When it comes to estate planning, many people put off important decisions until it is too late. The consequences of this can mean paying more tax and having key decisions taken out of your hands.
Arranging a Power of Attorney (POA) can mean keeping some control over important financial and medical decisions even when you are no longer able to advocate for yourself.
The principles are similar throughout the UK, although Scotland and Northern Ireland have their own processes and legal systems.
What is a Power of Attorney and Why Do You Need it?
A Lasting Power of Attorney is a legal document which allows you to nominate one or more trusted people to make important decisions for you if you are no longer able to.
This means that if you are in an accident, or if you are incapacitated due to illness or old age, that you will have someone to manage your medical care, financial arrangements, and sign important documents on your behalf.
This can help avoid delays and make sure that your affairs are dealt with, as far as possible, according to your wishes.
Types of Power of Attorney
There are two main types of POA:
- Health and welfare – this can cover medical decisions, daily care, and end-of-life options.
- Property and financial affairs – this covers paying bills, dealing with your bank accounts and financial arrangements, and looking after any property you own.
POAs set up before 2007 were known as ‘Enduring Powers of Attorney.’ These covered mainly financial affairs and were replaced with the more comprehensive, Lasting Powers of Attorney. If you have an existing EPA, you can continue to use it, but you can’t set up a new one or make changes to an existing one. It’s worth taking legal advice as it may be a good idea to replace it with a new LPA.
Choosing Your Attorney
Firstly, you should decide who you would like to act as your attorney. You can appoint the same person for both types of POA but you don’t have to. For example, some people prefer to appoint a professional (for example, a solicitor) as their attorney for property and financial affairs, but prefer for a family member to make health and welfare decisions.
Your attorney does not need any specialist skills or knowledge, but should be prepared to take advice if necessary, for example when dealing with investments or legal matters.
The main requirements for an attorney are that they are over 18 and have full mental capacity. They do not need to live in the UK, but of course, it may be more difficult for someone outside the UK to manage your affairs.
Your attorney has the following responsibilities:
- To follow any instructions you include in your POA.
- To consider your preferences and help you make decisions if you can.
- Act in your best interests and respect your human and civil rights.
So, while the legal requirements to appoint an attorney are fairly straightforward, you may want to think carefully about who you feel can fulfill these responsibilities for you.
You can nominate more than one attorney. You can also decide whether they must make decisions jointly, or ‘jointly and severally’ – this means that attorneys can make decisions alone without needing consent from the other attorneys.
Setting Up and Registering Your Power of Attorney
You can set up a POA yourself or appoint a solicitor or estate planner to do this for you.
Your forms will need to be signed by you (the donor) and any attorneys you appoint. All signatures must be witnessed by an unconnected third party.
To be legally valid, your POA must be registered with the Office of the Public Guardian. This can take up to 20 weeks and costs £82.
You must have full mental capacity to make and register a POA. This is why it is important to act early rather than waiting until it is actually needed.
What Happens if You Don’t Have a Power of Attorney?
If you lose capacity and don’t have a POA, you may assume that your partner or family members will be able to act on your behalf.
However, it is not that simple. An application will need to be made to the Court of Protection, who will carry out an assessment. They may make an order regarding your health or financial decisions, and will most likely appoint a deputy to make key decisions for you.
A deputy is similar to an attorney and they are bound by the same responsibilities as well as the limitations issued by the court. The key difference is that you cannot choose your deputy.
Ultimately, the process is much more complex and takes significant control out of your hands.
Other Factors to Consider
As well as setting up your POA, some other important aspects to consider include:
- Writing your will and making sure it is up to date.
- Taking any steps required to mitigate Inheritance Tax. This may include making gifts, setting up trusts, or taking out insurance to pay the tax bill.
- Making an ‘in case of emergency’ document. This can include instructions and contact details so that your family knows what to do if anything happens to you.
Whilst setting up your POA can be relatively simple and inexpensive, we would always recommend taking legal advice.
The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment arrangements or legal transactions.
Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.