What happens if you become ill or develop dementia and are no longer able to make sound financial decisions? A Lasting Power of Attorney is a legal document in which you nominate a trusted friend or relative to make financial decisions on your behalf, should you ever become unable to do so.
We’ve listed seven reasons to set up your lasting power of attorney sooner rather than later below. In this post, we’re focussing on Property and Affairs LPAs as opposed to Health and Welfare LPAs.
Do I need to create a Lasting Power of Attorney?
If you have investments or financial responsibilities which require management, then yes – you should make a lasting power of attorney (LPA). You may, for example, have put your pension in an income drawdown scheme, you may have invested in stocks and shares or you may simply have multiple bills to pay.
If you lose mental capacity without an LPA, simply being your relation does not entitle someone to access to your affairs. In order to gain control of your finances and act on your behalf in this scenario, your loved ones would need to apply through the courts to become an attorney. This is a long and expensive process.
When an LPA is arranged, should you lose capacity, the trusted friend or relative you nominated before you lost capacity, can legally act on your behalf. Note – you can only set up a lasting power of attorney when you’re well and have mental capacity.
The Mental Capacity Act 2005 says a person is unable to make a decision if they can’t do one of the following: understand information relevant to a decision; retain that information long enough to make the decision; use or weigh that information; or communicate the decision.
There are an estimated 850,000 people with dementia in the UK and this figure is predicted to rise. Despite the prevalence of Dementia, according to new research by Zurich, four out of five retirees who have put their pensions into schemes which require ongoing management of investments, don’t have this failsafe in place.
Need further motivation to create an LPA? Keep reading.
The benefits
- It’s a legal document – so it can’t be ignored by anyone.
- It’s ethically managed – when you make an LPA, a ‘certificate provider’ decides if you’re capable of making that choice. They can be someone you’ve known for at least two years or a professional, such as a doctor, lawyer or social worker.
- It’s yours – you can appoint one or more attorneys to act for you, and you can determine how they must work together to make decisions on your behalf.
- Security – protect yourself and your loved ones from potential problems caused by making financial decisions when you’re not in a fit state to make them. By setting up an LPA, you’re ensuring that your finances are managed by a person or people you trust, if you lose capacity.
- Peace of mind – your LPA provides peace of mind for you and your loved ones. You can be safe in the knowledge that you’ve avoided any potential problems with access to funds for things like bills in the future.
- Protect yourself – you can only set up an LPA when you have mental capacity. Once you’ve lost capacity, this isn’t possible, so you needn’t worry about anyone doing this for you when you’re vulnerable and unable to stop them.
- Avoid future expense and hassle – save money by choosing to arrange an LPA now. If you don’t and loved ones have to apply through court, this will cost significant amounts of time and money.
The cost of doing nothing
Without an LPA in place, loved ones face the long and expensive process of applying to the Court of Protection to obtain the necessary authority. All while experiencing the difficulties associated with supporting you through your illness.
Applying to the Court of Protection, to become an attorney, can take up to six months during which time your finances will be frozen. This means there will be no way of stopping direct debits and other payments and someone will have to pay for any care costs you have. The application fee for attorneyship is £400, while the annual starting fee is at least £320. New deputies must pay a £100 assessment fee and it’s recommended that the family pay for an insurance policy that covers any losses as a result of someone else wanting to take control of the finances.
The misconception that a spouse, child or a professional will be able to manage your affairs should you become mentally incapacitated is dangerous. By the time a person is no longer able to make decisions for themselves, it’s too late to arrange an LPA.
Disadvantages
- Fraud – with access to information about your finances and bank account, your attorney could use their authority to commit fraud against you.
- No direct oversight – your attorney might make mistakes while acting on your behalf. As long as the power of attorney is valid, you can’t hold any third parties such as banks responsible for what your attorney does even if they do so unintentionally. However, it might be possible to get your money back if the court decides they have been dishonest or spent your money unwisely.
- After death – LPA’s don’t continue after you die. To designate a person to handle your estate when you pass away, you need to create a will.
- Healthcare and personal matters – an attorney under a finance and property LPA can’t make decisions about your future healthcare or personal matters. But you can make this possible if you name the same person to be your healthcare and welfare attorney. They’ll just be on separate forms.
- Lack of recognition – some organisations and companies have their own internal standards for LPA. If your LPA doesn’t meet these, you may have difficulty using it at that institution.
Most of these potential cons can be avoided simply by choosing the right people to act on your behalf – another reason to think it through and make your LPA sooner rather than later!
Tips: we recommend that clients notify family members about who they’ve appointed as power of attorney, so that person can be vigilant if the time should come when you do lose mental capacity. Other recommendations are to appoint two attorneys. They could either act jointly or ensure that restrictions are in place so that no large withdrawals or selling of assets can be made without the prior consent of both attorneys.
You can’t control what happens to your health but you have full control over how your financial affairs are managed. Get in touch with our professional team of advisors for more guidance on how to go about setting up your Lasting Power of Attorney today.