There are two different types of Lasting Power of Attorney (LPA), one deals with decisions made about health and care and the other is concerned with finance. LPAs come into effect when you lose mental capacity, or in some cases when you no longer want to deal with your own affairs. Here we shall explain why protecting your estate with a financial LPA is a step you need to take.
What is a financial LPA?
A ‘Property and Financial Affairs’ LPA gives your loved ones, or a trusted person in your life the power to deal with paying your bills, buy and sell your property and manage your bank accounts and investments.
If you do not have an LPA in place and subsequently lose the ability to make your own decisions then your family or friends face long delays at considerable expense applying to the Court of Protection in order to obtain the authority to act on your behalf. Every week and month that the court application continues, nobody will have access to your bank account, or any pensions or annuities. This is certain to cause difficulties in paying the mortgage, bills and for any specialist healthcare you might need.
The financial LPA ensures that should something happen to you and you lose mental capacity then your loved ones can deal with your affairs and you can have peace of mind.
Who makes a financial LPA?
You might think this is a step too far if you’re not yet of pensionable age but it is never too early for you to draw up a financial LPA. The document doesn’t have to apply to someone at the end of their life. It could be that you become temporarily unable to make decisions.
The Covid pandemic has demonstrated just how people can go from being healthy and active to someone unable to communicate with anyone for weeks on end while receiving intensive care treatment. In a situation like this, a spouse doesn’t have an automatic right to manage your finances and they may find themselves in severe financial difficulties, while also having to deal with the stress of your illness.
For example, if you have a joint bank or building society account there can be enormous problems if one of the account holders loses mental capacity and there is no registered LPA in place. The banks can actually decide whether or not to temporarily restrict the use of the account to essential transactions only.As you can see, it is so much easier if you have plans in place, ‘just in case’ you need them.
Is a DIY financial power of attorney possible?
Yes. You can download the forms from www.gov.uk and complete them yourself however, there are several reasons why getting a professional to do it for you will give you greater security.
- When you submit the forms to the Office of the Public Guardian, they do not check them. This could cause problems down the line if there are any mistakes. Even if the LPA has been registered, the errors contained therein will render it invalid. The upshot of this is that when your nominated attorney wants to use their powers they may suddenly find they can’t.
- It’s just a form right? Well yes, but if the court’s instructions aren’t followed to the letter, the application could be rejected and in that case you may need to pay another registration fee.
- There are unscrupulous people out there who may offer to do the financial LPA for you but without your best interests at heart. Instructing a trusted professional with legal knowledge simply makes sure that the correct procedure has been followed and everything is above board.
Verdict: This is an important and powerful document that would have a major impact on your life should you lose mental capacity. Why leave it to amateurs?
A financial LPA is essential for:
Buying and selling property
Provided there are no restrictions within the Lasting Power of Attorney, you can usually sell property (at market value), buy property and maintain and repair the home.
You’ll need to get legal advice if:
- The sale is below the market value.
- You want to buy the property yourself.
- You’re giving it to someone else.
Paying the Mortgage
A donor (you) can grant a donee (your attorney) the power to do anything, including paying the mortgage. It also allows them to enter into a mortgage. A financial LPA cannot be used to bind a donor into a credit agreement regulated under the consumer credit act 1974. Although mortgages secured on land are not regulated under that act it is generally considered not to be good conveyancing practice to allow an attorney to sign a mortgage deed.
An attorney can invest money on your behalf, however they have to be mindful of certain things.
- They can not do what they like with your (the donor’s) money.
- They are there to support your decisions, if that is possible.
- They must make decisions in the person’s best interests.
- Decisions must be made according to the donor’s preferences and beliefs.
The Government advises that the attorney also finds a qualified financial advisor to help plan or review the investments. It’s the attorney’s responsibility to make sure that all cash is held in savings and deposit accounts with a UK banking licence so they’re covered by the Financial Services Compensation Scheme available up to £85,000 per banking institution.
This alone is a reason to have a financial LPA. It gives the attorney the same power to manage the account as the account holder. Third party bill management means that the attorney can speak to providers such as the gas and electricity supplier, about the account, receive copies of bills and pay bills.
Arranging repairs to property
Provided there are no restrictions within the Lasting Power of Attorney, the person with LPA is allowed to sell property (at its market value). They can also buy property and maintain and repair the home when required.