Most people appreciate the need to put a Will in place to deal with their affairs on death. However, the importance of appointing attorneys to deal with matters whilst their alive and in their lifetime weather capacity has been lost or help is needed, can sometimes be underestimated, or ignored.
It is often assumed that, by virtue of their close relationship, family members will be entitled to make medical decisions for their incapacitated loved ones, and to deal with their assets. However, this is not the case.
The impact of the Covid-19 pandemic has, unfortunately, highlighted the practical difficulties that family members can face when their loved one loses capacity to deal with their affairs, but there is no power of attorney. A lasting power of attorney (LPA) enables an individual with capacity (the donor) to appoint an attorney (or attorneys) to make decisions for them, in the event that they later become incapacitated.
The predecessors to LPAs were enduring powers of attorney (EPAs). EPAs can no longer be made, but those in place before October 2007 are still valid and can still be used. It would be wise to review the validity of existing EPAs, and to confirm that they reflect the donor’s current wishes. Unlike LPAs, EPAs do not extend to decisions about the donor’s care and medical treatment. Those with existing EPAs should consider putting a health and welfare LPA in place, to sit alongside the EPA.
There are two types of LPAs, and each has its own remit. It can make matters practically easier for the attorneys if both types are put in place. For example, they can use the property and financial affairs LPA to meet medical costs incurred under the health and welfare LPA.
Property and financial affairs LPA
This gives the attorney authority to administer the donor’s assets, for example insuring, maintaining or selling their house, managing their bank accounts and investment portfolios and paying invoices (including medical costs). The attorney is unable to make gifts using the donor’s funds, except in specific circumstances prescribed by law.
A property and financial affairs LPA will apply to assets situated in England and Wales. If the donor holds assets in other jurisdictions, legal advice should be taken to determine whether additional documents are required in the relevant jurisdiction. Unlike LPAs, EPAs do not extend to decisions about the donor’s care and medical treatment.
Health and welfare LPA
This gives the attorney the ability to make decisions about the donor’s health and well-being, including where they live, their care arrangements and medical treatments. The donor can also give the attorney authority to decide whether or not the donor should receive life sustaining treatment. Decisions in relation to end of life care can alternatively be made by way of an advance directive, which is a separate legal document.
Difficulties faced without an LPA
Without an EPA or LPA, family members will not be able to deal with any assets which the incapacitated person holds in their sole name. They will not be able to pay bills or manage their bank accounts. They will not be permitted to sell assets, if, for example, that was required to fund ongoing care.
Family members will also have very little to no involvement in decisions regarding their loved one’s care and medical treatment. Care providers often consult family members regarding significant care and medical decisions, but a health and welfare LPA gives the attorney the complete authority over the donors wishes regardless of families assumed rights.
If there is no EPA or LPA, those seeking to act on their behalf will need to apply to the Court of Protection for a Deputyship Order and this involves instructing solicitors to issue proceedings. The application process can take anywhere between 6 months to over a year to complete and is more costly than putting an LPA in place before the loss of capacity. (Application fees vary from £2,000 – £10,000) By making an LPA, the donor retains control over choice of who should act for them, rather than this being decided by the court. Without an EPA or LPA, family members will not be able to deal with any assets which the incapacitated person holds in their sole name.
How do I make an LPA?
LPAs should be made by everyone over the age of 18 as they are legally classed as adults. It is preferable for an LPA to be made when it is clear that the donor has capacity. LPAs are not just for the elderly: loss of capacity can happen at anytime and at any age, this could be as a result of accident or illness so it is prudent to put one in place at the earliest opportunity. The process involves the completion of forms for each LPA. Several aspects need to be considered, depending on the donor’s personal situation, their wishes and their asset base.
Who to appoint and how should attorneys act?
The donor must decide who to appoint as their attorney (or attorneys). The position of attorney is one of great authority and trust; the donor should give this decision careful thought. The donor needs to be satisfied that their attorney understands their wishes, respects their values, and will act in their best interests.
The appointed attorney must be over the age of 18, have mental capacity and, in the case of a property and financial affairs LPA, not be bankrupt or subject to a debt relief order. A professional attorney can be appointed, but this will be more costly as professional fees are likely to be charged. A non-professional attorney is usually unpaid, but they can reclaim expenses incurred when acting as attorney. The donor can appoint more than one attorney, and they should carefully consider whether the chosen attorneys will be able to work effectively together. The donor can appoint different attorneys under each LPA, or the same people.
If there is more than one attorney, the donor needs to choose whether they will be required to act jointly (so that they must make every decision together) or whether they can act jointly and severally (meaning together or also allowing them to make some decisions on their own) The latter option makes the LPA administratively easier for the attorneys to use, but it provides less of a “check and balance” on actions being taken by individual attorneys if they are able to act alone.
Care needs to be taken when appointing attorneys jointly. If one of the attorneys ceases to be able to act (for example, if they lose capacity themselves, or they die) the LPA will terminate. The donor can appoint a replacement attorney or attorneys to step in, in the event that the original attorney or attorneys cannot act or are unwilling to do so.
A property and financial affairs LPA can be effective from the date of registration with the Office of the Public Guardian OPG (although the attorney would need to act with the donor’s consent, while the donor has capacity).
A health and welfare LPA can only be used by the attorneys after the donor has lost capacity to act for themselves.
Restrictions, conditions, guidance and charging
The donor may (but is not required to) include restrictions, conditions and/or guidance in their LPAs. It is important that these are drafted carefully, so that they neither undermine the workability of the LPA, nor contravene the law which applies to them. Restrictions and conditions are binding on the attorney. Guidance sets out how the donor would like the attorney to act, but they are not obliged to follow it.
For example, if the donor has particular views on making only ethical investments, this could be included in the guidance section of the property and financial affairs LPA.
An important practical point to consider is whether the donor holds investment portfolios which are, or may in the future be, managed on a discretionary basis. The strict legal position is that attorneys cannot delegate decision making in relation to the donor’s assets.
This can cause difficulties if the attorney would like to delegate the management of investment portfolios on a discretionary, rather than advisory, basis. The donor should consider including a clause permitting delegation of investment decisions by the attorney. If the donor would like the attorney to see their will before they have died (for example, so the attorney knows not to sell or give away assets which have been specifically gifted under the will) this consent needs to be included in the LPA.
Signing and registering LPAs
Once the forms have been completed, they need to be signed in the order prescribed by legislation. Firstly, they need to be signed and dated by the donor in the presence of an independent witness. There are restrictions on who can act as a witness – for example, the attorney cannot be the witness.
A ‘certificate provider’ will then need to sign the forms to confirm that the donor has the requisite capacity to make the LPA. The forms then need to be signed and dated by the attorneys (and any replacement attorneys) in the presence of a witness.
Once the LPAs have been completed, they can be registered with the Office of the Public Guardian. Registering them immediately prevents delay if the LPAs need to be used urgently in the future and it also helps identify any issues the Office of the Public Guardian raises with the forms before the donor loses capacity.
The completion of LPA documents are carefully prescribed by the Office of the Public Guardian so it is advisable to seek specialist advice from firms like ourselves prior to putting them in place.