Powers of attorney: watch out for the traps
- Describe the pitfalls of setting up a lasting power of attorney
- Explain mental capacity
- Identify the role of a discretionary fund manager
- Describe the pitfalls of setting up a lasting power of attorney
- Explain mental capacity
- Identify the role of a discretionary fund manager
The Office of the Public Guardian is the government agency responsible for registering and monitoring powers of attorney. In its 2020-21 annual report, it said it received 691,746 applications that year to register a lasting power of attorney (LPA) or enduring power of attorney (EPA).
While that was a fairly significant decrease from the year before (917,550), it reported it now had more than 5.3mn powers of attorney (POA) in total on its register.
That is a huge number, yet some have suggested that even more people ought to be setting one up. To put that into context, research from Canada Life in 2020 found that 20mn UK adults, by comparison, had a will.
Whether your clients already have POAs in place or are thinking about granting them, there are a few traps to watch out for.
Do not leave it too late
The first pitfall to be aware of is that an individual cannot set up a POA if they have lost mental capacity.
According to the Mental Capacity Act code of practice, this means a person who lacks capacity to make a particular decision or take a particular action for themselves at the time the decision or action needs to be taken.
In a similar vein, the charity Age UK defines mental capacity as being able to understand a specific decision, retain information for long enough to make it, weigh up different choices and communicate the decision in any way possible.
There are different types of POA, and they have different uses.Research in 2019 by the OPG found that 75 per cent of people surveyed thought that their family or next of kin could make decisions on their behalf if they lost capacity. That is incorrect, and in the absence of POA, no one else can lawfully act on behalf of the individual. Unlike on death, for example, there are no de facto provisions akin to the intestacy rules.
The fall-back provision in this scenario would be for a family member to apply to the Court of Protection for a deputy order. However, this can be a long and expensive process. It requires the deputy to take out an indemnity bond with a bank or insurance company, keep a record of all payments and submit annual reports to the court. There is also an application fee of £371, and there may be ongoing supervision fees on top of that.
In the absence of a deputy order, however, a client’s investments could be left in limbo if there is no one lawfully authorised to provide instructions on them.
Use the right type of POA
There are different types of POA, and they have different uses.
