Lasting powers of attorney - Should I have one?
For nearly 10 years, lasting powers of attorney (LPAs) have been a way for someone (the Donor) to make sure that their financial affairs can be looked after in the event of their mental decline.
Until very recently, this was considered an accepted and sensible way of proceeding in order to ensure that on the onset of, for example, dementia, the attorneys using the power could manage the financial affairs of the Donor, thereby paying homecare costs, etc. However, Denzil Lush, the former senior judge of the Court of Protection who retired last year, has recently been quoted in the press as saying that the system is open to abuse and that he would refuse to sign an LPA. He also accused the Ministry of Justice of being "disingenuous" in promoting the system. So should you or shouldn’t you have a lasting power of attorney and what safeguards can you put in place to prevent abuse?
LPAs come in two forms. They can either deal with your financial affairs or with your health and welfare. In both cases, you appoint one or more attorneys who will be empowered in the event of your mental incapacity to either run your financial affairs or make key decisions about your care and medical treatment.
The LPAs to which Denzil Lush was referring were financial LPAs, in other words, the type that allow the attorneys to manage the financial affairs of the person who has become mentally incapable. His concern is that attorneys can abuse their position and use the Donor’s money for themselves as there are no checks and balances built into the system.
On the other hand, the advantage of having such a power granted to trusted individuals is that clearly, when the Donor is no longer able to look after his or her financial affairs, the attorneys can. In addition to simply paying from out of the Donor’s bank account the expenses of nursing home fees etc, the attorneys can also take more active steps such as carrying out the management of an investment portfolio or, indeed, selling the Donor's house. In most cases, the system works well. There were over 60,000 LPAs registered last year and more than 2.5 million have been registered since the LPA came into being in 2005. The figure quoted for investigations in abuse between 2016 and 2017 was 1,266. This may seem like a pretty low percentage of the overall number of LPAs registered but it is worth noting that the vast majority of registered LPAs will not be in operation as the Donor will still have mental capacity. As there is no longer the requirement to register the power on the Donor’s incapacity (as there was under the LPA’s predecessor), there are no statistics for how many LPAs are actually being used following the Donor’s incapacity, so it is not possible to quantify how widespread the abuse of the power may be.
What checks and balances can you put in place to minimise the risk of abuse?
Clearly, the most important aspect of granting the LPA is to be certain that the persons to whom you grant it will not abuse their power. More often than not, Donors choose their spouse and/or one or more of their children to be their attorneys. Checks and balances can be incorporated. The Donor could limit the extent of the attorneys' powers. The power could be joint so that all of them have to agree to a particular course of action or, the power could be joint and several so that any one attorney could take action without obtaining the express consent of the others. A further option is to have the power joint and several for some actions and joint for others. So, for example, distributions out of the bank account might be joint and several so any attorney can action it but a sale of the Donor's home, or raising cash from an investment portfolio would need to be a joint decision of all the attorneys. The risk with making any powers joint, is that if an attorney dies or otherwise can’t act, then the power is no longer exercisable by the remaining attorneys. In such a case it will be vital to have appointed a replacement attorney who can step in at that time to ensure the power can continue to be exercised.
Generally, it is better not to restrict an attorney’s powers, as there is usually a considerable time between the grant of the power and when the attorney needs to act on it. The Donor’s circumstances are likely to have changed and so flexibility is therefore key to allow the attorney to manage the Donor’s financial affairs in an efficient way.
If it is not possible to be 100% certain that family members will carry out the duties of an attorney appropriately, then there is always the option to appoint a professional such as a solicitor or accountant. Whilst the professional will charge fees for the work done, it at least adds certainty to ensure that the assets of the Donor are dealt with appropriately during his or her lifetime, are not used to benefit the attorney and will be available to be distributed under the Donor’s will.
What is the alternative?
Denzil Lush, having stated that he would not grant an LPA himself, said he thought it was better to rely on deputyship in order to achieve a similar result but without the same risk of financial abuse. Whilst the deputyship will achieve a more secure result, there are significant drawbacks. The process of appointing a deputy is time-consuming, perhaps up to 6 months, and during that period, the Donor's mental incapacity means their financial affairs will be frozen. Who will pay for nursing home fees, general expenses and household costs during this period? What if decisions need to be made in relation to investment portfolios? Furthermore, the deputy appointed, will need to account annually to the Office of the Public Guardian and take out a security bond to protect the Donor from financial loss. Both of these aspects have a financial cost to them. Surely it is better to appoint a chosen professional to act under an LPA rather than relying on a deputy, the choice of whom will not be up to the Donor.
LPAs still have an important role to play in a person’s estate planning. The forms are designed so that Donors should be able to complete them without the need for professional advice. However, considerable thought needs to be given as to who would be appropriate attorneys and the extent of their powers. Two attorneys should be the bare minimum unless the Donor is absolutely clear that the family member being appointed will not take advantage of his or her position. It is an unfortunate truth that the majority of cases of abuse of the power involve a family member. Consideration should also be given to appointing a professional attorney, certainly if there is otherwise only going to be one attorney, as their professional duties will ensure proper administration of the affairs of the Donor.
An abbreviated version of the article was also published by Spear's Magazine.