Powers of Attorney – don’t forget to register
Losing mental capacity can have a devastating impact, no matter what financial plan you have in place.
So what importance does a Power of Attorney play?
A Power of Attorney can ensure that where your plans need to be adapted, they have flexibility when it’s needed.
Data from the Office of the Public Guardian (OPG) shows that the number of Lasting Powers of Attorney registered in 2022 increased by 20% from 2021 (at circa 850,000). This suggests that the importance of putting this in place is beginning to be understood, however it’s equally important to understand any restrictions placed on what your attorney can do.
The key principle overarching all duties performed by an attorney under a lasting Power of Attorney (LPA) is that that they should act in the best interests of you as the donor, and no one else.
Financial planning and meeting income needs
The onset of ill-health can drastically change anyone’s retirement plans, and in particular their income needs. For example, for some as they become less active, less income may be needed to live on. At the other end of the scale, additional spending could be required to make adaptations to the home or to enter residential care.
Having an attorney in place allows greater choice over how your needs can be met tax efficiently from savings which may typically include pensions, ISAs, General Investment Accounts, and Investment Bonds.
The absence of a registered Power of Attorney when needed can mean that there is little flexibility when it comes to meeting your income requirements. It may not be possible to start, stop or vary income from flexible pensions for example, and it may also mean that other lifetime savings are not accessible. As a result, you may not be able to make the most of your tax allowances and subsequently pay more tax than necessary. In turn, this could mean that savings don’t last as long as they might otherwise. With restrictions on gifting (further details below), it could also preserve a larger estate for your family.
A Power of Attorney is important to ensure that your investments can continue to be managed flexibly and in your best interests. It is essential for any financial plan that you continue to have a choice of investment wrappers, such as ISAs, General Investment Accounts, and Investment Bonds. Investments must still be owned by you, but your attorney can sign on your behalf.
In the absence of an attorney, investments can’t be changed, or new wrappers opened, which may not be good news, particularly if your loss of capacity dictates a different investment strategy to meet future needs.
While an attorney cannot generally delegate decision making to someone else, they can seek professional help from a financial adviser, solicitor, accountant, etc. to help with decision making in your best interests.
Generally, if you have an attorney in place, your attorney cannot make any meaningful gifts, to plan for reducing Inheritance Tax on your estate for example. This is not normally viewed to be in your best interests, as the gifts could reduce the resources available to you for future needs, such as long-term care.
You can of course still make gifts yourself if you still have full capacity. If providing for family members and/or gifting from your estate to save future Inheritance Tax is important to you, you should consider making such gifts while you are able.
Once mental capacity has been lost, such gifts will no longer be possible in England and Wales without application to the Court of Protection. There will be time and costs associated with this, with no guarantee that authority will be granted.
Gifts that are allowed
The gifts an attorney can make without application to the Court of Protection are limited to occasions such as birthdays and Christmas, or to charities that you may have previously supported. The value of those gifts must be reasonable based upon the individual circumstances. So again, it may not be considered reasonable to make gifts in these circumstances, if, as a result, your future financial needs may be compromised.
Attorneys should be mindful that any gifts that are made, even with Court of Protection approval, could still be regarded as a ‘deprivation of assets’, and therefore included in the local authority assessment for any contributions towards the cost of care.
What happens if mental capacity is lost, with no Power of Attorney registered?
If you lose capacity and you don’t have a valid Power of Attorney in place, the court can appoint someone to be your ‘deputy’. Someone wishing to act on your behalf can apply to the Court of Protection to be appointed as your deputy. This can be a lengthy and costly process, and you can’t choose who your deputy is, because in this situation you’d have lost mental capacity to choose who acts for you.
The Court of Protection will consider whether the person applying to be appointed as deputy is suitable for the role.
It’s important to note that a deputy’s powers are very limited compared to someone who has been appointed with powers of attorney, and there is an annual fee (up to £2,500) for them to renew their deputyship.
Essentially the consequences of losing capacity with no Power of Attorney registered are:
- You have no say in who the court appoints as your deputy
- You have no say in the scope of power granted to your deputy
- A deputy’s application could be refused, so the council may be appointed instead
- Your family will have to pay extra to apply for and maintain a deputyship
- You may not be able to sell jointly held assets until the court appoints a deputy
When you are in good health, it’s important to act sooner rather than later to safeguard your future.
Registering an LPA ensures that your attorneys can have the freedom to act in your best interests once capacity has been lost – choosing appropriate investments and providing income and capital when needed, in a tax efficient way.
It can be human nature to leave these decisions for another day, however acting sooner may save time, money and perhaps a lot of stress in the long run.
If you would like further information on any of the above, please contact your dedicated Financial Planner who would be more than happy to help.