Planning for your future is right on track – you have a will, savings, investments and are building up a nice nest egg for your retirement. But have you considered what would happen if you had a stroke, serious accident, developed dementia or simply became unable to manage your own affairs?
“Life can be turned upside down in an instant, with no advance warning or the time to put measures in place to ensure your financial life remains on track. The only way to ensure that you have a say in who would make financial or welfare decisions on your behalf is by making a Lasting Power of Attorney (LPA).”Julie Kitson, Director Jarrovian Trust and Estate Services
But what is an LPA and why do you need to get one sorted?
What is an LPA?
It is a legal document which allows you to appoint one or more people to act as your legal representative(s) – your “attorney” if you are unable to manage your own affairs and financial wellbeing, as well as make decisions around your health and welfare. There are two types of LPA:
- Health and Welfare LPA – your chosen attorney deals with any medical or social care as well as make decisions over personal welfare, healthcare and medical treatment.
- Property and Financial Affairs LPA – your chosen attorney has the power to make decisions about money and property, such as paying bills, managing bank accounts and pensions.
LPAs and business interests
It is also possible to make an LPA in relation to business decisions. Having a contingency in place for times when you cannot make decisions can ensure your business suffers minimal disruption as your attorney can quickly step in.
Why are LPAs important?
The absence of a registered LPA can mean there is little flexibility when it comes to meeting your income requirements. It may not be possible to start, stop or vary pension withdrawals from a flexible pension. It may also mean that other lifetime savings are not accessible. Consequently, you may not be able to make the most of your allowances and end up paying more tax than necessary. This is likely to result in your savings not lasting as long as they otherwise might.
Why make an LPA?
Set one up and you are in control of who will act on your behalf, as and when the time comes. If you don’t have one, and you become incapacitated, it would be up to the Court of Protection to appoint a person to act for you.
- Without one, no one can legally make decisions for you around finances, property or welfare. The Court of Protection process to appoint someone can be lengthy and it is also expensive compared to the cost of making an LPA.
- You will have no say in who is appointed as your attorney and the person the Court choses may not be someone you would want making decisions for you.
- You will have no say in the scope of powers of a Court-appointed attorney.
- A deputy can be appointed by the Court to make decisions on your behalf, rather than an attorney, but this can be time-consuming and could cost as much as £2,500 – and it must be renewed annually.
“Even small decisions, such as discussing a change of medication with a doctor or setting up a direct debit to pay a bill can be almost impossible without an LPA being in place. It currently costs £82 per document to register an LPA. To put Power of Attorney in place with legal support will only cost in the hundreds of pounds – a one-off fee that will cover you for the rest of your life. Not having an LPA can cost you tens of thousands. Put your Lasting Power of Attorney in place now, while you have the capacity to do so. Make sure you are protected in the best way possible.”Julie Kitson, Director Jarrovian Trust and Estate Service
How an LPA can help meet your needs tax efficiently
Example 1: You and your spouse have had a financial adviser for years, you’ve drawn up your financial plans, and you’ve set an agreed drawdown process from the various investment vehicles you have to maximise the tax advantages. You suffer a stroke, and you are incapacitated for an indeterminate time. Now, despite all the best laid plans, and a plan you may already have been following for years, your financial planning comes to an abrupt halt because you do not have an LPA. By the time a deputy order can be put in place, your estate has missed a tax year and all the benefits that would have accrued.
Example 2: You and your partner flex when you draw from your pensions, depending upon your circumstances. You ordinarily take a regular withdrawal from your flexible pension, but also have savings in a bond, whereby it may be possible to stop your pension payments, potentially freeing up to £18,500 of allowances. These could then be used to take bond gains without a tax charge. But because you have been in a serious accident, you are unable to manage your affairs so you can say goodbye to the £18,500 of allowances because you haven’t got an LPA.
Example 3: Your spouse has savings in OEICs (Open-ended Investment Company) and unit trusts, with additional funds that can be released such that gains fall within the annual Capital Gains Tax exempt allowance. The extra funds can be used to offset nursing home costs as your spouse has developed dementia – only that is not an option now as your spouse doesn’t have an LPA.
Julie KitsonDirector, Trusts & Estate Specialist