'What’s the worst that can happen?’ The perils of not having an LPA
90% of the adult population of England & Wales do not have a Lasting Power of Attorney despite the fact that in the opinion of a lot of solicitors, they are just as important as having a will.
What are Lasting Powers of Attorney (LPAs)?
LPAs were introduced in 2008 and replaced Enduring Powers of Attorney (EPA).
Essentially an LPA is a document through which you appoint someone (an attorney or attorneys) to make important decisions on your behalf. There are two types of LPA. One deals with property and financial affairs (much like an EPA) and the other deals with health and welfare issues.
Property and Financial Affairs
LPAs provide your attorney(s) with the authority to make decisions regarding your property and financial affairs.
Your attorney(s) will be able to make exactly the same type of decisions as you such as:
- making or selling investments,
- dealing with the bank,
- collecting benefits
- or selling your home.
This type of LPA will be legally effective as soon as it is registered with the Office of the Public Guardian (OPG) (but only with your consent) or when registered with the OPG and you no longer have mental capacity.
Whilst you remain mentally capable of making decisions, your attorney(s) can only act with your consent, you are not prevented from continuing to manage your own property and financial affairs should you so wish.
Health and Welfare LPAs provide your attorney(s) with the authority to make decisions regarding personal issues such as:
- where you live,
- the type of care you receive, and
- you can also give your attorneys the power to give or refuse consent for life-sustaining treatment.
This type of LPA can only be used once it is registered with the OPG AND you are unable to make these types of decisions yourself.
How long does it take to prepare an LPA?
The process to prepare and register an LPA takes around 12 – 16 weeks. This is because, there is a waiting time at the Office of the Public Guardian for registration and due to the current pandemic, this period has been extended.
Do I really need an LPA?
This is one of the common questions that I am asked and clients will say ‘I am young’ or ‘I don't have mental capacity issues therefore I do not need a Lasting Power of Attorney’. However, LPAs can be used, if for example, you were to lose capacity by virtue of a car accident, a serious sports injury, or some other unexpected event. The property and finance LPA can be used to manage your affairs in the event of you becoming physically and/or mentally incapable of managing your affairs.
Can I do it myself?
Yes, you can prepare your own LPAs. However, there are many traps for the unwary and what you don’t want to do is to prepare the documentation yourself only to find out when they are needed that the documents can’t be used due to mistakes in them. At that stage, it is often too late to put it right.
A worthwhile question to ask yourself is, ‘what is the cost of peace of mind’?
What happens if I lose my capacity before I make an LPA?
The first thing that will happen is that the banks will freeze your bank accounts (including joint bank accounts). If that is not a good reason to make an LPA, I don’t know what is.
Should you lose capacity before making a LPA, someone would have to make an application to become your deputy and this application would be made to the Court of Protection (COP).
It is to be noted that an Order for a Health and Welfare Deputyship is uncommon.
This application is expensive and time-consuming and will usually involve the following steps: –
- You will need initial advice regarding the merits of an application to the COP
- A number of onerous forms will have to be completed – COP 1, 1A,1B, 3 and 4.
- You must undergo a mental capacity assessment
- Your full financial circumstances must be declared to the COP
- The personal circumstances of your deputy must be investigated.
- The application is sent to the COP with the Court fees.
- Interested parties have to be served with the documents (this includes relevant family members)
- You must be served with the documents.
- Interested parties are then given the opportunity to object
- The COP then will have a hearing and issue an Order.
- The Deputy will have to pay a security bond.
- The Deputy will then have to provide ID and the Deputyship Order to all assets holders before they can act.
All in all this will take at least six months to process and often much longer.
After the Deputy is appointed, he/she will have to:
- report all transactions to the COP
- be supervised by the COP
- Keep full records of bank statements etc
- Complete Accounts and Annual Returns to the COP on an annual basis.
It is fair to say that for most people this scenario is far from ideal.
So how does this affect me in real life?
To answer this question, Associate Financial Planner Pete Butcher from Clarion Wealth Planning shares some of his experiences:
One of the most common responses I hear when I first mention LPAs to my clients is some version of “oh, we’re in the middle of sorting those out for my parents”. This highlights one of the misconceptions around LPAs which is that they are only for those who are well into their retirement. The truth is that every adult, regardless of age or health, should strongly consider putting an LPA in place.
There are, sadly, many instances where loved ones have struggled to get authority to make the decisions on behalf of someone who has recently lost capacity in a timely manner; this can cause a range of different issues. By asking yourself the following questions, you will get a sense of the problems that could be created:
- How would my spouse cope if our joint bank account and assets were frozen for six months?
- What could the impact on my investments be if they were left unmanaged?
- Would my business survive for six months if staff wages weren’t being paid, contracts were not being signed, etc?
In addition to ensuring that your wishes are respected, and your financial interests protected, an LPA also reduces the likelihood of family disputes. Difficult and stressful times can cause friction in even the most harmonious families.
While your financial advisor will not arrange your LPAs directly (I would always refer my clients to a trusted solicitor who specialises in this area), they should be speaking to you about them regularly, along with the provisions of your will, to ensure that they are in place and accurately reflect your wishes.
At Clarion we work with our clients to create a financial plan which not only helps achieve their lifestyle goals but also identifies potential pitfalls which can then be avoided.
From an investment management perspective, the wording of your property & financial Affairs LPA is important. While your attorney is authorised to manage your finances and investments, they aren’t permitted to delegate that management to a third party, for example, a Discretionary Fund Manager – even if the investments are already managed by one. Many of my clients take advantage of Clarion’s Investment Management Service and therefore we provide them with the specific wording for their property & financial affairs LPAs to allow this management to continue. This is an example of why we believe taking a holistic view of our client’s financial affairs is so important.
Our experts are always on hand to answer questions and help you through your journey. Book a ‘discovery call’ with our Wills and Estate Planning team and we can explore working together to help you meet your individual goals.