This article explains the importance of executing a power of attorney and the types of powers of attorney that can be created.
What is a power of attorney?
A power of attorney is a legal document which allows you to appoint an attorney, who could be a relative, a friend or a professional to make certain decisions on your behalf in certain circumstances.
There are generally two types of power of attorney available; a general power of attorney and a Lasting Power of Attorney (LPA).
Who can create a power of attorney?
If you have legal capacity and are deemed mentally capable you are able to make a power of attorney. This article is focusing on the powers of attorney rules in England & Wales. If you are living permanently outside the UK it may be appropriate to make a local law power of attorney. You should seek specialist advice in this matter and if you have assets in several countries it may be that you need to consider a power of attorney for each country, as it is unlikely that a power of attorney executed in say England would be acceptable in Spain.
Why should you consider making one?
There are a number of reasons why you would want to delegate powers to another person. You may want an attorney to undertake a certain transaction, or to manage all your financial affairs. A power of attorney can be created to last for a specific period of time or to still be valid following mental incapacity of the person creating the power of attorney.
Consider a situation where you (or a loved one) is involved in an accident or is diagnosed/or suffering with some form of illness which means you are no longer mentally capable of making decisions either temporarily or permanently; would you not want to be in control of who is able to make decisions on your behalf?
If you have property or assets within the UK and are out of the country, either temporarily or permanently, would you consider allowing someone to make financial decisions on your behalf?
If the answer to either of these questions is yes then you may want to consider executing some form of power of attorney.
General powers of attorney
Where you may have assets in the UK that need to be dealt with whilst you are outside the country you may want to consider appointing a person, resident in the UK, to manage your affairs. This can be achieved through executing a general power of attorney. This is a relatively simple deed, which generally makes reference to Section 10 of the Powers of Attorney Act 1971.
This type of document would give the attorney the power to act on your behalf in relation to your financial matters, subject to a few restrictions such as making large gifts. It is also possible to restrict the powers. For example the power could be limited to only be valid to complete the sale of a particular property. As soon as the property transaction has completed, the general power of attorney comes to an end.
A general power of attorney can be revoked by the donor, the person who executed the document, or will automatically come to an end if the donor loses mental capacity.
Charlie lives in Spain, he has several properties in the UK which he rents out. He has completed a restricted general power of attorney in favour of his brother, allowing his brother to rent out his properties and also access his rental property bank account in order to maintain his properties.
It is normally possible to cancel a general power of attorney at any time. The exception is where a power has been made irrevocable; this is generally restricted to commercial contracts. Cancellation can be achieved verbally, in writing or by deed. However, the cancellation is not effective until such time as the attorney has received the cancellation.
Lasting Power of Attorney (LPA)
This type of power of attorney was introduced into England and Wales on 1 October 2007. It replaced and extended the previous Enduring Power of Attorney Act 1985.
There are two types of LPA; Property and Affairs and Personal Welfare.
The Property and Affairs LPA allows you to choose an attorney to make decisions about how to spend your money and how your property and financial affairs are managed. This type of power of attorney can be used whilst the donor (the person who executed the document) of the power is still mentally capable, unless the donor specifies any subscription. Even though you may be able to still make decisions yourself, as with the general power of attorney, it may be easier to delegate certain powers. This could be because the donor is out of the country for long periods of time or the donor finds it difficult to talk on the phone. The main difference between the LPA and a general power is the fact that it remains valid even if you become mentally incapable. It is also possible to draft this type of Power to only come into effect, if or when, you lack capacity to make decisions for yourself. Therefore, you are able to maintain total control whilst you are able to make decisions but if you are unable to, you have chosen who you would like to manage your financial affairs. If you also choose to execute a personal welfare LPA you are able to appoint different people to be your attorney(s) on each type of LPA.
A Personal Welfare LPA allows the attorney to make decisions about your healthcare and welfare. These decisions include refusing or consenting to medical treatment on your behalf and deciding where you live. These decisions can only be taken however when you lack capacity to make such decisions yourself.
In order for both types of LPA to be valid, it must be registered with the Office of the Public Guardian (OPG).
Formalities of a LPA
There are two steps to follow in order for an LPA to be valid: Execution & Creation.
In summary, the execution steps are the completion of the prescribed LPA. The form is detailed and ensures that before execution of the document that the donor has not been placed under undue influence and that they understand the powers they are giving to their attorney. The second stage is registration of the LPA, the LPA will not be valid until this step has been completed. The current charge for registration is £110.
Who should be an attorney?
Anyone over the age of 18 is able to be an attorney. However, a person who is bankrupt is not able to be an attorney for a Property and Affairs LPA and an attorney may be removed if they become bankrupt at a later date.
An attorney should be someone you trust and who is aware of your wishes and views. For example, it could be that in relation to your financial portfolio you would only ever wish to invest into ethical funds.
As a LPA is generally executed years in advance of use, it may be prudent (and the legislation allows) for more than one attorney to be appointed, as well as successive attorneys.
What it means to be an attorney?
As well as conferring rights onto an attorney, the execution of a power of attorney also places a number of responsibilities. They include a fiduciary duty to the donor and a duty not to act to benefit themselves or other person to the detriment of the donor or their estate. The attorney owes a duty of skill and care commensurate with the degree of expertise offered by the attorney, whether they are being paid or not. For example; if a solicitor is appointed as an attorney their duty of care would be higher than that of a non-legally trained individual.
Section 222 of the Finance Act 2012, changed the definition of an incapacitated person for UK tax purposes within the Taxes management Act 1970 and other similar legislation. The previous definition of an incapacitated person removed the obligations and rights, in respect of tax liabilities, onto the person who has responsibility for the incapacitated persons.
The change means an incapacitated person has exactly the same rights and obligations as any other person under tax law. This aims to simplify taxation and ensure that the incapacitated person remains liable for tax and not the person who is responsible for them. This removed the anomaly where an incapacitated person’s representative can be personally liable for the incapacitated person’s tax liability. The general legal framework for appointing people to assist those who lack capacity will continue to operate in relation to tax.
The key for clients, in any financial planning, is to take control of their future; putting in place a power of attorney is another way to ensure your clients are in control of who is making their financial decisions in the future if they are unable to.
According to the World Health Organisation (March 2015), globally there are more than 47.5 million people suffering with dementia, with a new diagnosis every 4 seconds. These statistics do not deal with individuals who suffer from strokes, mental health issues, head injuries or any other conditions which may make you incapable of managing your affairs.