Most of us take it for granted that we will go on being able to manage our finances for the rest of our lives, at which point it will be for our executors (assuming there is a will in place) to take over.
But physical or mental disability may affect any one of us, especially as we grow older. Little thought is given to this until these unfortunate circumstances have already arisen.
What is a lasting power of attorney?
The Mental Capacity Act 2005 (‘the Act’), which came into force on 1 October 2007, provides a statutory framework to protect and support individuals who lack mental capacity, determining who can make decisions on
their behalf and the principles that must be followed when making decisions. A key part
of this framework is the lasting power of attorney (LPA).
An LPA is a legal document that allows one person (‘the donor’) to appoint another (‘the attorney’) to make decisions on his or her behalf, including in circumstances where the donor lacks capacity. The Act provides for two types of LPA, for:
- Health and welfare; and
- Property and financial affairs.
There is a difference between managing a share portfolio and consenting to medical treatment.
Decisions may need to be made at different times, by different attorneys and applying different criteria. For obvious reasons, health and welfare LPAs can be used only when the donor lacks capacity, while property and financial affairs LPAs may also be used while the donor has capacity. In practice, the majority of LPAs are made in connection with property and affairs, and this article will focus on this type only.
- Anyone over 18 can create an LPA, provided he or she has the requisite capacity to execute it, uses the prescribed form and registers this with the Public Guardian (PG)
- The LPA form requires the donor to name at least one attorney. This could be an individual or a trust corporation
- An individual who is an attorney must be over 18 and not bankrupt
- Where there is more than one attorney, the donor must decide how they will act when making decisions, either jointly (decisions must be made together); jointly and severally (decisions can be made by attorneys jointly or independently of one another); or a mixture of the two
- An attorney may retire from the role and disclaim the power. The Act therefore allows for the appointment of replacement attorneys
- An LPA is not valid until it has been registered
by the PG; and
- There are prescribed safeguards that are built into the process of creating an LPA, both at the time the power is prepared and at the time of registration.
The most important safeguard is the requirement that an independent person (the certificate provider) certifies that the donor understands the purpose of the LPA and the scope of the authority given to the attorneys, and that there is no undue pressure. The certificate provider must be someone who has personally known the donor for at least two years, or be a professional with the relevant skills to act in this role.
An attorney’s authority under an LPA
Under an LPA, an attorney can make most legal decisions relating to finances that the donor could make in person (subject to any restrictions in the LPA itself). This could include buying or selling the donor’s property, managing their investments or claiming their benefits.
Some decisions, such as making gifts, are limited by the Act, while others such as the making of a will or settlement are prohibited altogether (these powers can only be exercised by the court). Because the authority conferred on an attorney is potentially so wide, it is common for donors to attach conditions or restrictions to tailor the LPA to their particular circumstances.
For example, a donor may not want the LPA used while still capable or may want a major decision, such as the sale of the family home, to be taken by all the attorneys. Restrictions can, however, cause unintended problems and make the LPA unworkable or even invalid.Later life planning
LPAs are invaluable in preparation for the later stages in life, where there is a greater risk of incapacity due to degenerative mental conditions, such as dementia.
A physical illness, such as a stroke, may also render a person unable to make decisions or to communicate decisions. If there is no LPA, then an application needs to be made to the Court of Protection to appoint a deputy.
However, the choice in this case is that of the court and not of the individual, and there is an effort and expense involved often at a time of great stress. Of course, old age by itself does not lead to a loss of mental capacity.
For many people, an LPA is just a precaution and is never used. An LPA is seen as a convenient device that we are encouraged to make in planning for old age. Often, though, they are made almost too readily, with forms taken off the internet and the right boxes ticked to get them done as quickly as possible. They are also made at a time of vulnerability and emotional pressure.
Donors need to be aware of the level of trust required of their attorneys and therefore the possible risk of abuse. Once an LPA is in place, it is difficult to detect abuse and problems only come to light long after the abuse has taken place.
There are no formal checks on attorneys, who are in effect unregulated. The PG will investigate an attorney only if a concern is raised by a relative, professional adviser or local authority acting as a whistleblower.
While many donors chose to appoint family members as their attorney(s), this is very much a personal decision and the individual may prefer to appoint someone independent instead of, or as well as, a family member to avoid a conflict of interest. It is advisable to informally notify additional family members or close friends that they have made an LPA, who the attorneys are and how they intend the power to be used.
Carefully drafted restrictions can also be used to reduce the risk of financial abuse – for example, a requirement for the attorney(s) to produce annual accounts to an independent person. Financial abuse is only investigated by the PG if someone knows of it, or suspects it and reports it. Therefore, involving other relatives, friends or professionals will provide for more transparency and security.
The donor can revoke an LPA at any time, provided he or she still has capacity. The donor can do this by a deed of revocation, which must be served on the attorney and then sent to the PG so that they can remove the LPA from the register.
However, once the donor has lost capacity, the LPA cannot be revoked except by an order of the Court of Protection, and this is only in very exceptional circumstances. For example, where there is evidence of fraud or undue pressure at the time the donor created the LPA, or where the attorney has acted or proposes to act in a way which contravenes his authority or that is not in the donor’s best interests.
While the Court of Protection does have powers to act in such cases, these are a last resort.
Heather West is Court of Protection associate at Thomson Snell & Passmore