Lasting Powers of Attorney

What is a Power of Attorney?

Whilst we all hope to live long and happy lives, it is important that we think about injury or ill health so that we are fully prepared, should the worst happen. A Power of Attorney can be a useful part of this process. A Power of Attorney is a legal document designed to allow you to give someone else the power to act on your behalf and therefore in your name, when you are no longer capable of, or lack the mental capacity to, organise your own financial affairs.

What is a Lasting Power of Attorney?

A regular Power of Attorney will become invalid if the donor loses the mental capacity to manage his own affairs, which is really the crucial time for their affairs to be managed. With a Lasting Power of Attorney, however, you are able to continue to act as Attorney, even if the donor has lost the mental capacity to manage their own affairs. There are two types of Lasting Power of Attorney – one for finance and one for health. The Lasting Power of Attorney for health can only ever be used if the person making it, has lost the mental capacity to make their own decisions. The Lasting Power of Attorney for finance can either be used straight away with consent or only in the event of the person making it losing mental capacity.   

How do I make one?

The best way to make a Lasting Power of Attorney is to consult a Solicitor as the Lasting Power of Attorney is a legal document that is completed in a prescribed manner. Under the Mental Capacity Act 2005, it is now a new requirement for the document to be signed by a Certificate Provider. This is an individual who goes through the document to ensure that the donor understands its purpose, knows the extent of its authority and is in no way forcing or putting pressure towards to donor in order to create the power. Spratt Endicott can act as your certificate provider when preparing the lasting power.

What is Mental Capacity?

The term mental capacity refers to the ability to make a decision. To measure mental capacity, a two-stage test takes place that involves assessing whether:

  • The person has an impairment of the mind or brain, or whether there is a disturbance which affects the way the brain or mind works.
  • This impairment or disturbance affects the person’s ability to make a decision at the time when the decision needs to be made.
  • Factors such as learning disabilities, dementia, mental health problems and brain injury are all things that may affect a person’s capacity to make a decision.
  • Mental capacity is time and issue specific – it is possible to have mental capacity in one area but not another. Mental capacity can also fluctuate and before a person is assessed as lacking capacity, it is important to support them as best as possible to make their own decisions.

The Mental Capacity Act

The Mental Capacity Act 2005 was fully implemented on 1st October 2007

The Act provides a framework to protect vulnerable people who lack mental capacity

It covers all of the major decisions that have to be made including those concerning:

  • Property and financial affairs
  • Healthcare and social care treatment

The Act makes it clear who can make decisions on behalf of someone else, and when they can do so
A Code of Practice accompanies the Act giving guidance and explaining the law in detail

What does the Act do?

Essentially, the mental capacity act sets out a framework so that a person’s capacity to make decisions for themselves can be properly assessed and gives guidance on how this is achieved. For those found to be lacking capacity to act for themselves, the act can create safeguards to ensure decisions are made in their best interest.

Why make a Lasting Power of Attorney (‘LPA’)?

  • For peace of mind – you will know who will deal with your financial affairs or make healthcare decisions on your behalf  if you are unable to do  so yourself (temporarily or permanently)
  • To save money - a small initial outlay now can save time, trouble and expense and avoid the cost of a Court of Protection Deputyship in the event of mental incapacity
  • To simplify the administration of your affairs for your family and friends in the event of your mental incapacity. Your Attorney will be able to deal with your affairs without the difficulties encountered where there is no legal authority
  • To be prepared. No one can foresee the future; mental incapacity can occur unexpectedly e.g. following an accident or stroke. Illness may result in physical incapacity or hospitalisation. Bills still have to be paid, a business needs to be run, and arrangements may need  to be made to sell a house and organise nursing or residential care

Decisions you need to make

  • Decide whom you wish to appoint as your Attorney or Attorneys (e.g. spouse and/or children)
  • Consider if you wish to appoint a substitute Attorney should something happens to your first named Attorney
  • Consider whether you wish to include any restriction on the Power (e.g. limit the power to particular property or to a particular aspect of your finances)
  • Consider  whether you wish to notify anybody when your Lasting Power of Attorney is registered to act as a safeguard

Taking on the Attorney Role

If you are asked to become an attorney, it’s important that you consider whether or not you really want the responsibility of the position. Remember that as well as being rewarding, it can also be challenging and time consuming so shouldn’t just be something that you undertake because you feel like you have to. Before making the decision, you should discuss your duties and what will be expected of you fully with the donor. Be very clear, on how the donor sees you acting on behalf of him/her. That way you will know exactly what obligations you are likely to have and how and when the donor would like you to act.

Being aware of the facts is important because in the future you might have to make decisions concerning where the donor will live, whether or not their home should be sold and even the type of medical treatment that they receive.

What are my Legal Duties?

As an attorney, you are required to act in accordance with the five obligations set out by the Mental Capacity Act 2005. These are:

  • Every adult has the right to make their own decisions and must be assumed to have the capacity to do so unless proved otherwise;
  • A person must be given all practicable help before anyone treats them as not being able to make their own decisions;
  • Just because an individual makes an unwise decision, they should not be treated as lacking capacity to make that decision;
  • Anything done, or any decision made on behalf of a person who lacks capacity, must be done in their best interests;
  • Anything done for or on behalf of the person who lacks capacity should be the least restrictive of their basic rights and freedoms

When can I make decisions on behalf of the Donor?

You must have the donor’s consent before you begin to make decisions on their behalf in the case of an unrestricted EPA (Enduring Power of Attorney). In the case of a restricted EPA the document must be registered with the Office of the Public Guardian.

If you are appointed under a Personal Welfare LPA, the Donor must have lost their mental capacity to make decisions before you can act.

If you are appointed under a Property and Affairs LPA, you can act for the Donor, even if they still have their mental capacity, provided the Donor is happy for you to do so.

When you should seek Legal Advice

You should seek legal advice if you are ever in doubt about when or how you are able to act. For example, the Mental Capacity Act includes very strict regulation on when gifts can be made from the donor’s estate. If you are unclear as to whether you are able to take certain action it is always worth seeking advice before doing so. If you have to register an EPA or LPA, then again, you should seek legal advice.

My relative has not appointed an Attorney – Can I be a Deputy?

If a relative or friend loses their capacity to make decisions and act for themselves you may find yourself in the position of having to act on their behalf. ‘Acting on their behalf’ involves helping them deal with their finances and/or communicating decisions about their care/medical treatment. If your relative or friend has not appointed an attorney to do this for them already and there are still ongoing decisions that need to be made, you can apply to the Court of Protection to become a deputy.

Role and Duties of a Deputy

The role and duties expected of you as a deputy depend heavily on the needs and requirements of the person that you are appointed to assist. The full extent of your role will be decided by the court, who will decide on the powers that you have once you have taken on your role as deputy. It’s important to be aware that your new role might include dealing with a person’s day to day care as well as medical treatment and their financial affairs. Every decision that you make must be authorised by the court and be in that person’s best interests. You must also adhere to the five key principles set out by the Mental Capacity Act as mentioned above.

Becoming a Trustee

When creating a settlement, you can appoint either friends or family members as trustees or you can select a professional trustee such as Spratt Endicott. Naturally, becoming a trustee comes with responsibilities as well as potential liabilities.

Your Liability and Duty as a Trustee

A Trustee who causes loss to the trust will be liable to the beneficiaries for wasting the assets.  It is not at all uncommon for private Trustees to make mistakes in an administration, especially if they are not professionally advised, and for the beneficiaries thereby to suffer loss.

An obvious example is where a Trustee misinterprets the trust and makes a payment to a beneficiary that is beyond what the beneficiary is entitled to, so that others suffer.

Occasionally, Trustees might misappropriate assets from the trust fund, and use them for their own purpose. Clearly, they will then be personally liable, without limit, for the loss suffered by the beneficiaries.

Trustees have a statutory duty to exercise care and skill in the administration of the trust. Professional trusted will be tested a little more rigorously than trustees that are friends and family,

Liability to Third Parties

Trustees who make contracts with third parties (for example a bank lending money to the trust), are directly liable to them under contract law. The Trustees can recoup the cost from the assets of the trust, where they entered the contract in the proper course of the administration. However, their liability is not limited to the extent of the assets of the trust. If the third party claims more than the value of the assets still held by the Trustees, the Trustee will be personally liable for the shortfall.

Acts and Omissions – What can happen?

Trustees may also be liable for their acts or omissions in administering the trust. For example, a Trustee might libel a third party. Where it can be shown that the Trustee was acting in the reasonable management of the trust, he will be entitled to be indemnified (in other words financially covered) out of the assets of the trust.

However, even then, if the claim exceeds the value of those assets then the Trustee will be personally liable for the shortfall. Where the Trustee incurred the liability otherwise than in reasonable management of the trust fund, he will not be entitled to any such indemnity.

Liability to the Revenue

During the administration of the trust, the trustees are responsible for completing self-assessment tax returns and also for paying any assessed tax. Delays for any of the above can now lead to significant penalties, which may not be recoverable from the assets of the trust, as the payments were solely your responsibility. In addition, Trustees have a statutory responsibility to the Revenue to advise them of all circumstances which might lead to the payment of inheritance tax. Failure to account to the Revenue can lead to severe penalties. These fall on the Trustees personally and are not usually recoverable from the trust fund.

Trustees also have a liability to creditors of a bankrupt beneficiary if the beneficiary has been paid directly and they cannot recover the money. Our policy is to make bankruptcy searches against beneficiaries before making capital payments to them, and to make such searches annually in respect of income beneficiaries.

The extent of your liability does not really go beyond yourself – you are liable for your own acts and omissions not that of your co-trustees. However, a Trustee can be guilty of “wilful default” where the Trustee is reckless about the conduct of his Co-Trustee and allows him to cause loss without doing anything about it. The Trustee might thereby also fail in applying the statutory duty of care under the Trustee Act 2000.

It is common for the trust document itself to protect Trustees against their liability for loss to the trust fund, except to the extent that it is caused by the Trustee’s individual fraud or dishonesty. It is also common to absolve an individual Trustee from taking proceedings against his Co-Trustee, where that Co-Trustee has been guilty of a breach of trust.

Relief from Liability

The court does have the power to relieve the trustee of any liability if they breach their duty, but it is not wise to place reliance on this as there is no guarantee that this will happen.

Getting in Touch

To learn more about how we can help you with understanding the positions and responsibilities of the Power of Attorney, please contact David Endicott on 01295 204005 or email dendicott@se-law.co.uk.