Grant Blakey, Technical Team Leader at AJ Bell, discusses the different types of Powers of Attorney, their benefits and the potential consequences of failing to arrange a POA in good time.
The population of the UK is ageing. According to the Office for National Statistics (ONS), by 2039 the number of people aged 75 and over is expected to double from 5 million to nearly 10 million*. As such, the use of powers of attorney (POA) both in regard to your clients’ ongoing and long-term financial planning needs continue to be increasingly important.
The general principle behind a Powers of Attorney (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. The individual must have capacity to make their own decisions at the point of delegation.
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 The power is withdrawn on mental incapacity, which unfortunately might be when it is most needed.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 because they do not cover health care provision.
Lasting POAs were introduced to resolve some of the issues with EPAs. There are two types – the first giving attorneys power to make decisions on personal health and welfare; and the second on property and financial affairs. A separate LPA would need to be set up for each type.
A health and welfare 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.
A notable restriction is that a Junior ISA cannot be operated under a Power of Attorney where the registered contact was the donor.
The donor can cancel the LPA if they have capacity. An LPA can also be revoked on: 1) the donor’s bankruptcy (not for welfare); 2) death, bankruptcy or incapacity of the attorney (if there is 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).
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.
If someone loses capacity and there is no POA, a Guardianship Order may be considered. This involves going to the Court of Protection to appoint a deputy to manage the individual’s affairs. The process is often far more complex and costly.
The deputy cannot make settlements of the person’s property or exercise the powers of a trustee.
In summary, having POAs in place for your clients 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, costly and likely to be distressing for all involved.
*Source: https://www.gov.uk/government/publications/future-of-an-ageing-population
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