Attorneys have a duty to act in the best interests of the donor, and guidance on what they are authorised to do and how they should make decisions is set out in the Code of Practice for the Mental Capacity Act 2005.
This helps to provide certainty for both the donor and the attorneys as to how financial affairs will be managed in these circumstances. Further guidance is provided by the OPG.
The wealth preservation benefits of an LPA
From a wealth preservation perspective, LPAs are important for clients seeking to pass on their wealth to future generations.
LPAs allow attorneys to pay bills and interest on loans, for example, which could prevent financial loss to the individual if they were to default on loans or be charged interest on unpaid bills.
Attorneys also have the authority to access investments, and this power can be used to enable the transfer of investments to obtain a higher return, thus financially benefitting the individual and, in turn, the future generations set to inherit their wealth.
A donor can give their attorneys permission to transfer investments into a discretionary management scheme, or for a scheme that the donor put in place before they lost capacity to continue.
This allows the investments of someone who has lost capacity to be managed most effectively, thus helping to preserve and grow the individual's wealth despite the individual not being able to make their own decisions.
If an individual owns business assets, they should think carefully about who would be best placed to manage these for them in the event of an accident or loss of capacity.
An individual can have more than one LPA in operation at the same time, and so they can have a separate LPA for a business if necessary.
It might be that an individual would like their family members to manage their personal finances but would prefer for a business partner to manage their business affairs, to ensure that someone with the requisite skills to preserve the business asset as best as possible has authority over this asset.
A donor can also include wording permitting their will to be disclosed to their attorneys.
This means that attorneys can ensure that they do not make decisions that conflict with the terms of the will, such as disposing of a particular asset that the will directs should be given to a specific person.
In this way, an LPA can work together with a will as part of an individual's 'succession plan' to ensure that assets are passed down to future generations in line with the donor's wishes.