Why make a Lasting Power of Attorney?September 30th, 2013 by Dan Woodruff
Latest posts by Dan Woodruff (see all)
- How you could save £226,436 just by maxing out your ISAs - February 21, 2017
- 5 ways to guarantee retirement insecurity - November 24, 2016
- Pension withdrawals – 12 crucial considerations - November 2, 2016
It is a sad fact of life that we all know someone who has been seriously ill during their lifetime. This is why most of us insure our lives and probably our incomes. However, have you thought about the practical consequences of getting ill? If you get ill you may suffer some unintended practical, legal and financial consequences. A Lasting Power of Attorney is a straightforward way to deal with these issues.
- What is a Lasting Power of Attorney?
- Types of Lasting Power of Attorney
- How to set up and cancel a Lasting Power of Attorney
- Michael and Anne’s story – what can happen without a Lasting Power of Attorney
- Who should set up a Lasting Power of Attorney
What is a Lasting Power of Attorney?
A Lasting Power of Attorney is a legal document which allows you to appoint someone to run your affairs if you are incapacitated due to illness or accident. You use the document to appoint a trusted person to act on your behalf. This person is called an Attorney, although they do not have to be legally qualified. In fact the Attorney is usually a family member or friend.
You can appoint your Attorney to act on your behalf in relation to your health and welfare, and/or your property and financial affairs.
You can only set up a Lasting Power of Attorney while you have the mental capacity to make decisions. If you become mentally unable to take decisions, the Courts will appoint a Deputy to work on your behalf. A Deputy works very much like an Attorney, but has the added problem of strict Court oversight.
Types of Lasting Power of Attorney
There are 2 types of Lasting Power of Attorney. You can use either type or both.
- Health and welfare Lasting Power of Attorney
This type of Lasting Power of Attorney is used to allow you to make decisions in advance about how you will be treated in certain circumstances related to your health. You could use this to decide whether you access nursing care, or whether you want to receive certain medical treatments. This type of Lasting Power of Attorney can only come into action when you are no longer capable of making decisions on your own.
- Property and financial affairs Lasting Power of Attorney
This type of Lasting Power of Attorney is used to allow someone to control your financial affairs. Usually, this is used to allow a trusted person to control your assets such as your property or investments; however, it can be as simple as allowing someone to pay your bills on your behalf. This type of Lasting Power of Attorney can come into action at any time, whether or not you have the mental capacity to make decisions on your own.
How to set up a Lasting Power of Attorney
The process for setting up a Lasting Power of Attorney is a bit more involved than it used to be. You now need to complete the relevant forms and register the Lasting Power of Attorney with the Office of the Public Guardian. You can do this yourself, although it is usually advisable to get legal advice since this document can mean that someone will be taking important decisions on your behalf. These issues should be understand fully before making such a commitment.
How to cancel a Lasting Power of Attorney
You can cancel a Lasting Power of Attorney at any time, provided that you still have the mental capacity to make decisions on your own. You cancel your arrangements by issuing a ‘deed of revocation’ which is a straightforward letter revoking your previous instructions. This must be registered with the Office of the Public Guardian. Lasting Powers of Attorney cease automatically following certain events such as divorce.
Michael & Anne’s story – what can happen without a Lasting Power of Attorney
Michael and Anne were a married couple in their early 60s. Michael was a financial executive who had worked overseas for much of his life. Anne had taken time out of work to bring up their children, and was now working in a public sector role. They came to us when Michael was diagnosed with a serious medical condition, which was affecting his mental capacity. Apart from working on their future financial needs we also identified that they needed to set up a Lasting Power of Attorney for Michael while he was still able to make decisions on his own. Unfortunately, with all the other problems impacting them, they never got round to setting this up.
The consequences of not setting up a Lasting Power of Attorney
Because Michael was the main earner in the relationship, he had built up most of their assets (not including their home, which was held jointly). This meant that Michael had the majority of the retirement plans and investments in his name. He also had an insurance policy which paid out on diagnosis of his medical condition.
When Michael went into a nursing home, Anne was appointed as his Deputy since they did not have a Lasting Power of Attorney in place. While this process is quite similar in many ways to how an Attorney works, unfortunately the Courts took a different view as to how Anne should manage their assets than Michael and Anne would have done if they had been free to act on their own. The Court decided that all of Michael’s assets should be used to fund his nursing care. While simple in concept, the practical implications were that Anne was made suddenly destitute. Since nearly all of their useful assets were in Michael’s name Anne was suddenly left without any income. Of course, if Michael was able to voice his opinion he would never have sanctioned such a move.
Happily, the situation was partly resolved but only after months of costly legal action. Eventually, after a year Anne was allowed to use some of ‘Michael’s’ income to fund her lifestyle, but only under some strict controls. The lesson is that if they had set up a Lasting Power of Attorney they would have avoided all these problems and Anne would have been able to run their finances on the way they would have wanted.
Who should set up a Lasting Power of Attorney
Everyone should set up a Lasting Power of Attorney, just as we should all set up a will. The process is relatively straightforward and means that your wishes will be followed if you are unable to make decisions on your own. This should be done now, while you are fit and able to, not left to when you get too ill to make a difference.