Legal & Powers of Attorney

Legal and Powers of Attorney

Sadly there may come a time in your life where you are no longer able to administer your affairs effectively, perhaps dues to dementia or another illness. It is always best to prepare for this scenario in advance by granting a power or attorney to someone close, normally a family member or a close friend. It is prudent to do this whilst you are healthy because once you have lost mental capacity, it is too late to make a power of attorney.

What is a power of attorney?
A power of attorney enables someone else to manage your affairs on your behalf when you are no longer able to or no longer want to. There are various types of powers of attorney including Property and Financial Affairs Power of Attorney, Heath & Welfare Lasting Power of Attorney (LPA), Enduring Power of Attorney (EPA) and Ordinary Power of Attorney (OPA).

Where an individual requires care, and is able to give their consent, it may be advisable for a member, or members of their family to be granted a power of attorney. This gives them the power to act legally on their relative’s behalf for financial and property matters, plus decisions on welfare and medical treatment. Although not mandatory it is advisable to establish a lasting power of attorney through a solicitor.

Whilst one of us likes to think of a time when we can no longer manage our own financial or health affairs, it is reassuring to know that there are procedures in place which should help someone else to do it for us.
An LPA is a legal document which allows you to choose someone to make decisions for you when you no longer want to or are no longer able to. LPA replaced the previous system of Enduring Power of Attorney (EPA) in 2007, and gives your representative the right to manage your affairs and make decisions on your behalf. There are two types of LPA – one for Property and Financial Affairs and for Health and Welfare.
Property and Financial Affairs Power of Attorney.

With a Property and Financial Affairs LPA you can decide to give your representative (known as your ‘attorney’) the power to make decisions about any or all of your affairs. An LPA gives your attorney the right to make decisions as if they were you, but they must also make sure they act in your best interests.
Your attorney can’t act on your behalf until the LPA is registered with the Office of the Public Guardian (OPG) in England and Wales, the body responsible for registering LPAs and EPAs, maintaining the Register of registered instruments and dealing with complaints about the conduct of attorneys. The Scottish equivalent is Continuing Power of Attorney, while the Office of Care and Protection deals with Enduring Power of Attorney in Northern Ireland, where LPA has not been introduced.

Health and Welfare Lasting Power or Attorney
A Health and Welfare LPA allows you to choose someone to make decisions about your health and personal welfare should you no longer be able to do so. You can decide to give your attorney the power to make decisions about any or all of your health and welfare matters, but your appointed attorney or attorneys will only be able to make these decisions once the LPA is registered with the OPG, and provided that you can no longer make these decisions yourself.

When to set up an Lasting Power of Attorney
Anyone aged 18 or over can make an LPA appointing one or more attorneys to act on their behalf. It is important to make the LPA while you are still capable of making decisions about who to appoint as your attorneys and what powers you want to give them. The LPA cannot be used until it is registered with the OPG, which you can do at any point after it has been made. Even after it has been registered, your attorneys will have to act within any restrictions or conditions you have set out in the LPA form.

Enduring Power of Attorney
Although LPA replaced Enduring Power of Attorney (EPA) in 2007, EPAs that were made before 1 October 2007 can still be used. EPAs must be registered with the OPG if the donor is losing mental capacity. EPA only covers property and finances.

Ordinary Power of Attorney
A third type of PoA is known as Ordinary Power of Attorney (General PoA in Scotland). This option only covers property and finances and ceases if the donor loses mental capacity. Ordinary PoA never needs to be registered with the authorities.

Grant of probate and letters of administration
When a person dies, someone has to take responsibility for dealing with their property, debts and distributing the estate.

The person dealing with the estate administration will normally be required to provide proof that he has the legal authority to deal with the deceased’s affairs, in order to close bank accounts, sell shares and otherwise deal with the deceased’s assets. A grant of representation (usually a grant of probate or letters of administration) is proof of that authority.

However, there are circumstances when the assets can be collected without a grant of probate.

Joint Property:
Money held in a joint bank account will pass automatically to the surviving account holder, when one of them dies. The bank will arrange the transfer on sight of the death certificate and no grant of representation is required. The same applies to shares held in joint names. Where the joint property is a house, you need to check the type of joint ownership. If the house is held as ‘joint tenants’, the surviving joint owner will automatically inherit the deceased’s share. If the house is owned as ‘tenants in common’, the deceased’s share will form part of his estate and as such will pass in accordance with his Will or the intestacy rules. A grant of representation may be required but not in all situations.

Low Value Estates:
Where the estate consists only of small amounts of cash in bank or building society accounts (typically less than £5,000) plus some personal possessions, a grant of representation may not be needed. Banks will often release small balances to the executor (or if there is no Will, to the next of kin) without a grant, but the claimant will be required to give an indemnity. The maximum amount which will be released under such ‘small estates’ procedures varies from organisation to organisation, as each has its own requirements.

Life Policies/Pension Death Benefits
Some life policies (e.g. those written on trust) can be paid out without a grant of representation. The deceased may have nominated a beneficiary to receive pension death benefits.

Insolvent Estates
Where the estate assets are not sufficient to pay debts and expenses, a grant will not be needed (unless a personal representative is required so as to pursue a legal claim on behalf of the estate).

Trust Interests
The deceased may have been a beneficiary under a trust. The trustees will be able to distribute the trust assets, in accordance with the terms of the trust, without a grant of representation. A grant of representation is likely to be needed if the estate includes any of the following assets:

  • Land (freehold or leasehold) held in the deceased’s sole name
  • Bank accounts containing more than £5,000
  • Stocks and shares in the deceased’s sole name

Life policies
A legal claim, which the personal representatives intend to pursue on behalf of the estate

Inheritance tax
The need to apply for a grant should not be confused with the duty to submit an inheritance tax return, as HMRC has its own rules as to when an inheritance tax return is not required. An estate may still be liable to inheritance tax even if a grant was not needed to collect the assets.

Attorney applications to the court of protection
The Court of Protection oversees the affairs of people who lack the mental capacity to make their own decisions and it is open to any attorney to apply to this Court for a decision or for guidance as to what is in the donor’s best interests.

As an attorney acting under a lasting (or enduring) power of attorney, you will usually be able to make day to day decisions on behalf of the donor without resort to professional advice (except perhaps in relation to suitable investments).

However, there are times when professional advice and guidance should be sought. For example, you may wish to take a decision which is outside the scope of your powers as attorney (for example, a large gift by the donor for tax-planning or other reasons) or you may need guidance on the extent of your authority or the lawfulness of actions already taken. The application procedure is a formal one and your solicitor will be the best person to help you with the application forms and supporting documents required. Applications for advance approval of gifts are often dealt with on paper and without the need for an attended hearing.

Examples of circumstances in which the Court of Protection should be involved are as follows:

  • For advance approval of gifts (outside the small gifts an attorney is allowed to make on customary occasions) – eg gifts of money or other assets, gifts into trust, deeds of variation where the donor has received an inheritance, regular gifts out of excess income to be made each year, interest-free loans and large charitable gifts.
  • For advance approval of any transaction or investment which the donor has expressly stated should not be carried out
  • Where changes to the donor’s Will are proposed
  • When there is disagreement within the family as to what is in the donor’s best interests
  • Where there is doubt as to whether the donor has capacity to make a decision about a particular matter (eg as to medical treatment)

This list is not exhaustive and the Court has very wide powers to make orders affecting both property and personal affairs.

As an attorney, acting outside the scope of your authority can have serious consequences. The Public Guardian, once alerted to a possible abuse of power by an attorney (usually by a concerned family member or social worker) will carry out an investigation. The investigation may result in a recommendation that retrospective Court of Protection approval be obtained, a request that any gifts be returned, removal of the attorney and at worst, a referral to the police.

Joint bank accounts & mental capacity

You may think you don’t need to make a lasting power of attorney, because your money is held in a joint bank account with your partner. Most people assume that if they were to suffer a stroke or develop dementia, their partner would be able to carry on operating the account and would continue to have full access to their pension and other income paid into the account. But beware, for these things are not so simple.

In accordance with guidance from the British Bankers’ Association, it is common practice for high street banks to freeze withdrawals from a joint account if one of the account holders is mentally incapable. If your partner has lost mental capacity, you will not automatically be able to access the joint account unless you have a lasting power of attorney, enduring power of attorney or have been appointed as deputy by the Court of Protection.

The reasoning behind this is that the joint account can only operate if there is continuing agreement of both parties that both can withdraw from the account, up to its limit. If one party loses mental capacity, they are unable to agree to those terms. The same applies to third party signatories on bank accounts. Once you lose mental capacity you can no longer agree to the terms of the third party mandate.

Once the bank becomes aware of the incapacity and blocks the account, it could take several months to appoint a deputy, if there is no power of attorney in place. Once you have lost mental capacity it is too late to make a power of attorney and there is no alternative but to apply to the Court of protection for a Deputy to be appointed.

This is yet another reason why you should make a lasting power of attorney, while you are still in good health.

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