Why now is the time to review your Enduring Power of Attorney
Looking to the future and making plans to allow those you trust to make emergency decisions on your behalf if you lose mental capacity has long been encouraged.
In the past, many people made an Enduring Power of Attorney (EPA) to do this. In 2007, EPAs were replaced by Lasting Powers of Attorney (LPAs), governed by the Mental Capacity Act 2005.
Although it is no longer possible to create a new EPA, if they have been properly made they are still valid and can be registered and used.
There are a number of keys reasons, including flexibility, protection and avoiding a potentially difficult registration process, which means an LPA may be a far better option than the EPA you currently have.
What decisions do LPAs cover that EPAs do not?
A financial LPA, just like an EPA, gives the Attorney or Attorneys authority to make decisions about your finances as if they were standing in your shoes.
However, the LPA is far more flexible. It gives you choice in the following ways:-
- You can appoint an Attorney to act as replacement if your first choice of Attorney is unable to act.
- You can instruct your Attorney to take or not take certain actions upon your behalf.
- You can register the LPA in advance of your losing capacity so if it is needed it can be used quickly.
- It allows your Attorney to invest in funds that are held under discretionary management.
- You can decide whether or not to have people you choose to be notified of the document's registration. You can even decide not to notify people at all of the document's registration.
The health and welfare Lasting Power of Attorney known also as a personal welfare LPA was introduced 2007 so there is no EPA equivalent.
What decisions can be made under a health and welfare LPA?
It covers personal welfare decisions such as where you live, your medical care, your clothes, diet and so on. You can also give your Attorneys the authority to give or refuse consent to life sustaining treatment.
If you make both a financial and a health and welfare LPA at the same time the legal costs of doing so are not much more than making one LPA as the forms are similar.
How does an LPA give you more protection than an EPA?
To create an LPA, you must have someone certify that you have mental capacity, that you are appointing an Attorney or Attorneys of your own freewill and you are happy with your choice of Attorneys.
The LPA must be registered with the Office of the Public Guardian (OPG) (the administrative arm of the Court of Protection) to be used. The property and financial affairs LPA can be used before and after any loss of mental capacity. The personal welfare LPA could only be used if you were unconscious or had lost mental capacity.
Possibility of abuse
An EPA could be used with your permission without being registered with the OPG. It only has to be registered if you were becoming or had become mentally incapable of managing your property and financial affairs.
This creates a possibility of abuse as if the EPA were to get into the wrong hands it could be used fraudulently. Whilst the vast majority of Attorneys act with integrity without the compulsory registration that comes with usage of an LPA there is a possibility of financial abuse.
The LPA must be registered to be used. It is up to the person making it to choose whether to leave registration in abeyance or register the document straightaway. There are pros and cons of immediate registration. The main advantage is that the 12 - 14 week registration process can be avoided at the point the document is needed.
The registration process is time consuming and could cause issues with third parties if a person has lost capacity. The main disadvantage is that by registering in advance you lose the safeguarding that registration can provide. In other words you can choose people to be notified of registration who may object at the time if they think that your Attorney is incompetent or should not be acting for any reason. They may also step in if they think you still have mental capacity.
The EPA creates potential problems including:-
- Difficulties: when you lose mental capacity to make decisions the Attorneys cannot use the EPA again until it is registered with the OPG;
- Distress: because you (the Donor) cannot register the EPA yourself this falls to the Attorneys to do so once they feel you are losing or have lost capacity. Not only do the Attorneys have to let you know they are doing this, often upsetting for you to hear, they have to inform various relatives too which can be complicated and time consuming;
- Delays: the Attorneys then have to wait to see if anyone notified is going to object and must wait for the registered EPA to be returned before being able to use it to help you.
Why does an LPA give more flexibility than an EPA when it comes to Attorneys?
LPAs for property and financial affairs allow you to appoint replacement Attorneys if your initial choices become unable or unwilling to act. This means your LPA remains valid.
On the other hand under an EPA it is not possible to appoint replacements meaning the EPA becomes invalid and an application to the Court of Protection for a Deputyship Order needs to be made.
As the whole point of making an EPA and, for that matter an LPA is to avoid the Court of Protection's involvement which is often time consuming as well as costly, this defeats the object.
Why does an LPA give you more scope to add preferences and instructions?
With an LPA you have the flexibility to write in specific instructions which enable the Attorneys you have appointed to delegate decision making powers to certain other people.
This is particularly important if you have funds under discretionary management, for instance an ISA containing equities or a self-invested pension plan (SIPP) on which discretionary fund managers will make decisions on a daily basis about which equities to buy or sell.
Unless your LPA contains an authority for your Attorney(s) to use these discretionary fund managers, with carefully drafted instructions allowing them to act, it can mean investments can end up not only creating Income Tax consequences but attracting unintended Capital Gains Tax consequences too.
Other specific instructions a well drafted LPA might include can enable you to direct your Attorneys in certain ways including:-
- Allowing them to see your Will;
- Ensuring your choice of professional advisers are instructed;
- Ensuring accounts are prepared on a regular basis;
- Making it clear about any gifts you would like to be made and to who - be aware as gifts other than for reasonable amounts for birthdays and customary occasions require permission from the Court of Protection to be made.
For more information about reviewing an Enduring Power of Attorney or making or reviewing Lasting Powers of Attorney please contact Wards Solicitors Wills Probate and Mental Capacity Team.