According to This is Money, research suggests that less than a quarter of people have spoken to their family about creating a Lasting Power of Attorney (LPA). An LPA allows you to appoint someone you trust to make decisions about your wealth, welfare or both if you’re unable to, for example, because of a serious illness or accident.
If you are one of those who have not created an LPA, your financial security could be put at risk, as no one can make decisions about, or deal with, your money. This is why the government wants to encourage people to create LPAs and is considering changes to the way they are set up in an attempt to make the process easier.
Read on to learn more about LPAs, what the proposed government changes might mean, and why you probably need to create an LPA if you haven’t done so already.
There are two types of LPA that you could create
Medical advances mean that you have a better chance of living longer than previous generations. While this is good news, it also means the chances of you losing mental capacity during old age increase, which could have implications for your wealth if you can no longer make financial decisions.
When you create an LPA, you’re giving someone the legal authority to make decisions on your behalf if you can no longer do so. When you create an LPA, you become the “donor”, and the person acting on your behalf becomes the “attorney”.
There are two types of LPA:
- Health and welfare LPA – your attorney makes decisions about medical care and other care requirements, such as washing, dressing and eating.
- Property and financial affairs LPA – your attorney makes decisions about any financial matter, including paying a mortgage or rent, managing your bills and investments, or dealing with any state benefits you receive.
A common misunderstanding with an LPA is that as soon as you create one, you immediately lose control of your financial affairs. This is not the case, as you maintain control of your affairs for as long as you have mental capacity.
An LPA puts you in control no matter what the future holds
Appointing someone that you trust to look after your finances means that you’re future-proofing your wealth. This provides peace of mind that whatever happens, your affairs will be dealt with in line with your wishes.
As long as your LPA is registered with the Office of the Public Guardian (OPG), your attorney can look after your finances without delay if you become incapacitated or lose mental capacity. Without an LPA in place, your friends or family will need to decide who should make decisions on your behalf.
This person will then need to apply to the Court of Protection to become your Deputy, which could cost significantly more than setting up an LPA. Furthermore, as you’re not choosing the person who will look after your wealth, it may not be someone you would want.
It may be too late to create an LPA if it’s not in place when you need it
Another common misunderstanding with an LPA is that you can create one if and when you need one. This is not the case. Under current regulations, if you have not put an LPA in place by the time you lose mental capacity or become incapacitated, it’s typically too late to create one.
The reason for this is that, in order to create an LPA, you must have your mental faculties to appoint someone you can trust. This is why creating an LPA, even if you’re currently in good health, is usually a good strategy.
Despite this, research by Which? revealed that in November 2022, just 15% of people had granted someone else Power of Attorney. One reason for this, the study suggested, was because the process of creating an LPA was “outdated” and difficult to navigate.
Setting up an LPA could become more straightforward
As the government wants more people to have LPAs, it carried out a consultation in 2022 to look at how the system could be made more efficient while ensuring it was safe and secure. As a result of the consultation, the government is considering introducing changes to the system, which would:
- Provide new safeguards offering greater protection against fraud and financial abuse
- Make the system of setting up an LPA simpler and more user-friendly
- Move to an online service, although a paper alternative would remain.
It is hoped that moving the process online could reduce errors when setting up an LPA. Furthermore, the government hopes that the new system will strengthen the verification process by requiring official documents, such as a driving licence or passport. This could help prevent financial abuse and fraud.
Additionally, it is hoped that moving the process online could significantly reduce the time it takes to set up an LPA. This is particularly important when you consider that Which? reported that in November 2022, setting up an LPA could take up to 20 weeks.
Get in touch
While the new system could speed up the process of setting up an LPA and may make it more secure, the government has not provided a clear indication of when it will be introduced. This means that waiting for the changes to come into force may not be the best strategy, as your wealth will not be looked after by someone you trust if something happens to you.
Creating an LPA as soon as you can is likely to be the best strategy and could provide peace of mind that you are more likely to be financially secure whatever happens. If you would like to discuss ways to protect your wealth from the unexpected, please contact us on hello@ardentuk.com or call 01904 655 330.
As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This blog is for general information only and does not constitute advice. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The information is aimed at retail clients only. Life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
