One person in 50 aged between 65 and 70, and one in 20 between 70 and 80, suffers from dementia – and these figures are expected to double in the next 20 years.
In 50% of cases the illness is caused by Alzheimer’s, and it can be particularly distressing for the families of sufferers. But in such situations, if a lasting power of attorney (LPA) has been established, a friend or relative can at least act on behalf of the sufferer to ensure that financial affairs are managed.
It makes sense to give consideration to establishing an LPA at the same time as you create your will as much of the required activity is very similar. Like creating a will, if left too late, friends and relatives who need to carry out any financial affairs for the sufferer must nominate a receiver through the courts. This can be a long and expensive procedure.
It is a misconception that an LPA is something only the elderly should consider. Mental illness can strike at any age as can other incapacitating events. Having an LPA in place is a small price to pay for peace of mind that your financial affairs will be in order should you be unable to manage them yourself.
So what is a Power of Attorney and how does it work?
A power of attorney is, generally speaking, a document where you give another person (your attorney) the authority to manage your affairs and act on your behalf. There are different types of powers of attorney, depending on your location and circumstances (this content relates England & Wales).
Lasting power of attorney
A lasting power of attorney is designed to be used in cases where you lack capacity to act, due to such factors as illness, an accident or the onset of dementia. No one can create a power of attorney for you and you must create your power of attorney whilst you are still capable. By planning ahead and making an LPA, you are able to give your instructions whilst you are of sound mind, in anticipation of the possibility of not being able to do so in the future.
Types of LPAs
A lasting power of attorney comprises two documents, one for your financial affairs and one for your personal welfare. They are described below in greater detail.
Lasting power of attorney – Property and Financial affairs
The “Lasting power of attorney – Property and financial affairs” deals with matters relating to your financial affairs. If someday you lack capacity to look after your own financial affairs, this document will entitle your property and affairs attorney(s) to do the following types of things :
- Opening, closing or operating bank accounts
- Claiming and receiving on your behalf, for example, all pensions, benefits, allowances, services, financial contributions, repayments, rebates
- Making all tax returns and adjusting and settling any claim for tax
- Paying your household expenses
- Buying, leasing, selling property
- Paying for private medical care and residential care costs
When it comes into effect
The “Lasting power of attorney – Property and Financial affairs” comes into effect as soon as it is registered with the Public Guardian unless you specify in the document that you don’t want it to come into effect until after you lose capacity. This is different from the “Lasting power of attorney – Personal health and welfare” which can only be used after you have lost the capacity to make decisions on your own.
Lasting power of attorney – Personal Health and Welfare
The “Lasting power of attorney – Personal Health and Welfare”, deals with matters relating to your personal welfare, i.e. your social and health care needs. If in the future you lack the ability to look after your own personal welfare.
When it comes into effect
Your “Lasting power of attorney – Personal health and welfare” must be registered before it can be used. However, after the document is registered, your attorney(s) cannot begin to act on your behalf until you have lost capacity to make decisions for yourself. It is wise therefore to register the document as soon as possible so that it will be ready for use when your attorneys need to use it.
It is very important that you trust the person(s) whom you appoint to act as your attorney(s). A lasting power of attorney is a very powerful document. However, you should be aware that there are a number of safeguards in place to help prevent abuse of the system by any of your attorney(s). These safeguards are the following:
- Your LPA must be registered. This registration process acts as a safeguard because certain people have the right to object to the registration.
- Your attorney(s) must follow the Code of Practice which provides guidance on the Mental Capacity Act 2005. If they do not, and neglect their duties toward you, they can be found guilty of a criminal offence, with possible imprisonment
- If any evidence is presented to the Office of the Public Guardian of your attorney(s) not looking after your best interests, the Public Guardian will look into the matter and decide what action should be taken
- You have the option of placing restrictions in the LPA about what you want/do not want your attorneys to do
The Financial Services Authority do not regulate will writing or tax and estate planning.