Making decisions on somebody’s behalf
Firstly, some statistics1;
- There are currently around 850,000 people in the UK with dementia, a figure projected to rise to 1.6 million by 2040
- 209,600 people will develop dementia in 2020 – that is one every three
- 1 in 6 people over the age of 80 have
- Over 42,000 people under 65 suffer from dementia in the UK
However, should you suffer from this wide reaching disease, your relatives can’t simply take over your finances and access your money when you lack the capacity to do this for yourself.
From a positive point of view, this stops anyone taking advantage of your situation. Negatively, unless you have plans in place, your relatives would need to apply through court – The Court of Protection – to access your funds, even if this was to provide you with essential, and immediate, care. As you’d expect, this court process is long and costly, often meaning relatives have to provide short or medium term financial assistance to those affected.
So what can be done?
By putting in place a Power of Attorney whilst you have mental capacity to do so, you can ensure your relative or trusted friend can act as your representative and act for you. You can appoint more than one ‘deputy’ and they can work together to make decisions on your behalf. Ideally, you will have discussed your wishes with them so they know what you would have wanted to happen2.
The key is that you can only set up a Power of Attorney when you have the mental capacity to do so. Should you not have this capacity, it’s too late.
For those that feel that this is only relevant for the ‘elderly’, the Coronavirus outbreak of 2020 is perhaps the biggest example of what could happen – imagine the scenario of falling ill, being hospitalised and ventilated due to COVID-19. Who would look after your finances? Who would pay the bills? Who would make welfare decisions on your behalf?
It’s important to reiterate, your representative would only be able to make a decision on your behalf if you are unable to at the time the decision needs to be made. Lack of understanding of this key issue can cause concern for those yet to put a power of attorney in place.
It should be pointed out that the powers that can be granted are open to abuse and care should be taken when choosing who you would want to act on your behalf and to ensure that you are not under any pressure or duress to complete the necessary paperwork. Older people and those with disabilities are less likely to report financial abuse whilst people with communication difficulties can be particularly at risk. Indeed people may not even be aware that they are being abused, especially if they have a cognitive impairment. Abusers may try to prevent access to the person they abuse and, therefore, legal advice when completing these forms is recommended.
Overview of Powers of Attorney
In order to make decisions on behalf of others, a form of power of attorney or deputyship must be in place. A power of attorney is a legal document that allows the ‘donor’ to appoint one or more people (known as ‘attorneys’) to help them make decisions or to make decisions on their behalf.
Lasting Power of Attorney (LPA)
There are two types of LPAs3 – one for finance and property, and one for health and welfare. Both are separate legal procedures and are independent of each other.
Thinking of the coronavirus example above, whilst you would want your finances taken care of, would you also want someone you trusted to make decisions around your medical treatment as well as dealing with any care issues? It may be that you would want different individuals to act on your behalf for each area. As you can imagine, LPAs are incredibly helpful when dealing with individuals going into long term care.
A general power of attorney (otherwise; known as an ‘ordinary power’) created by the Powers of
Attorney Act 1972, enables a donor to grant a general power conferring ‘authority to do on behalf of the donor anything which he can lawfully do by an attorney’. If the donor loses mental capacity, the general power is automatically revoked so this is unsuitable for dealing with those scenarios.
An ordinary power is most commonly used where the donor wishes to delegate a trustee function for a short period, or whilst a lasting power of attorney is in the process of being registered with the Office of the Public Guardian.
Enduring Power of Attorney (EPA)
As an ordinary power ceases to be valid in the event the donor loses mental capacity, the Enduring Powers of Attorney Act 1985 was passed to create a power which could survive incapacity. The enduring power of attorney (EPA) continues to be valid, provided the attorney registers the EPA with the Office of the Public Guardian, when the attorney believes the donor has become or is becoming mentally incapable of managing their own property and financial affairs. Since 1st October 2007, when the Mental Capacity Act 2005 came into force, it is no longer possible to create an EPA.
Pre-existing EPAs continue to be valid and schedule 4 of the Mental Capacity Act 2005 sets out the law applicable to EPAs. An existing EPA can be used in conjunction with a health and welfare LPA.
The cost to register a Power of Attorney in England and Wales is £82 per person, per POA. In Scotland it is £79 and £151 in Northern Ireland. Should you earn less than £12,000 per annum, you would have a reduced fee of £41.
Whilst it is possible to set up a POA yourself, you could use a solicitor to put them in place – legal fees would be in addition to those mentioned above.
Should you wish to discuss any aspect of this further, in the first instance please do not hesitate to contact the Personal Financial Planning team at firstname.lastname@example.org