Every day we make decisions about our lives. The ability to make these decisions is called mental capacity. If someone has difficulties that mean they cannot make decisions anymore, they will need help managing their finances.
Accidents, strokes, brain injuries and Parkinson’s disease can also affect someone’s ability to make their own decisions. Handling your financial affairs can become virtually impossible, which is why charities, care homes and specialists who care for the elderly or vulnerable recommend everyone plan’s ahead for these unforeseen circumstances.
According to the Alzheimer’s Society, more than 1 million people in the UK will have dementia by 2025. More than 1 in 5 people over 85 already suffer from this, with rates significantly higher amongst women than men.
Risks of not having a Lasting Power of Attorney
If a person loses mental capacity without an LPA in place, the government steps in and appoints a neutral figure. Sadly, many people assume that they would automatically have this authority over their spouse, parents or siblings which is misguided. If a person does not have the mental capacity to make decisions, then by law someone must.
Families must apply to the Court of Protection to have a deputy appointed to deal with everyday financial matters. This is a slow and very expensive process, costing thousands of pounds. If you have to use a solicitor, it could cost a lot more.
Instead, you can nominate a spouse, relative or a trusted friend before you lose capacity, by setting up a Lasting Power of Attorney (LPA). You can appoint one or more representatives to act for you and can determine how they work together to make decisions on your behalf.
An LPA ensures that, should you be unable to manage your own affairs, the people you have appointed can manage your financial life on your behalf. This can save a great deal of money and distress, and will ensure that, as a vulnerable person, your affairs will be handled correctly and quickly.
You may be thinking “we don’t need this, we’re perfectly well”. This is a common misunderstanding. The key thing to remember is… You can only set up a Lasting Power of Attorney when you have mental capacity. Once you have lost capacity, it’s too late.
A Lasting Power of Attorney (LPA) allows your loved ones to take care of you and your finances if you become unable to do so yourself.
There are two types of LPA
A “Property and Financial Affairs” LPA allows your loved ones to deal with paying your bills, buying and selling your property and managing your bank accounts and investments.
Joint bank, building society and business accounts can be severely restricted if ONE of the account holders loses mental capacity and there is no registered LPA in place.
“If one joint account holder loses mental capacity, banks and building societies can decide whether or not to temporarily restrict the use of the account to essential transactions only” – British Bank Association
The restricting of a joint account has severe implications as the joint owner cannot freely withdraw what is their own money without an order from the Court of Protection. This could be devastating, especially if the joint owner has their only form of income, such as their pension, paid into this joint account.
“If your joint bank account is frozen, how will your partner pay essential bills such as your mortgage, utilities, car payments or insurance?”
A “Health and Welfare” LPA covers decisions about health and care. This document sees nominated individuals make decisions over day-to-day healthcare and medical treatments, as well as deal with any health and social care staff, it can even give the attorneys the right in deciding where you live.
Just because you give the trusted person power of attorney over your health, that does not mean they will automatically gain control over your financial affairs and vice versa. This can only be used if someone is incapable of dealing with such matters themselves.
The key point to remember is your representative should only ever make a choice for you if you are unable to make that specific decision at the time it needs to be made. For example, if you fall into a coma, your representative will start looking after your affairs. Yet if you wake from the coma, you should be able to make your own decisions again. The key difference is that the health and welfare LPA can only be used after the person loses capacity, not before.
It is worth noting LPAs replaced the previous Enduring Power of Attorney (EPA) system. EPAs set up before 1 October 2007 will still be valid, whether they have been registered or not, though they must be registered when the person loses capacity. An EPA also only covers property and finance not your health and welfare.
“This is one of the most important decisions you’ll ever make”
Who decides if someone has capacity?
The Mental Capacity Act 2005 says a person is unable to make a decision if they can’t do one of the following: understand information relevant to a decision; retain that information long enough to make the decision; use or weigh that information; or communicate the decision.
As none of us know what is around the corner, having the correct legal reassurance in place offers peace of mind and certainty for yourself and your family at what would be a very difficult time. Regardless of your adult age, LPA’s allow you to plan how your health, wellbeing and financial affairs will be looked after at a time when you can no longer make decisions.
Once you have a Lasting Power of Attorney in place you can have peace of mind that there is someone you trust looking after your affairs not the state.
…The key is to act early, before the events happen, while you still have capacity.