A crucial part of financial planning is encouraging clients to make provisions in advance for someone they know and trust to manage their affairs if necessary.
While it’s tempting for clients to view this as a later life problem, the truth is that physical and mental capacity can change quickly at any age as a result of accident or illness.
For example, about one in 14 people aged over 65 have dementia but it also affects more than 42,000 younger people in the UK.
Similarly, one in four strokes in the UK occur in people aged under 65 and by age 75 one in five women and one in six men will have suffered a stroke.
A ‘power of attorney’ is a legal document by which one person (the donor or, in Scotland, the granter) gives another (the attorney or donee) the authority to make decisions on their behalf. Attorneys have to work in the donor’s best interests.
From a planner’s perspective, details of any power of attorney that already exists for a new client should be noted as part of the fact find including the names of the attorneys and the circumstances in which it should be activated.
Clients can only set up powers of attorney while they have mental capacity to make their own decisions. It is the only way for them to specify who they want to handle their affairs later on.
Without one, even spouses or blood-relatives may not have the legal authority to make decisions for them.
This can be distressing for loved ones and it can be time consuming and costly to secure the authority later plus add additional complexity if, for example, the donor needs to go into a care home in a rush leaving the family to run their affairs.
Permanent powers of attorney
While it is possible to set up ordinary powers of attorney that can be either general or limited in terms of purpose or time period, these are only valid while the donor has mental capacity.
Uses may include where people are recovering from illness or injury, or perhaps are abroad for a period of time.
Where people are concerned about becoming incapable of managing their affairs over the long term, they can opt for a lasting power of attorney (LPA) in England and Wales.
There is a similar continuing powers of attorney in Scotland and enduring power of attorney (EPA) in Northern Ireland.
Lasting Power of Attorney
The lasting power of attorney (LPA) has existed since October 2007 in England & Wales, replacing the enduring power of attorney (EPA). The LPA is only valid once it has been registered with the Office of the Public Guardian (OPG) which can take eight to ten weeks.
EPAs created before 2007 still remain valid but must be registered with the OPG at the point the attorney has reason to believe the donor is losing or has lost mental capacity.
EPAs only cover property and financial affairs, whereas LPAs can cover these and also personal welfare.
- Property & Financial Affairs LPA – allows the attorney to manage all the donor’s financial affairs including bank and savings accounts, tax affairs, benefits and buying and selling investments or property. Unless set up with a restriction, it can be used even when the donor still has mental capacity to make their own decisions.
- Personal Welfare LPA – lets the attorney make decisions about health, care and welfare, such as what medical treatment the donor receives or whether to move into a care home. It may only be used once the donor has lost capacity to make their own decisions.
Both types require separate applications and the payment of fees when registered. Clients should be strongly advised to have both in place.
Scotland and Northern Ireland
The Continuing Power of Attorney gives power over the donor’s property and finances. A separate Welfare Power of Attorney can be contained in the same document (but only begins when the donor becomes mentally incapable).
The Enduring Power of Attorney in Northern Ireland only applies to property and financial affairs, and must be registered with the Office of Care and Protection at the point the donor loses mental capacity.
What is ‘mental capacity’?
This is the ability to make a decision at the time it needs to be made, understanding relevant information and the consequences and being able to communicate that decision. In complex cases this may require professional advice.
The Mental Capacity Act code of practice explains more. In addition, each LPA has to be signed by a ‘certificate provider’ who knows the donor and is satisfied they understand what they are doing. This can be a doctor.
What happens if someone loses mental capacity and there is no power of attorney?
Once mental capacity is lost it is no longer possible to make a power of attorney. Applications can be made to the courts to decide a particular matter. The court can appoint one or more deputies where there is an ongoing need to make decisions. If there is no family member or friend, a professional can be appointed.
How can the financial planner help?
Although not strictly a part of the financial planning process, powers of attorney are important to help clients deal with the ‘what ifs’ of life. The financial planner can help clients:
- Understand how powers of attorney work and the mechanics of setting one up.
- Advise on integrating the power of attorney into wider investment, protection and estate planning.
- Provide referrals if legal advice is required.
- Consider limitations or restrictions, such as whether an attorney making decisions on personal affairs should also cover the client’s business interests.
- Review the terms of the power of attorney to ensure it remains relevant over time.
- Inform the authorities where there are concerns about attorneys not acting in the clients best interests.
Further details can be found at the following links:
- Mental Capacity Act code of practice - https://www.gov.uk/government/publications/mental-capacity-act-code-of-practice
- Office of the Public Guardian - https://www.gov.uk/government/organisations/office-of-the-public-guardian
- Office of the Public Guardian (Scotland) - http://www.publicguardian-scotland.gov.uk/
- Office of Care and Protection - http://www.courtsni.gov.uk/en-GB/Services/OCP/EPA/Pages/default.aspx
Stephen Lowe is group communications director of Just
