A lasting power of attorney (LPA) is a special legal arrangement under which someone (the 'donor'), delegates legal authority to a trusted person to make decisions on their behalf about either their finances, healthcare or welfare should they lose the mental capacity to make these decisions for themselves at some point in the future.
LPAs are very popular — the Office of the Public Guardian (the body responsible for registering LPAs and supervising and supporting attorneys) received 141,000 applications to register LPAs in the first three months of 2016.
Why make an LPA?
Along with making a will, estate planning and matters such as life insurance, LPAs are part of normal financial ‘tidiness’. It is very sensible to have arrangements in place that ensure financial and/ or welfare and healthcare decisions can be made by a trusted person in the event that one day you are unable to make decisions for yourself.
There are two types of LPAs: for financial decisions and for health and welfare. A donor can make one or both. LPAs for financial decisions can be used while the donor still has mental capacity or can be limited so that the powers of the attorney will only come into force if he or she loses that capacity in the future. Attorneys under health and welfare LPAs can only act once the donor has lost mental capacity.
What powers will my attorney have?
The powers of an attorney under a financial LPA are wide-ranging. They can cover matters such as buying and selling property, paying a mortgage, investing money and paying bills. The LPA document, although made on a standard form, is flexible and it’s possible to include bespoke provisions or restrict the kind of decisions your attorney can make. In these cases, it‘s often sensible to take legal advice about how the LPA should be drafted. Special powers may also need to be included, such as authorising the attorney to use a discretionary investment management service.
The Mental Capacity Act 2005 sets out what attorneys can’t do, such as make a will for the donor. There are other limits to their powers. For example, attorneys can make gifts from the donor's money of a reasonable size on customary occasions such as birthdays, Christmas or other anniversaries, or to charities. But other gifts need the authority of the Court of Protection.
Attorneys have a very responsible role. Unless the LPA contains limitations (and the majority don't) they can effectively deal with the majority of your assets. However, attorneys must keep an account of what they do, always act in your best interests and must keep their own money separate. If things go wrong, the Office of the Public Guardian and the Court of Protection have a wide range of powers to sanction and remove attorneys who have not acted properly.
Making an LPA
Making an LPA is straightforward. A standard form is used and you do it online at www.gov.uk/power-of-attorney/make-lasting-power. The website allows the document to be drafted in full on the screen and then printed off and signed.
The donor and the attorney(s) must sign the LPA, as well as a ‘certificate provider’ — an independent third party who certifies that the donor understands the LPA and that they are not being forced into making it.
Once executed, the LPA must be registered with the Office of the Public Guardian to come into effect. A registration fee is charged, which has just reduced to £82 for each LPA. The registration process takes a few weeks and once complete, the LPA is ready to use (although, of course, it may not come into force until mental capacity is lost).
Don’t assume everything will be fine without one
Many people think that their next of kin will automatically be able to take over and deal with financial and healthcare matters for them should they lose mental capacity. But this is not the case without an LPA. If an LPA hasn’t been made and mental capacity is lost, it can be very difficult and stressful for family members. Often, an application has to be made to the Court of Protection for a deputy to be appointed to deal with the financial affairs of the incapacitated person. This can be complex and take time.
All in all, it may well be the best £82 (or £164) you ever spend.
For further information, contact:
Julia Abrey, Withers LLP
+44 20 7597 6053
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
This article was previously published on www.smithandwilliamson.com prior to the launch of Evelyn Partners.