Lasting Powers Of Attorney - A Good Thing?

Just as I started writing this article on Lasting Powers of Attorney the news broke about Inheritance Tax. The idea of Death Duties was started about 2000 years ago by Emperor Augustus to provide for soldier's pensions. It is still a tax on inherited wealth but the increase to £600,000 is welcome. However, prudently drawn Wills for a husband and wife would have ensured that both nil rate band allowances of £300,000 would have been utilised meaning that £600,000 would have passed to the children free of Inheritance Tax. As is usual with most tax allowances you have to look at them very closely to see any benefit but at least it is a step in the right direction.

Whilst most people are aware that whatever their wealth they should make a will, far fewer consider what would happen if they could no longer manage their own affairs. An overhaul of the system for those who lack the mental capacity to make their own decisions has been long overdue. Under the previous law there was no legal basis for a third party to make decisions on their behalf nor to consent to or be consulted about medical treatment. Against this background the Mental Capacity Act 2005 was introduced which provides the legal framework for Lasting Powers of Attorney. After much delay LPA's become law as from 1st October 2007 although any Enduring Power of Attorney signed and dated before 30th September 2007 will continue to be valid.

Under an Enduring Power of Attorney the person making the EPA (the donor) would appoint one or more people (the attorney) to act on his behalf in respect of his financial affairs. An EPA could only cover financial matters and did not extend to personal welfare issues.

In contrast there are two types of LPA's. The first is called LPA Property and Affairs and as the name implies deals with financial assets such as the house, cash and investments. The second is LPA Personal Welfare. Under this your Attorney can make decisions about where you live and with whom and whether it might be better for you to move to a residential home. They can also make decisions about medical treatment and although your attorney cannot make decisions about life sustaining treatment you can make express provision for this in the LPA.

There are similarities between EPA's and LPA's but there are also fundamental differences. One of them is that an LPA is not validly created until it has been registered. An EPA could be used as a general power once signed even if the donor still had the mental ability to manage his own financial affairs. This could be useful, for example, if the donor was out of the country for extended periods or in hospital for a prolonged period. This would allow the attorney to be able to take care of the donor's financial affairs on his behalf.

However, once the donor lost mental capacity the EPA had to be registered with the Court of Protection and certain relatives and the donor notified.

The LPA must be registered with the court immediately whatever the donor's mental capacity.

Another difference is that there has to be a "certificate provider". This is a person who provides a certificate which goes to the court with the LPA that confirms that the donor understands what an LPA is, understands its contents and that there has been no pressure brought to bear.

There are obviously other differences between the documents but this is merely a summary of the new provisions and it has to be remembered that an EPA was four pages but the LPA runs to about 25 pages. It remains to be seen if the LPA's become as popular as the powers they replace.

However, the situation remains that whatever your age or circumstances you should consider having an LPA in place either to manage your finances or personal issues or both. As with wills the purpose of the LPA is to ensure that your best interests are protected, your wishes can be carried out and that those around you will have the ability to deal with your affairs as you would have wanted.

For more information on LPA's, Inheritance Tax and any other related issues, please contact Derek Cook at Sydney Mitchell on 0121 698 2200 or email d.cook@sydneymitchell.co.uk