What is Power of Attorney?
Power of attorney is a legal document where one person gives another the right to make decisions on their behalf. It’s one of the most important legal documents a person will ever make, alongside a Will.
Having a Power of Attorney set up can make things much easier if and when the time comes that you’re no longer able to make or communicate your own decisions.
It means the person acting under a power of attorney is trusted to stand in for an individual and handle matters relating to property, financial affairs, health and welfare. You must have full mental capacity to enter into a Power of Attorney.
The latest data from the Office for Public Guardian shows that more than a million people applied for lasting power of attorney last year, up 37% compared to the previous year and surpassing a million for the first time [1].
In 2022, it was announced that the process of setting up a Lasting Power of Attorney (LPA) completely online would be made possible [2].
Why is it important to complete Power of Attorney?
There are a number of reasons why you may need someone to make decisions on your behalf.
If a circumstance arises where you became incapacitated it’s possible that immediate family, such as your partner and children, would need urgent access to your finances to pay essential bills. Beyond that, they would also need the authority to make big financial decisions such as selling your home.
With the protection afforded by power of attorney, your loved ones would be protected from potential legal limbo where they can’t make these crucial decisions about money.
There may also be the risk that you become an easy target for fraudsters should you no longer be able to make financial decisions for yourself. Having an LPA in place means that someone is there to protect you from making unwise decisions that might not be in your best interests.
Therefore, putting in place a power of attorney can give you peace of mind that someone you trust is in charge of your affairs. A power of attorney and lasting power of attorney are one and the same thing, both providing a way for a person to name others to make decisions on their behalf. The only difference being a Lasting Power of Attorney, however, comes into effect once you lose capacity.
Lasting power of attorney (LPA).
Lasting power of attorney allows an individual to make decisions for someone if they lose the mental capacity to do so themselves. An LPA can also be used for things such as property, health and welfare decisions, and has no expiry date.
You must have full mental capacity to enter into a lasting power of attorney, however, it comes into effect once you lose capacity.
Property and financial affairs lasting power of attorney.
A property and financial affairs LPA gives your attorney the power to make decisions about your money and property. This can include buying or selling property, making investments, paying bills, collecting your pension or benefits and giving people access to financial information about you.
A property and financial affairs LPA will come into effect as soon as it is registered. The attorney will effectively be able to start making decisions about your property and financial affairs straight away – this is even if you are still capable of making your own decisions.
Make a lasting power of attorney.
You can make a lasting power of attorney (LPA) online or using paper forms and will need to get the necessary people to sign the forms – including the attorneys and witnesses.
Alternatively, a family member, friend or solicitor can also use the online service or fill in the paper forms for you [3].
Register a lasting power of attorney.
When you’ve made your lasting power of attorney (LPA), you need to register it with the Office of the Public Guardian (OPG).
The government website advises that it can take up to 20 weeks [4] to arrange a power of Attorney if there are no mistakes in the application. You can apply to register your LPA yourself if you’re able to make your own decisions.
Understandably, it’s important that the person, or persons, you choose are people who know you well and who you absolutely trust to act in your best interests.
Before you register, send a form to notify people (LP3) [5] to all the ‘people to notify’ you listed in the LPA.
You can also confirm that a copy of your LPA is genuine by ‘certifying’ it if you’re still able to make your own decisions.
Can you have more than one power of attorney?
Ultimately, you are entrusting a lot of responsibility, so having a few loved ones to share the duty can bring more peace of mind. If you’re appointing more than one person, you must decide if they’ll make decisions separately or together – sometimes called ‘jointly and severally’
When setting up separately or together, this means attorneys can make decisions on their own or with other attorneys.
If you set it up jointly, it means whenever a decision is made, all power of attorneys have to agree and sign off.
You can choose anyone you want to be your attorney, as long as they are over 18 with the relevant mental capacity to act as an attorney. For property and financial affairs, the attorney must not be declared bankrupt.
Power of attorney in your part of the country.
England and Wales.
You don’t need to use a solicitor, but you may choose to if you already have one or are finding the process difficult. There is also the risk that, if you lose mental capacity, your relatives or close friends will need to apply to the Court of Protection to appoint a ‘deputy’ to act on your behalf. This can lead to delays in accessing funds or making decisions. Some delays can be up to six months.
Once granted, deputyship will require an annual renewal for an annual fee – on top of any solicitor fees. The deputy also has to verify and justify spending and actions in detail. In a worst-case scenario, it’s even possible for an application for a deputyship to be refused.
If you live in Scotland.
In Scotland, there are two types of power of attorney:
- Continuing power of attorney – this covers the management of property and financial affairs
- Welfare power of attorney – this safeguards your health and medical care.
You can apply for a combined power of attorney which covers both, however you can appoint a solicitor or professional attorney for a continuing power of attorney only, as for a Welfare Power of Attorney, that must be an individual.
You must also be aware that, if you don’t appoint attorneys and you lose mental capacity, your family or close friends would have to apply to the sheriff court. This can be a long and costly process.
The other alternatives are:
- Apply for an intervention order, which enables someone to make a one-off decision
- Apply for a guardianship order, which enables someone to make decisions for a set period of time
If you live in Northern Ireland.
If you lose mental capacity an enduring power of attorney allows your chosen attorney to manage your financial and property affairs.
Your next of kin are responsible for making decisions about your health care and welfare – an attorney cannot manage this for you.
If you lose your mental capacity and are without an enduring power of attorney, someone can apply to the Office of Care and Protection (or OCP) to become a controller. It is their responsibility to manage your finances, and this will usually be a family member or someone who knows you well, but it can also be a solicitor. It is worth noting, whoever it is, they’ll need the OCP’s permission before acting on your behalf.
The importance of making a Will.
If someone passes without a Will, there are certain rules which dictate how the money, property or possessions should be allocated. This is why setting up both a Will and power of attorney tend to go hand in hand.
Making a Will ensures the individual remains in control of their estate, ensuring a smooth transition of assets. Planning prior to death can also help individuals to potentially reduce the amount of Inheritance Tax [6] for which the estate is liable.
A Will can also establish trusts to protect the interests of beneficiaries, while providing ongoing support to ensure that their inheritance is managed responsibly. There are different types of trusts [7] available and they are taxed differently.
If there is no Will, the person’s estate is referred to as being ‘intestate’ rather than ‘testate’. If this happens, the law decides who should deal with the deceased person’s money, property and possessions.
Planning ahead for your family legacy.
Our beneficiary service is also designed to help, support and guide your loved ones through the often-complicated world of finances post-bereavement.
It’s designed to help them fully understand the investments and pensions you have left them, how best to deal with the associated fees, and ensure your legacy lives on through your beneficiaries.
Between setting up your beneficiaries, power of attorney and Will, you’ll have your affairs in order. A Will protects your beneficiaries’ interests after you’ve died – however, a lasting power of attorney protects your own interests while you’re still alive.
If you’re a True Potential Wealth Management client and you already have a power of attorney setup, you can get in touch so we can update your records. Otherwise, if you have any queries around completing power of attorney, you can speak to one of our financial advisors or call our Relationship Management team on 0191 500 9164. They’re available 7am – 8pm weekdays and 8am – 12pm on Saturdays.
If you’re not a client you can call one of our experts on 0191 625 0350 to learn more.
The Financial Conduct Authority do not regulate Will Writing, Tax Advice and Estate Planning. The guidance and/or advice contained within this blog are subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. This material is not a personal recommendation or financial advice and the investments referred to may not be suitable for all investors.
Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. Pension eligibility and tax rules apply.
Please note, this blog is not a recommendation or personal financial advice.
Sources.
Gov.uk
1 https://www.gov.uk/government/statistics/family-court-statistics-quarterly-october-to-december-2023/family-court-statistics-quarterly-october-to-december-2023#:~:text=Lasting%20Power%20of%20Attorney%20(LPAs,the%20equivalent%20quarter%20in%202022.
2 https://www.lastingpowerofattorney.service.gov.uk/home
3 https://www.gov.uk/power-of-attorney/make-lasting-power
4 https://www.gov.uk/power-of-attorney
5 https://www.gov.uk/government/publications/make-a-lasting-power-of-attorney
True Potential
6 /blog/inheritance-tax-planning/
7 /blog/what-is-a-trust-understanding-the-different-types-of-trusts-true-potential/
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