Why and how power of attorney should be put in place for clients
Grant Blakey, technical consultant at AJ Bell, considers the importance of your client’s having a power of attorney in place, the benefits of doing so and potential drawbacks if not.
Given the current level of uncertainty, especially in regards to people’s health and finance, it is as important now as ever to consider the use of powers of attorney (POA) both in regards to your client’s ongoing and long-term financial planning needs.
In this article I discuss types of POA, their benefits and the potential consequences of failing to arrange a POA in good time.
The general principle behind a POA is that a person (the donor) can give power to another individual (the attorney) to act on their behalf. This power will either be general or specific to one or more areas.
Ordinary POAs only grant powers whilst the donor has mental capacity and would generally be capable of handling their own affairs. The power is withdrawn on mental incapacity, which might be when it is most needed.
Enduring POAs (EPA) are intended for use after the donor has lost capacity and must be registered with the Office of the Public Guardian (OPG) in order to take effect. New EPAs can no longer be made but if they were in place before 1 October 2007, whether or not they have yet been registered, then they can be used.
EPAs can be used to manage the property and financial affairs of the donor but are not as helpful as other POAs in that they do not cover health care provision.
Lasting POAs have been introduced more recently to resolve some of the issues with EPAs. It allows the attorney to make decisions on personal health and welfare; or property and financial affairs. A separate LPA would need to be set up for each depending on the intent, so either a financial decisions LPA and / or a health and care decisions LPA.
There’s a specific form for each, both of which can be found on gov.uk.
It’s worth noting that, a health and care decisions LPA extends to giving or refusing consent for medical treatment. However, medical decisions which were made by the donor when they had capacity (and over 18) remain valid after loss of capacity. These are legally binding decisions refusing specific medical treatment(s) at some time in the future.
The LPA needs to be registered with the OPG as soon as possible, ideally soon after the paperwork has been drawn up and signed by the donor. Donors can elect either for the LPA to come into effect immediately or after the donor has lost capacity.
The donor can cancel the LPA if they have capacity. An LPA can also be revoked on the: 1) donor’s bankruptcy (not for welfare); 2) death, bankruptcy or incapacity of the attorney (if only one attorney); or 3) dissolution of a marriage between donor and attorney.
It’s important to also consider situations that may require a Trustee POA (TPA). This is often overlooked but is important to have in place where trustee powers need to be delegated, as this cannot be done using a standard POA. This will affect clients who are SSAS or SIPP members who are a co-trustee of the arrangement (for example where the SIPP owns a property).
A notable restriction is that a Junior ISA cannot be operated under a Power of Attorney where the registered contact was the donor.
Attorneys need to take care when using their power to make gifts. Gifts to either a family member or a charity are permitted as long as they are of reasonable value, are made on a customary occasion (for example a birthday) and the attorney is acting in the best interests of the donor.
Gifts made outside these parameters need to be authorised by the Court of Protection before they are made. If a gift is made before being authorised, in more serious cases the OPG can remove or suspend the attorney from their role.
Where an individual loses capacity and there is no POA in place then the option of obtaining a Guardianship Order can be considered. This process is considerably more complex and costly as it involves going to the Court of Protection for a decision to be reached on the individual who can look after an individual’s affairs. The individual appointed is referred to as a deputy.
The deputy cannot make settlements of the person’s property or exercise their powers of a trustee.
In summary, your client’s having a POA in place can remove the uncertainty of how their assets will be managed if they become unable to manage them themselves. Without a POA the process to appoint a deputy is much more time consuming and expensive for all those involved.