Powers of attorney: watch out for the traps

The LPA is the most formal type, replacing the EPA in 2007. There is a standard form for it, and it must be registered with the OPG at the outset. It has two versions: one for health and welfare, and one for financial affairs.

If a client is looking for something temporary, they could consider an ordinary power of attorney (OPA). It needs to be executed as a deed, which means it must be in writing and be witnessed, but otherwise it is straightforward to draw up and can be as simple as a one-page document. It does not need to be registered with the OPG either. 

In terms of uses, it can be a general power, meaning it applies to all of a client’s affairs, or it can be a specific power, meaning it can be used for a specific account or transaction. It can also be set to expire on a particular date, so if a client is out of the country for an extended period of time, an OPA might be more appropriate than a LPA.

In terms of drawbacks, an OPA automatically ceases if the client loses capacity. Therefore, for long-term use an LPA may work better as this would remain in force.

A key point is that neither of these POAs can be used in respect of decisions made as a trustee. Trustee decisions can only be delegated to a third party via a specific trustee power of attorney (TPA) drawn up under section 25 of the Trustee Act 1925. 

For long-term use an LPA may work better.

It is not uncommon with self-invested personal pensions at the bespoke end of the market for the client to be a co-trustee of their own Sipp. If they have a small self-administered pension scheme, again they will be a trustee.

For clients with these types of pension schemes, they would need to execute a TPA to cover ‘trustee’ decisions alongside another type of POA to cover ‘member’ decisions.

Helpfully the act provides standard wording, and there is no reason both powers cannot be included in the same document.

A TPA, however, is not a long-term solution given it expires automatically after 12 months. Clients who are concerned about losing mental capacity over the long-term might be advised to consider moving to pension arrangements where they are not a trustee.

Include specific instructions about discretionary management

In 2015, the OPG amended its guidance to say that if an individual wanted to allow an attorney to engage the services of a discretionary fund manager, they would need to include specific wording in the POA to that effect.