The importance of ensuring clients have the relevant paperwork in place, can make the world of difference to their overall position. A Lasting Power of Attorney (LPA) is a key component of effective long‑term financial and estate planning, and Quilter have focussed their latest article on this important legal document.
An LPA enables an individual (the donor) to appoint one or more attorneys to make decisions on their behalf in the event of loss of mental capacity, as defined under the Mental Capacity Act 2005 (MCA).
When reviewing files, you should ask:
- Does the client have a LPA in place? If not, should this be discussed?
- If an LPA is in place, what restrictions have been included and might need to be considered as part of any plan?
LPAs are critical to ensuring continuity of advice and in particular the implementation and regular review of planning strategies.
There are two distinct LPAs: Property and Financial Affairs (PFA) and Health and Welfare. For the purpose of this article, we’ll focus purely on the PFA LPA.
When can a PFA LPA be created and used
A PFA LPA may only be created whilst the donor has capacity and can be used immediately once registered with the Office of the Public Guardian (OPG) or once capacity is lost depending on the directions within.
What can an attorney do?
Once someone is registered as an attorney, they have a duty to act in the best interests of the donor and there are rules around what they can do.
For example, an attorney must ensure that they keep the donor’s affairs separate from their own, keep receipts for transactions conducted on the donor’s behalf, and maintain a clear separation of their money and the donor’s.
Under a PFA LPA attorneys can manage bank accounts, investments, property transactions, pension income, and pay tax liabilities and submit tax returns.
What can’t an attorney do?
An attorney’s authority is subject to statutory and document‑specific (detailed within the LPA) limitations. These include:
- Attorneys must comply with the MCA principles, including acting in the donor’s best interests and using the least restrictive option. Decisions must consider the donor’s past and present wishes.
- Donors may include binding instructions and non‑binding preferences, limiting actions such as discretionary investment changes or property disposals.
- Attorneys cannot draft, amend, or revoke a Will, nor can they alter beneficiary nominations unless scheme rules permit.
- Attorneys may only make gifts of reasonable value on customary occasions (e.g. birthdays) unless authorised by the Court of Protection. This limits IHT planning strategies such as lifetime gifting.
- Decision‑making authority may be constrained depending on how attorneys are appointed. Where joint attorneys are named, they will either be able to act jointly (together) or jointly and severally (together or on their own).
- A PFA LPA generally only covers personal delegation of power. Where the donor was a trustee, the PFA LPA will not cover the duties of the trustee. An incapacitated trustee should be removed and replaced in such a scenario. The exception to this is where the instruction relates to land where the donor has a beneficial interest.
In practice, paraplanners often uncover PFA LPAs that restrict gifting, investment changes or property sales, which may only come to light when instructions are already time‑critical.
LPAs should be covered during the advice process and at annual reviews
Early identification of PFA LPA status and terms is essential. Reviewing PFA LPAs as part of the advice process enables gaps to be identified, where no PFA LPA exists and where they do, ensure client outcomes remain resilient in the event of incapacity.
Without a valid and registered PFA LPA, financial institutions may be unable to accept instructions or continue servicing a client who has lost capacity.
In such cases, authority must be obtained via a Court of Protection deputyship order, which can take several months and impose ongoing reporting requirements, increased costs, and reduced flexibility.
This delay may have material consequences, such as missed tax planning opportunities or unmanaged investment risk.
Understanding these statutory and document‑specific limitations is an area where paraplanners add significant value. For further practical guidance and information on LPAs, visit Quilter’s dedicated page.
Main image: scott-graham-OQMZwNd3ThU-unsplash
