Coping with the death of a loved one is difficult even before financial considerations are taken into account. As financial advisers know all too well, administering a deceased’s estate without a valid will in place can makes things even tougher. But complications can also arise before death.
A decline in mental capacity could result in an individual becoming incapable of managing their financial affairs, meaning lasting powers of attorney (LPA) may be necessary. Failure to plan for these scenarios means that the surviving family members, and the professional firms they work with, are often left to pick up the pieces.
However, these situations could well become simpler in the future if two recent proposals, both of which have focused in part on the use of electronic signatures, come into force.
There are differences between the pair: changes to LPAs have been proposed by the FCA, and as such appear likely to proceed sooner than an overhaul of wills – the latter has been advocated by the Law Commission, an independent organisation.
But there is another common thread aside from going digital. The Law Commission consultation, open until 10 November 2017, has also honed in on how mental incapacity is viewed in the eyes of the law, as Box 1 shows. The growing popularity of LPA powers underlines just how significant the issue is becoming in modern society.
LPAs came into force in October 2007, replacing enduring powers of attorney, which were perceived as being subject to abuse. The legal document allows an individual to appoint one or more people, known as attorneys, to help them make decisions or to make decisions on their behalf. According to the government, this can give individuals more control over what happens to them in the event of an accident or illness.
Despite a slow initial uptake, LPAs are becoming more popular. On 28 September the Ministry of Justice released its quarterly family court statistics for England and Wales from April to June. During this period, a total of 194,012 LPA applications were received, an increase of 30 per cent over the same period in 2016.
Until the start of 2009, fewer than 20,000 LPA applications were being made per quarter, and the figure still shy of 100,000 prior to 2015. Some have attributed the growing interest to the risk of mental decline in old age. Data from the Office for National Statistics shows that Alzheimer’s and dementia accounted for 12 per cent of all deaths in 2016.
Rachael Griffin, a tax and financial planning expert at Old Mutual Wealth, says: “Dementia and Alzheimer’s are now so widespread that it is hard to meet somebody who hasn’t been affected by these diseases in some fashion.”
This can have direct implications for advisers. If an individual lacks the necessary mental capacity to make important financial decisions, then a third party will need to act on their behalf. Scott Gallacher, a director and adviser at Rowley Turton, believes intermediaries are obliged to stress the importance of LPAs, as advice cannot be given to those who lack the capacity to contract.