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In this article we will look at what a power of attorney is and why it holds significant importance for individuals. This article focuses on lasting power of attorney (LPA) for financial decisions (property and financial affairs) but does touch briefly on other types too.
The Office of the Public Guardian has published a very helpful infographic on this topic that you may find interesting. - opg-lpa-infographic.pdf (publishing.service.gov.uk)
Power of attorney is a legal document that grants someone the authority to make decisions on your behalf if you are unable to, or no longer want to make your own.
For example, this might just be a temporary arrangement if say you were in hospital for a period of time and needed help with things like paying bills or were moving abroad and you wanted someone to manage the sale of your house whilst you were away. For longer terms arrangements if you may have received a diagnosis, such as Alzheimer’s, meaning that you may lose the mental capacity to make your own decisions in the future and need to ensure that your investments can still be managed for your benefit.
Mental capacity means the ability to make or communicate specific decisions at the time they need to be made. To have mental capacity you must understand the decision you need to make, why you need to make it, and the likely outcome of your decision.
Some people will be able to make decisions about some things but not others. For example, they may be able to decide what to buy for dinner but be unable to understand and arrange their home insurance. Alternatively, their ability to make decisions may change from day to day.
Beyond the personal tragedy, when the main breadwinner in a family loses the mental capacity to make decisions on their own, which although rare could even happen at a younger age, it can make life incredibly difficult for those who depend on their finances to live. Without a lasting power of attorney in place, your bank might freeze your bank accounts, which could take over six months to unfreeze. Your family will also have to apply to the Court of Protection to have a ‘deputy’ appointed to make decisions on your behalf – another slow, distressing process.
The above shows the main reasons for setting up a power of attorney, but the biggest takeaway is that you should do so while you have the capacity.
There are different types of power of attorney, and you can have more than one though each should have a clear purpose that does not overlap.
Ordinary power of attorney
Lasting power of attorney (LPA)
Enduring power of attorney (EPA)
This covers decisions about your financial affairs and is valid while you have mental capacity. It is suitable if you need cover for a temporary period (hospital stay or holiday) or if you find it hard to get out, or you want someone to act for you.
An LPA covers decisions about your financial affairs, or your health and care. It comes into effect if you lose mental capacity, or if you no longer want to make decisions for yourself. You would set up an LPA if you want to make sure you're covered in the future.
EPAs were replaced by LPAs in October 2007. However, if you made and signed an EPA before 1 October 2007, it should still be valid. An EPA covers decisions about your property and financial affairs, and it comes into effect if you lose mental capacity, or if you want someone to act on your behalf.
Lasting power of attorney (LPA) confers the right to your ‘attorney’, i.e. the person you want to make decisions on your behalf, to manage your financial and personal affairs. That person doesn’t have to be a family member – it can be any adult (aged 18 or over) who is able to understand the responsibilities and you trust to take on this important role for you. The role includes the authority to access and manage your bank accounts and personal assets and so persons who have been declared bankrupt won’t be able to act as a property and finance attorney but could still act as a health and welfare attorney.
You can only set up a Lasting power of attorney whilst you still have mental capacity, as it won’t be valid if you are already deemed to have lost capacity. Being somebody’s attorney is a huge responsibility, so make sure you talk it through with the person you choose and give them plenty of time to understand what’s involved before setting it up. Anyone holding a power of attorney can get advice from the Office of the Public Guardian.
It can be a good idea to appoint more than one attorney – but you need to decide whether they’ll make decisions jointly or not. It can be a good idea to allow your attorneys to act jointly or severally as it means they can share the duties more easily. It’s also worth appointing replacement attorneys in case someone you’ve chosen becomes unable to act on your behalf.
Unlike Enduring power of attorney, LPAs must be registered with the Office of the Public Guardian (OPG) first. A court fee is payable (currently £82) for each LPA unless you qualify for a reduction or exemption. For peace of mind, you might wish to engage a solicitor to handle your application and ensure the specific wording reflects your wishes. The application could take several months, so if you think you’re already losing mental capacity, you should act now.
You can arrange for a power of attorney to take effect immediately for property and financial matters, although the donor’s directions must be followed. Or the agreement can state the powers will only come into effect once you lose the ability to make decisions on your own.
You can set up a power of attorney yourself using the online government service (Make a lasting power of attorney - GOV.UK ) or you can get professional help from a solicitor. Of course, using a solicitor will incur professional fees and we often get asked how much does a solicitor charge for power of attorney? The answer to that is, you should expect that these fees would start from around £400 plus VAT [1]. In either case the government have published some helpful guidance about completing the forms here.
It is worth having a discussion with your potential attorney(s) both to check they are willing and bring their attention to the guidance provided by the OPG here - LP14: How to be a property and finances attorney (web version) - GOV.UK (www.gov.uk).
“A lasting power of attorney might sound like something you only need to think about near the end of your life – and it is incredibly important at that stage – but the sooner you can set one up the better,” says Scott Moody, Chartered Financial Planner at Ascot Lloyd. “There are lots of instances, where the lack of a lasting power of attorney can cause real problems for you and your family. And, whilst we often automatically think about the horrors of dementia at older ages, traumatic brain injury from accidents affect anyone or any age.”
[1] POWER OF ATTORNEY COST & FEES In September 2023 | Solicitors (ukcareguide.co.uk)
If you’d like to understand more about a lasting power of attorney, and why it’s important to your long-term financial plan, book a free callback from an Ascot Lloyd independent financial advisor.
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