The Power of Attorney: safeguarding your decision-making

One of the main differences between a will and Power of Attorney is the point in time when the legal document comes into effect. A will allows you to express your wishes for what you would like to have happen to your estate when you die, and therefore takes effect after your death. Whereas a Power of Attorney authorises a nominated person to act on your behalf during your lifetime.

There are different types of Power of Attorney available to help you make informed decisions and safeguard your wellbeing, even when you are unable to act on your own behalf.

Lasting Power of Attorney (LPA)

An LPA remains valid even if you become mentally incapacitated, unlike an Ordinary PoA which is explained later in this article. There are three types of LPA, only two of which you can create today:

1. Property and Financial Affairs LPA

This type of LPA grants your attorney the authority to make decisions about your finances, including managing bank accounts, paying bills, selling property, or making investments. It ensures that your financial matters are taken care of according to your wishes.

2. Health and Welfare LPA

A Health and Welfare LPA enables your attorney to make decisions regarding your healthcare, medical treatments, and living arrangements if you are unable to do so yourself. This ensures that your preferences for medical care, living conditions, and end-of-life choices are respected.

As it’s impossible to know what is around the corner, at Schroders Personal Wealth, we believe that everyone should have these two types of LPA in order. Both of these should be a cornerstone of your estate planning.

Without these LPAs in place, if you lose mental capacity then your family will have to apply to the court for a Court Order to manage your affairs. This can be a costly and frustrating process for your loved ones at a time of potential distress and vulnerability.

3. Enduring Power of Attorney (EPA)

Although new EPAs cannot be created after October 1, 2007, existing EPAs remain valid. An EPA allows you to appoint an attorney to make decisions about your finances and property matters. However, it does not cover health and welfare decisions. If you already have an EPA, it is advisable to seek legal advice to understand its implications and consider creating an LPA for health and welfare matters.

Ordinary Power of Attorney

An Ordinary Power of Attorney, also known as a General Power of Attorney, is typically used for short-term arrangements, often when you require assistance due to physical limitations or when you are out of the country for an extended period.

This type of PoA allows your chosen representative (the attorney) to manage your financial affairs and make decisions on your behalf, such as paying bills, collecting benefits, or selling property. It automatically becomes invalid if you lose mental capacity.

You can restrict the power you give your attorney so that they are limited to the assets they can deal with. For example, you may allow them to have access to your bank account, but they wouldn’t be able to make any decisions on your behalf about your property.

An Ordinary Power of Attorney is only valid while you have the mental capacity to make your own decisions. You should consider setting up a Lasting Power of Attorney if you wish for someone to act on your behalf should you lose mental capacity.

Being deemed to have full mental capacity is dependent on your ability to make or communicate decisions at the time they need to be made. To have mental capacity you must understand the decision you need to make, why you need to make it, and the likely outcome of your decision.

It’s important to note that requiring more time to understand or communicate doesn’t necessarily mean that you lack mental capacity. An attempt should always be made to overcome any difficulties a person is having to make a decision for themselves before they are classed as having lost mental capacity.

Those who are married or in a civil partnership, may think that their spouse would automatically have the authority to deal with decisions about financial and healthcare matters if they lose the ability to do so. But this is not the case. Without an LPA, they don’t have the legal permission to do so.

When selecting an attorney, it is crucial to choose someone you trust implicitly, who understands your values, and will act in your best interests. Discuss your intentions with them, ensuring they are willing to take on the responsibility. It is advisable to appoint an alternate attorney as well in case your primary attorney is unable or unwilling to act when the time comes.

To make your Lasting Power of Attorney legally valid, you must register it with the Office of the Public Guardian in the UK. The registration process ensures the legitimacy and effectiveness of your PoA. While registration is not mandatory for an Ordinary Power of Attorney, it is strongly recommended.

There is a charge for setting up an LPA, but you may be exempt from paying the fee if you receive certain benefits or you’re on a low income.

In today's uncertain world, planning for the unexpected is paramount. A Power of Attorney offers the reassurance that, regardless of your physical or mental condition, decisions affecting your wellbeing and finances will be made according to your wishes.

Any views expressed are our in-house views as at the time of publishing.

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If you need will writing or Power of Attorney services, your adviser can introduce you to specialists in these areas as Schroders Personal Wealth do not provide these services. If you need estate administration or trust management services, your adviser can refer you to Lloyds Bank or Bank of Scotland. Certain areas of these services (for example will writing and Power of Attorney) are not regulated by the FCA and you should refer to the provider's literature for confirmation.