Understanding Lasting Power of Attorney: A Crucial Step for Financial Preparedness
Millions of adults over 40 lack this essential document, risking financial and administrative burdens for loved ones.
Setting up a lasting power of attorney (LPA) allows individuals to designate trusted individuals to manage their financial affairs if they become unable to do so themselves. Research from Canada Life indicates that 78 percent of people aged 40 and older have not established an LPA, leaving potentially millions of adults without plans for managing their finances during unforeseen circumstances.
An LPA grants a chosen 'attorney' the authority to make decisions regarding property and financial matters. Without an LPA, close relatives or friends cannot legally take control of an individual's finances without a court order. Even spouses or long-term partners lack automatic legal power to manage each other's affairs, a fact that often surprises couples.
Applying for a Court of Protection order when no LPA is in place is a more complex, time-consuming, and costly process, with the court ultimately deciding who will manage the affairs. Establishing an LPA offers greater flexibility and control over who assumes these responsibilities.
Key Differences: LPA vs. Court of Protection Order
| Feature | Lasting Power of Attorney (LPA) | Court of Protection Order | | --- | --- | --- | | Cost | £92 (£184 for health and financial) | £432 application fee, plus potential appeals, hearings, supervision | | Control | Donor chooses the attorney | Court decides the deputy | | Timeframe | 8-10 weeks for registration (variable) | 4-6 months | | Flexibility | Donor can set instructions and preferences | Court sets limits and restrictions | | Supervision | Attorney's decisions can be checked and audited | Deputy subject to ongoing supervision and annual reporting |
Importance for All Ages
While the need for an LPA might seem more pressing in later life, unexpected events can occur at any age. For younger individuals, concerns like mortgage payments or pension building may take precedence. However, an LPA can be viewed as another form of protection for their families, shielding them from administrative burdens and costs should the individual become incapacitated.
Types of Power of Attorney
An LPA is designed for long-term management of affairs, whereas an ordinary or limited power of attorney grants power for specific issues or a fixed duration. Ordinary powers of attorney are not suitable if there is a risk of mental incapacitation, as they are revoked in such circumstances. In these cases, an LPA is the appropriate document.
Attorney's Responsibilities
An attorney acting under a property and financial affairs LPA can handle tasks such as managing bank and savings accounts, dealing with tax affairs and HMRC, buying and selling property, overseeing investments, and managing pensions. Attorneys are bound by rules requiring them to keep the individual's finances separate from their own and to act in the individual's best interests, considering their wishes, beliefs, and values.
Instructions within an LPA are legally binding, while preferences are not, although attorneys are expected to consider them. For instance, an instruction might mandate consulting a financial advisor for investments over a certain amount, while a preference might be to maximize ISA allowances annually.
Setting Up an LPA
To set up an LPA, individuals must choose their attorney(s) and then apply online via the gov.uk website, paying a £92 application fee. Fee reductions are available for those with a gross annual income of £12,000 or less (halved to £46) and for individuals receiving certain means-tested benefits (exempt from the fee).
An LPA becomes valid only after it is registered with the Office of the Public Guardian (OPG). This involves printing, signing, and witnessing the forms. Prompt submission to the OPG is advised to allow for the correction of any mistakes before registration.
Key considerations during the setup process include paying attention to the correct signing order of forms to avoid re-application and fees, using cross-outs and initialing for any errors instead of correction fluid, and using black or blue ink, preferably black, as pencil is not permitted.
This information pertains to LPAs in England and Wales. Scotland and Northern Ireland have separate systems with distinct rules detailed on Mygov.scot and NI Direct, respectively.