If you are over the age of 50 you should seriously consider the value of arranging a Lasting Power of Attorney. However good the plans that you have made, they can easily fail to achieve their objectives if you lose the ability to make ongoing decisions concerning them.
Such inability can come about as the result of a number of situations but the concern here is the loss of mental capacity to make such decisions. In the main this can occur as the result of advanced age but this is not always a contributory factor.
It is also important to realise that many older people can get to a point where they simply no longer wish to cope with the complicated and fast changing world of finance.
Benefits of making a Lasting Power of Attorney
Proper financial planning seeks to put things in place well before they might be required in the way that a good vehicle driver looks well ahead when they are driving. Just as the good driver gives themselves as much time as possible to anticipate what might happen and to stop accelerating, brake, accelerate, change lane or change direction, so good financial planning involves putting plans in place to deal with as many eventualities as possible.
There are a number of reasons you may wish to make a Lasting Power of Attorney:
- It can be reassuring to know that, if you are unable to make a decision for yourself in the future, your chosen person will make these decisions for you.
- Making a Lasting Power of Attorney ensures that the person you want to make decisions for you will be able to do so. This prevents a stranger, or someone you may not trust, from having this power.
- A Lasting Power of Attorney can reduce problems that may occur in the future.
- It can be more expensive and time-consuming for family or friends to try to gain a similar power in the future.
- A Lasting Power of Attorney can help prompt discussions with your family or others about your future wishes.
Based on my experience
I encourage everyone over the age of 50 who is on the journey towards prosperity to set up a Lasting Power of Attorney. This will usually involve appointing your spouse or partner as your attorney and one of your children or other younger family member as a second attorney.
Many children and relatives are mistaken in thinking that they will automatically be given power over an elderly person’s financial affairs once that person is considered incapable of making decisions. In fact, if a Lasting Power of Attorney is not in place those relatives have to apply to the Court of Protection. This cab be both a long process and an expensive one. The lesson is that the application process of a Lasting Power of Attorney should be started well before there is an apparent need for it.
Some of you will already have the former Enduring Power of Attorney in force and that can continue to be used.
What is a Power of Attorney?
Under a normal Power of Attorney (i.e. not specifically a ‘Lasting’ Power of Attorney) you can give another person the right to look after your financial affairs.
A Power of Attorney is a written document in which one person (the principal) appoints another person to act as an agent on his or her behalf, thus conferring authority on the agent to perform certain acts or functions on behalf of the principal.
A Power of Attorney is routinely granted to allow the agent to take care of a variety of transactions for the principal, such as handling stocks and shares or maintaining a safe-deposit box.
A Power of Attorney can be written to be either general (full) or limited to special circumstances.
Example – Peter’s son Roger is working in Saudi Arabia on a long term contract. Roger’s wife and children have gone to live with him and they are renting out their house in Bristol in order to cover the mortgage payments. It would not be impossible for Roger to deal with the UK letting agent, his UK bank account and many of the transactions he is committed to in the UK such as his mortgage when the fixed rate comes to an end etc. However it would be much simpler for Roger to give a Power of Attorney to Peter, his father. Peter would then be able to handle all of the financial issues that Roger would normally be expected to deal with if he were in the UK. Where Peter is unclear about the right decision in any particular circumstance he can still contact Roger for his input.
Example – Mrs Norman handles all of the household finances, bank accounts and credit cards for herself and Mr Norman as she is good with money and her husband prefers to concentrate on his career. Mrs Norman found it very difficult to deal with certain aspects of the family finances as some financial organisations always wanted to talk to her husband rather than her which was very frustrating. To overcome these problems Mr Norman has given a Power of Attorney to Mrs Norman. She can now handle all of the family finances whether they are in her sole name, her husband’s sole name or held jointly. Whilst this will not entirely eliminate the need for every single organisation to speak with her husband the problem is now much more easily managed.
A Power of Attorney can be revoked by the principal at any time. It is also terminated when the principal dies or becomes incompetent.
Lasting Power of Attorney
A Lasting Power of Attorney (LPA) is a special form of Power of Attorney in that it remains valid after somebody has become mentally incapable of managing their own affairs, whereas an ordinary Power of Attorney would cease at that point.
The important issue here is that a Lasting Power of Attorney can only be set up when you are in sound mind and still capable of making decisions about the future.
Establishing a Lasting Power of Attorney gives you the opportunity to have a say about your future and it also makes it easier for your family or others to act on your behalf in the future should this become necessary. You should not just think that it is about losing your mental capacity when you are very old. You might be involved in an accident, have a stroke or suffer from a debilitating disease.
When you set up a Lasting Power of Attorney you are called the ‘donor’ and you give the legal right to one or more people to manage your financial affairs, property and, if you so wish, personal affairs – these become the attorneys.
A Lasting Power of Attorney can only be used if it has been registered with the Office of the Public Guardian. You can register a Lasting Power of Attorney if you’re:
- the person who needs the attorney (the ‘donor’)
- the attorney
If you’re the donor, you must be able to make your own decisions when you register. You can register the Lasting Power of Attorney straight away, or keep it unregistered until it is needed. It can take up to 8 weeks to register a Lasting Power of Attorney if there are no mistakes in the application.
Before you register the Lasting Power of Attorney you have to notify one or more family members in case they want to object. You do this by sending ‘a notice of intention to register’ to all the ‘people to be told’ listed in the Lasting Power of Attorney. They will have three weeks to raise any concerns.
A ‘certificate provider’ is required to make sure you understand what you are doing and that you are not under pressure to set up the Lasting Power of Attorney. Such a person can either be a knowledge based (i.e. a friend) or a skills based (i.e. a professional) certificate provider.
If the application for the Lasting Power of Attorney was originally completed online then it can also be registered online. Otherwise you will need to complete a paper application to register and send it to the Office of the Public Guardian as soon as possible after you’ve sent the ‘notice of intention’ form to the people who need to be told.
If you’re the donor, you can cancel a Lasting Power of Attorney at any point so long as you have capacity, even if it’s been registered. To do this, you must complete a statement called a ‘deed of revocation’.
There are two types of Lasting Power of Attorney
- property and financial affairs
- health and welfare
You can choose to make one type of Lasting Power of Attorney or both.
You may need to have a deputy appointed instead of making a Lasting Power of Attorney, if you aren’t able to make decisions on your own.
Property and Financial Affairs Lasting Power of Attorney
This allows you to choose one person or more to make decisions about money and property for you, e.g:
- paying bills
- collecting benefits
- withdrawing funds from an investment or pension
- selling your home
You can appoint someone to look after your property and financial affairs at any time. What will happen in most cases is that you will continue to manage your financial affairs as long as you are able to, or have the desire to, and then you will hand over responsibility to your attorneys later in life.
Health and Welfare Lasting Power of Attorney
This allows you to choose one person or more to make decisions about things like:
- your daily routine (eg eating and what to wear)
- medical care
- moving into a residential care home
- refusing life-sustaining treatment
The Lasting Power of Attorney can only be used when you’re unable to make your own decisions.
There is something of a crossover here between the Health and Welfare Lasting Power of Attorney and Advance Decisions which are also referred to as ‘Living Wills’.
An Advance Decision is a document which is used to tell the healthcare professional of the types of treatment that you refuse to have. Note that you cannot tell the healthcare professional what treatment you want.
If you have completed both a Health and Welfare Lasting Power of Attorney and an Advance Decision then the one that you made most recently would take priority. If you have completed a Health and Welfare Lasting Power of Attorney properly then you will not need to complete an Advance Decision document as well.
Mental Capacity Act 2005
This is the defining act for our purposes. Its introduction states:
‘An Act to make new provision relating to persons who lack capacity; to establish a superior court of record called the Court of Protection in place of the office of the Supreme Court called by that name; to make provision in connection with the Convention on the International Protection of Adults signed at the Hague on 13th January 2000; and for connected purposes.‘
The following principles apply for the purposes of this Act.
- A person must be assumed to have capacity unless it is established that he lacks capacity.
- A person is not to be treated as unable to make a decision unless all practicable steps to help him to do so have been taken without success.
- A person is not to be treated as unable to make a decision merely because he makes an unwise decision.
- An act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in his best interests.
- Before the act is done, or the decision is made, regard must be had to whether the purpose for which it is needed can be as effectively achieved in a way that is less restrictive of the person’s rights and freedom of action.
Capacity to make decisions can vary depending on the level of the decision required.
An attorney can have wide, unrestricted powers to run your financial affairs, or you can place restrictions upon them. As a precaution against possible misuse of power, therefore, you should give consideration to appointing more than one attorney.
Choosing your attorney
When choosing an attorney, think about:
- how well the person looks after their own affairs, e.g. their finances
- how well you know them
- if you trust them to make decisions in your best interests
- how happy they will be to make decisions for you
When you appoint more than one attorney you can do so jointly, in which case they have to agree before they can act for you, or jointly and severally, in which case an attorney can act alone on your behalf. You can specify different methods for different types of decisions.
Who can be your attorney?
Your attorney can be anyone 18 or over, e.g:
- your husband, wife or partner
- a relative
- a friend
- a professional (like a solicitor)
The most common situation is where a husband, wife or partner is appointed as the attorney with one or more of the children designated as a replacement attorney.
Who can’t be your attorney?
You can’t choose someone who:
- is under 18
- is unable to make decisions
- is subject to a debt relief order
- is currently bankrupt (if you want them to look after property or money)
If the attorney dies
A Lasting Power of Attorney comes to an end when the donor dies. It will also end automatically if the attorney:
- loses the ability to make decisions – mental capacity
- divorces or ends a civil partnership with the donor
It can continue if:
- there are other attorneys who can act ‘jointly and severally’
- there are replacement attorneys
If the attorneys can only make decisions together and ‘act jointly’, the lasting Power of Attorney will come to an end.
A Property and Financial Affairs Lasting Power of Attorney can come to an end if the attorney becomes bankrupt, unless there are other attorneys in place.
Certifying a copy of a Lasting Power of Attorney
A donor can certify a copy of their registered Lasting Power of Attorney if they still have mental capacity. The donor must write the following text on the bottom of every page of the copy:
I certify that this is a true and complete copy of the original Lasting Power of Attorney.
They need to sign and date every page.
When the donor no longer has mental capacity, the following people can make a certified copy:
- a solicitor
- a person authorised to carry out notarial activities
- a member of the stock exchange
At the time of writing this (August 2020) it costs £82 to register each Lasting Power of Attorney. This means it costs £164 to register both a Property and Financial Affairs Lasting Power of Attorney and a Health and Welfare Lasting Power of Attorney. If your form is returned because it’s invalid, you can apply again within 3 months for £41.
If the person who made the Lasting Power of Attorney or Enduring Power of Attorney receives certain means-tested benefits when you apply to register it, you won’t have to pay anything – this is called an ‘exemption’.
If the donor’s income before tax is less than £12,000 a year, you’ll only have to pay half – this is known as a ‘50% remission’.
Applying to be a deputy
You can apply to the Court of Protection to be appointed as a deputy so that you can manage someone’s financial affairs after they have lost the capacity to do so. It is unlikely that you would be able to be appointed to cover health and welfare decisions.
The cost of an application to be appointed as a deputy is £365 (or £730 if you do apply for both types of deputy). You’ll also need to pay £485 if the court decides your case needs a hearing. There will be additional legal costs as the process is quite complicated for someone who has no experience of this. It is also necessary for the deputy to take out a ‘security bond’ and the premium for this will depend on the size of the estate to be administered.
After you have been appointed you must pay an annual supervision fee depending on what level of supervision your deputyship needs. You’ll pay:
- £320 for general supervision
- £35 for minimal supervision – this applies to some property and affairs deputies managing less than £21,000
The deputy has to lodge annual accounts with the Court of Protection (probably involving more costs for an accountant or bookkeeper). It takes around 9 months to be appointed as a deputy.
Taking out a Lasting Power of Attorney when you have full capacity can be seen as a form of insurance policy to avoid the need to have a deputy appointed with all the costs and delays which that entails. It is also important to note that by using a Lasting Power of Attorney you are able to appoint your attorney whereas you would have no say in who might apply to be a deputy for you.
Example – Mr and Mrs Evans owned their home jointly and Mr Evans became quite ill such that as a result of his illness he became incapable of making decisions. Mrs Evans decided that it would be best to sell the family home and purchase one near to her daughter who was a nurse so that she could help look after Mr Evans from time to time. Unfortunately there was no Lasting Power of Attorney in force and Mrs Evans had no right to sell the property without Mr Evans’ agreement, which he was unable to give as he no longer had the capacity to do so. Mrs Evans visited a solicitor who helped her apply for a deputyship application to the Court of Protection. Once appointed by the Court as a deputy Mrs Evans would be able to handle her husband’s financial affairs and in particular the sale of their home. The process took about 12 months and cost several thousand pounds in fees. Eventually Mr and Mrs Evans were able to move to be near their daughter. A timely Lasting Power of Attorney would have given Mrs Evans the ability to sell the home without involving the Court of Protection.
An attorney can act on your behalf whether or not you have the mental capacity to do so yourself. It is therefore prudent for a donor to keep the Lasting Power of Attorney under their control while they maintain the capacity and the desire to handle their own financial and health affairs.
A donor can place restrictions on the decisions that the attorney can make on their behalf, particularly under the health and welfare document.
Using a Solicitor
You do not have to use a solicitor to set up a Lasting Power of Attorney as a standard form and comprehensive notes are provided by the Office of the Public Guardian. However, a Lasting Power of Attorney is a powerful and important legal document, and you may wish to seek advice from a legal adviser with experience of preparing them especially if you have a lot of money or property. You should have a look at the forms and read the guidance notes first and see how you feel.
Solicitors are experienced with Lasting Powers of Attorney and can offer you practical support. They can also help you to fill in the form. The solicitor will normally keep the original Lasting Power of Attorney and give you a certified copy so that it is ready to be used when needed. If you decide to use a solicitor to help you with this then you should ask for an estimate of their fees before instructing them as fees for such work can vary widely.
If a Lasting Power of Attorney is being drawn up for someone who is already beginning to lose their mental ability it is wise to take advice from a doctor and solicitor on whether the Power of Attorney will be valid.
Completing a Lasting Power of Attorney online
The Office of the Public Guardian has built a digital tool which will make the process of creating and registering a Lasting Power of Attorney simpler, clearer and faster. The digital Lasting Power of Attorney tool offers:
- Step by step guidance: it breaks the process down into small, logical steps.
- Fewer errors: it checks for errors and prevents you from going further until you have corrected them.
- Help where it’s needed: it provides relevant guidance at the point you need it – with further help available at the click of a mouse.
- Fewer forms to complete: it automatically chooses and fills in all the forms you need with the information you provide. All you have to do then is print and sign them.
- Online secure payment: there’s an application fee for each Lasting Power of Attorney you register. Their online payment partner will ensure your payment is safe and secure.
- Secure personal information: all the information you enter is safeguarded on protected government servers.
You’ll need to print out the completed Lasting Power of Attorney forms so that all the relevant people involved can sign it, but the tool will help make the whole process quicker and easier.
Enduring Power of Attorney
Enduring Powers of Attorney (EPAs) have been replaced by Lasting Powers of Attorney. They can still be used if they were made and signed before October 2007.
Lasting Powers of Attorney have stronger safeguards for vulnerable people than Enduring Powers of Attorney.
An Enduring Power of Attorney was valid as soon as it was signed whereas a Lasting Power of Attorney has to be registered before it can be used.
You must register the Enduring Power of Attorney if the donor is losing, or has lost the ability to make his or her own decisions.
If you’re the donor, you can cancel an unregistered Enduring Power of Attorney at any time. If it has been registered, you’ll need to get the permission of the Court of Protection. You’ll need to prove that you’re able to make your own decisions.
For further information
Office of the Public Guardian, PO Box 16185. Birmingham B2 2WH
Telephone: 0300 456 0300
Office hours: Monday to Friday, 9am (10am Wednesday) to 5pm
The Court of Protection, The Royal Courts of Justice, Thomas More Building, Strand, London WC2A 2LL
Telephone: 0300 456 4600
Office hours: Monday to Friday, 9am to 5pm
Follow this link for Government information on Lasting Power of Attorney
Follow this link to make a Lasting Power of Attorney online
Inheritance Tax planning
It is important to note that attorneys are prohibited from making inheritance tax arrangements without the specific authority of the Court. In reality in most cases it has proved that such an extension of their powers will not be granted for the gifting of large parts of the estate or placing assets in trust.
If the intended gift in any year is under £15,000 the application to the Court can be in the form of a letter. This underlines the fact that although inheritance tax is in many ways a voluntary tax, you have to start taking the necessary action early enough.
One area where an attorney can act to reduce inheritance tax on an estate is to invest part of the donor’s money in AIM Stocks. Although these are high risk, such investments are deemed to be out of a person’s estate after just two years because they are business assets rather than the seven years required when a potentially exempt transfer is made.
Links to more information
- Will and Lasting Power of Attorney
- Financial planning for vulnerable people
- UK Government notes on Making a Will
- UK Government notes on a Lasting Power of Attorney
- If you need personal financial advice on a Lasting Power of Attorney then I am happy to introduce you to Flying Colours Life who have access to independent financial advisers throughout the UK
This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.
Information given relating to tax legislation is based on my understanding of legislation and practice currently in force. Whilst I believe my interpretation of current law and practice to be correct in these areas, I cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.
If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.