What is a surety bond?
A ‘surety bond’ (also referred to as a ‘security bond’) is insurance that every professional or non-professional ‘lay’ deputy is required to take out by the Court. The surety bond protects the assets of the person (“P”) whose financial affairs and property the deputy is managing. It does not protect the deputy from claims of negligence, neglect or mismanagement of P’s property or finances.
The surety bond is held between the bond provider and the deputy, but the payment for the bond will be taken from P’s assets. Only the Court can decide the value of the surety bond, based on the value of P’s assets. The Court can change the value of the bond at any time if there is a change to the value of P’s assets. The court may also change the value of the bond if the perceived risk to P’s assets changes, for example if an application is made to increase the deputy’s access to P’s property or finances. Once entered into, only the Court has the ability to discharge or vary the bond ensuring that the bond provider protects the vulnerable person from the actions of their deputy.
The Court serves an Order if they find that P’s estate has suffered any loss that is due to the actions of the deputy. There is no requirement to prove fraud and the loss may not even be quantifiable. If the loss is not quantifiable, or the full effect of the action is still unknown, the Court will often order an interim payment whereby part of the bond is called in pending quantification of the loss. The bond provider must pay on demand without further investigation; however they are entitled to recover the amount paid out, plus expenses, from the deputy.
What is the ‘Scheme’?
The OPG makes arrangements to facilitate the provision of surety bonds. This arrangement is called the ‘Scheme’ and effectively endorses a bond provider to deputies appointed by the Court. From 1 October 2016 the Scheme is administered by Howden UK Ltd. The approved bond supplier’s quality of service is monitored by the OPG ensuring cost-effective and reliable services. However, deputies are not bound to enter into an arrangement in the Scheme and have a choice as long as the OPG have confirmed this.
If you hold an existing bond with a supplier previously endorsed by the OPG, such as Deputy Bond Services (DBS), you do not have to transfer your bonds to Howden UK Ltd. These suppliers will continue to honour and manage all surety bonds.
You cannot become a professional or a lay deputy without a surety bond being in place. This ensures that any loss to P’s estate can be reinstated quickly. However, the risk of incurring penalties and the bond provider’s fees can be higher for lay deputies who have no prior experience of being a deputy.
Therefore, professional deputies are a common choice for those who either do not want to be responsible for P’s property or finances or where the sums of money are substantial, such as where there is an award for personal injury compensation.
Professional deputies are often solicitors who must also have professional indemnity insurance. Consequently, bond providers recognise that a solicitor with indemnity insurance will be able to pay in a full and timely manner because any money owed can be paid from the indemnity insurance. This means bond providers will frequently offer reduced premium rates, saving money for P and ensuring their assets are fully protected.
The Telegraph wrote how since 2013 there has been a 153% rise in lay deputies and attorneys being removed from their positions due to financial mismanagement or alleged theft. There has also been a steep incline in investigations, with 885 investigations taking place in 2015. An OPG spokesman states that this increase was due to “better investigations” taking place.
One extreme example of financial mismanagement was where a deputy used his wife’s money to buy gifts and holidays abroad for himself and his mistress. However, more common examples of deputy’s mismanaging funds could involve selling a property to a family member at a value below market rate or using money in a manner that is not in P’s best interest. It is the deputy’s duty to act in the best interest of P, not how P could, or would, have done personally, if they had the capacity to manage their property and financial affairs. Re Buckley clarified this point when a lay deputy bought a reptile house using a substantial proportion of P’s assets. The OPG considered this financial mismanagement as it was not in P’s best interest to have a substantial proportion of their assets invested in a reptile venture, even though the deputy argued her aunt would have approved of her buying this business as she loved animals. The surety bond would have been called upon to make good the loss to the client.
The specialist Court of Protection team at Boyes Turner act as advisors and as professional deputies for clients nationwide. We work with a range of clients from the elderly to those with ongoing or settled clinical negligence claims.