Inheritance TaxJul 8 2019

Why investors should appoint a power of attorney

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Why investors should appoint a power of attorney

Investors could be causing their families undue stress and expense by not appointing a lasting power of attorney to manage their estate, a financial advice group has warned.

LPAs allow investors to appoint another individual to handle their financial affairs should they lose their mental capacity at some point in the future.

In 2018, 800,000 LPAs were put in place, according to UK government figures, but this number is only a fraction of those who actually need one, according to IFA group Chase de Vere.

"This is just the tip of the iceberg in terms of how many people should have an LPA," said Robin Bailey, an independent financial adviser in Chase de Vere’s personal injury & court of protection team.

"Those who don’t have an LPA risk causing extra stress, concern and expense for their family and friends, while their own wishes about their finances or health might not be taken into consideration.

"Most people don’t have an LPA because they don’t realise how important it is and how emotionally draining it can be for others if there isn’t an LPA in place when it is needed."

Citing figures from the Alzheimer’s Society, Chase de Vere said that the number of people with Dementia in the UK are set to rise from 850,000 to 1m by 2025, and to 2m by 2051.

When an individual does not have an LPA and they have lost the mental capacity to handle their own affairs, a deputy is appointed to manage their financial affairs, which could be a friend, a colleague or a solicitor, but the court will make this decision and not the individual.

"Deputies are subject to a higher level of supervision and scrutiny than an attorney under an LPA," said Mr Bailey.

"They must also complete an annual report to the Office of the Public Guardian and will be visited by a representative of the Court of Protection to check that decisions are being made in the best interests of the individual."

Helen Morrissey, pension specialist at Royal London, added that appointing an LPA was preferable to going down the deputyship route, which is complicated and expensive and could also mean that someone is appointed who the person would not have wanted

She said: "Appointing an LPA means that you have someone that you can trust to look after your financial and health needs should there come a point when you are no longer able to do so yourself.

"This person should have a detailed understanding of how you would want your affairs to be dealt with and so would save families a lot of distress at what is often a very difficult time."

Martin Bamford, chartered financial planner at Informed Choice, said it was a struggle to convince people of the need to write a will and encouraging LPA take up was even harder.

He said: "We all know we’re going to die, but not everyone loses mental capacity during their lifetime.

"With rising life expectancy, and longer typically spent in poor health, I would argue that putting both types of LPA in place is an essential part of the financial planning process.

"It’s something we always talk about with our newly retired clients, although there is no lower age limit and mental incapacity can strike at any time, often the result of traumatic accident or serious illness."

He added that one way to frame the importance and relative value of an LPA was by comparison with the hassle and cost of getting a court appointed deputy.

"There’s little awareness of this process, so it needs to be well publicised as part of a wider personal finance education drive," Mr Bamford said.

Establishing an LPA is usually done through a solicitor and the cost is usually between £500 to £700, according to Chase de Vere.

Automated versions are available online, where the individual sets up their own application. The standard cost for these is £82, reduced to £41 for those with an income of less than £12,000.

"LPAs can only be taken out by somebody who has capacity. If you lose capacity, through either ill health or an accident, then it’s too late to take one out and your financial and healthcare affairs will be the responsibility of the Court of Protection, said Mr Bailey.

"It is sensible to take out a LPA as soon as practicable, even though there may be a long period between the LPA being established and the attorneys needing to take over."