All power to you: understanding the importance to clients of a Lasting Power of Attorney
If a client becomes mentally or physically incapacitated, the management of their financial affairs can fall into the hands of family members who are unprepared for the task, and who may have not been selected by the client in other circumstances. Despite the disruption and heartache they can prevent, very few clients understand the purpose of Lasting Power of Attorney agreements.
- Just 1% of the UK adult population currently have Lasting Power of Attorney (LPA) in place
- An LPA can facilitate withdrawal levels and investment strategy, as well as adapting to ongoing needs over time
- LPAs can be put in place at any time, even though they will only become active once the holder becomes mentally incapacitated
Why do so few have LPAs in place?
Current figures show that fewer than one million LPAs have been taken out in England and Wales since 2012, although there are around 1.5 million people aged over 85 and around 5 million aged over 75.
Meanwhile, some 850,000 people in the UK have dementia, and the Alzheimer’s Society forecasts this will rise to more than one million in the next decade and to two million by 2051. A report published earlier this year by Alzheimer's Research UK says that one in three people born during 2016 could end up suffering dementia.
It's estimated just 1% of the UK adult population currently have a Lasting Power of Attorney (LPA) in place, which would allow appointed family members or friends to manage their finances should they become unable to do so.
How important is the LPA?
Firstly, it’s important to establish there are two types of LPA, both of which are more appropriate to specific situations:
- Property and Financial Affairs
- Health and Welfare
The first deals with, as the name suggests, any assets (including money) owned by the individual whilst the health and welfare LPA deals specifically with matters relating to the client’s wellbeing.
"Often, financial planning can focus on the impact of death, when the impact of physical or mental incapacity could also have a huge impact on the financial and emotional wellbeing of clients and their families."
What is often overlooked is that, in simple terms, the property and affairs LPA can be used once registered as a result of incapacity, be that mental or physical; however, the attorneys have to work with the donor where possible. The health and welfare LPA, of course, only becomes effective when the donor has lost mental capacity.
Both forms of LPA only become legal once registered with the Office of the Public Guardian.
When is an LPA particularly useful?
The LPA is relevant no matter how the funds are invested, whether still in the main pension or in drawdown and can facilitate withdrawal levels and investment strategy as well as adapting to ongoing needs over time.
A property and affairs LPA would deal with pension matters for any funds held in the sole name of the individual. Whilst a will may determine what happens on death, it doesn’t cover a client’s wishes in the event of incapacity. If this does happen, without an LPA funds would be in limbo until the Court of Protection could award attorney powers; a process which would typically take months or even years at great expense.
Equity Release Drawdown
With equity release drawdown plans, each time a further draw of funds is required all named borrowers must be able to sign. LPAs are imperative to ensure ongoing access to further funds from a drawdown plan.
What are the implications for advice?
Often, financial planning can focus on the impact of death, when the impact of physical or mental incapacity could also have a huge impact on the financial and emotional wellbeing of clients and their families. If your clients don’t currently have LPAs in place, it may be worth considering as part of your holistic planning going forward.
Tony Maxfield, Training and Productivity Director, APS Legal and Associates (part of the SimplyBiz Group)