trustee changes: Where incapacity is temporary, a POA provides a less disruptive alternative to resignation or formal removal, preserving governance stability.

The Legal Standing of a POA

The legal standing of a POA in relation to Fiduciary Structures depends on jurisdictional laws, scheme rules, and trust deeds.

Key considerations include:

• Delegation of powers: Trustees must comply with applicable legislation and governing documents. Some trustees’ decisions cannot be delegated unless authorised by a court.
• Scope and limitations: A POA should clearly define the specific powers granted to the Attorney, such as signing authority or investment management – without undermining fiduciary responsibilities or breaching regulatory requirements.
• Validity and duration: A standard POA ceases to be valid if the Principal loses mental capacity, unless it is established as a Lasting Power of Attorney. In some jurisdictions, once mental capacity is lost, a curator is appointed by the courts (see the references at the end of the article to learn how this is treated in different jurisdictions).
• Interaction with scheme rules: Pension schemes may restrict certain actions – such as changing beneficiaries – to the direct consent of the member unless incapacity provisions apply.
• Fiduciary obligations remain: Even when authority is delegated or considered, trustees retain ultimate responsibility for ensuring compliance with the trust deed, pension scheme rules, and applicable laws. They also have a duty to act in the best interests of members and beneficiaries. Therefore, if a request under the POA conflicts with these obligations, trustees will not act on it unless legally compelled by a court.

The Best Practice in Granting a POA

For a POA to be effective and respected in relation to a Fiduciary Structure, it is important to:

• Play by the rulebook: Ensure the POA does not clash with the trust deed or pension scheme rules.
• Be precise: Clearly define what the Attorney can and cannot do, leaving no room for ambiguity.
• Follow formalities: Sign, witness, and notarise the document in accordance with the legal requirements of the relevant jurisdiction.
• Review regularly: Update the POA as circumstances and laws evolve.
• Keep stakeholders informed: Notify trustees, administrators, and advisers of the POA’s existence and scope.
• Ensure accessibility: Provide trustees with the most recent version, even if it is not actively being used.

Conclusion

A POA can provide invaluable continuity and administrative efficiency in managing Fiduciary Structures, particularly where absence, illness, or incapacity might otherwise interrupt decision-making.

However, careful drafting and regular review are essential to ensure the POA fulfils its intended purpose – ultimately providing clarity, stability, and peace of mind.

Contact Us

Every client’s circumstances and cross-border arrangements are unique. A POA can deliver critical continuity, but complex legal frameworks and jurisdictional rules require meticulous planning to ensure authority is correctly delegated and interests remain protected.

Contact us on +44 (0) 3333 078888 or +27 (0) 21 851 5584 or via email at advisers@trustandpension.com today to help your clients secure their wealth and simplify the management of their affairs – no matter what the future holds.

In Case You Missed it

Please click HERE to read our article on the Purpose and Legal Standing of a Letter of Wishes in Relation to a Foreign Pension or a Discretionary Trust.