Most people who have aging parents or grandparents have considered how they will deal with their affairs if they become unable to do it themselves due to diminished mental capacity. But our own mental capacity can be suddenly compromised at any time as the result of an accident or sudden onset of a mental health condition. Probably the most common cause of this is a person suffering a stroke or heart attack, which can happen at any age.
You might assume that a spouse, civil or common-law partner, or business partner will be able to take care of your affairs if you become mentally incapacitated. Sadly, it is very wrong to make that assumption and, when it happens, it can be costly, extremely stressful to those picking up the pieces and financially damaging to your own wealth, if a Power of Attorney is not in place.
Consider how many decisions you make every day or week relating to your wellbeing, and finances, from what to eat to paying day to day bills, and more complex decisions relating to such matters as investments, mortgages, or property. Then, as an exercise, imagine you can’t make those decisions, and think about the consequences. And if you run a business, it gets even more worrying.
Most people who have dependents or a business will have considered making a will, to deal with their affairs after their death. But too many of those same people fail to set up a Power of Attorney.
So, we’ll take a look at the different types of Power of Attorney, the safeguards in place to make sure they only do what they’re supposed to, and how to go about setting them up.
A Power of Attorney is simply a legal document set up between you (“the donor”) that appoints a trusted person, or people (“the attorney(s)”) to manage your affairs, either financial or related to health and care, at some point either immediately or in the future, if you can’t or don’t want to.
The document is normally registered with a government body, the Office of the Public Guardian, which oversees the most common types of Power of Attorney.
There are two main types of Power of Attorney in the UK, an Ordinary Power of Attorney and a Lasting Power of Attorney (LPA). The former is less widely used and usually on a temporary basis.
LPA’s fall into two types, an LPA for financial decisions and an LPA for health and care decisions.
An Ordinary Power of Attorney is normally set up on a temporary basis when you want or need somebody else to make decisions about financial affairs on your behalf. It can only be used whilst you have the mental capacity to make decisions.
Typical uses of an Ordinary Power of Attorney would be to cover a stay in hospital, a holiday or extended trip abroad, or when you have the mental capacity but wish to delegate financial decisions to a trusted person.
You can limit the powers to deal only with certain aspects of your affairs.
This type of power of attorney is not normally registered with the Office of the Public Guardian and is only valid whilst you are able to make decisions yourself. For that reason, it should not be seen as an alternative to an LPA, as it ceases to be valid if you lose your mental capacity to make decisions.
In October 2007 LPA’s replaced the Enduring Power of Attorney (EPA), which only covered financial decisions. If you still have an EPA, or are the attorney for one, it should still be valid although you may want to consider upgrading it to an LPA.
There are two main types of LPA, and you can have both in place at any time. In fact, it is advisable to ensure you are fully covered by both.
The first type of LPA allows your attorney to make decisions on such matters as:
You can restrict which aspects the attorney can control or give them power to make decisions on all your financial affairs. And this type of LPA can either come into effect if you lose mental capacity or when you ask for the attorney to make decisions on your behalf.
The attorney has a duty to keep your finances separate from theirs and to keep accounts of any income or expenditure they deal with. And they can be required to provide these accounts to a family member or your solicitor, which provides a higher degree of security and reassurance.
The second type of LPA only comes into effect when you lose the mental capacity to make decisions yourself.
It covers decisions such as:
You can also include special instructions to your attorney regarding life saving treatment or end of life care.
The Office of the Public Guardian (OPG) can provide you with forms to set up either type of LPA either to download or complete on-line. Alternatively, a solicitor or the Citizens Advice Bureau can provide standard forms.
If your affairs are complex, it is advisable to consult a solicitor to avoid problems later when you might not be able to make decisions yourself.
Neither type of LPA is valid until it is registered with the OPG but, if you specify it in the LPA, a financial decisions LPA can come into effect as soon as it is registered.
It normally takes about 9 weeks for the LPA to be registered and, during that time, the attorney can’t make decisions on your behalf. So, it is important to put an LPA in place whilst you have the mental capacity to make your own decisions.
The cost to register an LPA with the Office of the Public Guardian is £82 for each type, although you may qualify for a discount or exemption if you are on low income or certain types of benefit.
At the time you sign the forms they must also be signed by a certificate provider, who is someone you know well or a person such as a solicitor, health professional or social worker. They are certifying that you understand what it means and are not being coerced into signing it against your will.
It’s vitally important that when you set up an LPA you are protected from any neglect or misuse of the powers by the attorney. To ensure this there are a number of safeguards in law, but also some you can take yourself.
An LPA can’t come into effect until it is registered with the OPG.
Attorneys of an LPA must comply with the LPA Code of Practice under the Mental Capacity Act 2005. Failure to comply with the code of practice can result in attorneys being charged with criminal offences by the OPG.
There is provision in the LPA to list “persons who must be notified” at the time an LPA is registered. It is advisable to include trusted family members or friends in this list. Those people are given 4 weeks’ notice of an intent to register an LPA and any of them can raise an objection or concern with the OPG.
As long as you still have the mental capacity to make decisions you can revoke an LPA at any time.
Setting up LPA is just one part of prudent planning for the future, along with writing a will, providing for your dependants, and planning your own financial security. We can assist and guide you in all aspects of financial planning.
One of our qualified and regulated advisers would be very happy to discuss your requirements.
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