One thing the last three years has taught us is that you never really know what’s around the corner. As the Covid pandemic highlighted for many people, if you become incapacitated the emotional effects for loved ones can be devastating.
Moreover, so can the financial effects. If you cannot deal with your finances, it may mean that bills are not paid and you fall into debt, which could result in you losing your home.
While you may assume that someone you can trust would step in and look after your affairs, that might not be as straightforward as you think. If you do not have a Lasting Power of Attorney (LPA) in place it could take weeks before somebody can legally deal with your finances – and it may not be the person you would have chosen yourself!
Despite this, research by Canada Life revealed that 78% of adults in the UK have not registered an LPA. Read on to discover five important reasons why you should create an LPA now if you haven’t already.
1. An LPA allows someone you trust to look after your affairs
Creating an LPA allows you to nominate someone you trust to act as your attorney, which means they have legal authority to make decisions on your behalf if you lose mental capacity. Broadly speaking, losing “mental capacity” means that you’re unable to make decisions due to impairment.
An attorney can also make financial decisions if you still have mental capacity, but do not want to. The two types of LPA are:
- Financial LPA – this allows your attorney to look after your finances, such as savings and investments, paying a mortgage or rent and dealing with your state benefits.
- Health and Care LPA – this allows your attorney to make decisions about the medical care you receive and what treatment you receive in care.
When putting these documents in place, you can nominate different attorneys with the specialist skills to fulfil either role. For example, you might choose a family member who is a nurse or doctor to make decisions regarding your care, while opting for someone with a business background to make decisions about your finances.
2. If you wait until you need it, it’s too late
You must have mental capacity and be able to make clear decisions when you create an LPA. This means that if you cannot make decisions for yourself because you’re unconscious after an accident, for example, it’s usually too late to then put one in place.
That’s why research by Lloyds Group makes for alarming reading. It revealed that one-third of people wrongly believe that an LPA can be created after someone has lost the ability to make decisions and manage their financial affairs.
Without an LPA, no one will be able to step in and deal with your bank accounts, mortgage or insurance payments, investments, or savings. This is why it’s important to create one as soon as you can.
3. It’s more straightforward than you may think
You can apply online or request an application pack from the government website. Whichever method you choose, you will need to provide all of the requested information, and taking professional advice from a solicitor or financial planner is always a good idea.
The LPA must be signed by someone you trust, or you may want to use a professional attorney such as a solicitor. They will need to confirm that they understand the contents of the LPA and that no one has put you under any pressure to sign.
Please remember, creating an LPA does not mean that you immediately lose control of your financial affairs. For as long as you have full mental capacity, you maintain control of your affairs.
4. You choose who looks after your affairs
Critically, when you create an LPA you decide who looks after your affairs if you can’t. It’s usually a good idea to opt for someone who is younger than you, as choosing someone of a similar age might mean that they too no longer have mental capacity when you can no longer make decisions.
Similarly, choosing someone who lives far away might make looking after your affairs in the manner you would like difficult. It is typically better to have an attorney who lives nearby, as they are more easily able to look after your affairs and conduct face-to-face meetings when necessary.
Once you have completed the forms, the LPA must be registered with the Office of the Public Guardian before it can be used. A professional legal adviser or financial planner can help with this.
5. Creating an LPA need not be expensive (but appointing someone if you don’t have one, could be)
Another common mistake is the belief that creating an LPA with the help of a legal professional or financial planner is expensive. Before agreeing to use any organisation offering to create an LPA, always speak to your financial planner as they will confirm whether the cost being quoted is reasonable or not.
If you lose mental capacity without an LPA in place, your friends or family will need to decide the most appropriate person to act on your behalf. This person then needs to apply to the Court of Protection to become your Deputy.
This could cost significantly more than creating an LPA, and means that the person chosen may not be the person you would prefer to look after your affairs.
Get in touch
As you can see, once an LPA is created you’ll have peace of mind that someone you trust will be looking after your affairs if you are no longer able to. Furthermore, you can set out the parameters that they will need to consider when making decisions on your behalf.
If you would like to discuss creating an LPA, or your wider finances or wealth strategy, please contact us on firstname.lastname@example.org or call 01234 713131.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.