Don’t leave it too late to retain control of your welfare and finances

What happens when you can’t manage your financial affairs due to ill health, and nothing has been put in place as a form of insurance policy? In short, it’s a very expensive, lengthy, and time-consuming problem to resolve.

This article covers what happens when a Lasting Power of Attorney (LPA) is not in place and someone else needs to manage your financial affairs. This could include paying day-to-day bills through to managing your pension.

It is worth stressing that an LPA is the current legal version of a Power of Attorney and some people may have an older version which should still be valid, but it may be worth checking with a legal expert.

Don’t put off till tomorrow

For many people, Wills and LPAs sit in the category of ‘I’ll sort it out tomorrow’. Often it takes a life-changing event to prompt many people into action. Sadly, for many, it has been the Covid-19 Pandemic that has made them realise that life doesn’t always go to plan.

Ignoring the Pandemic there are many health conditions that already prevent many people from managing their financial affairs. The two most common are dementia and stroke: by age 85 to 89 there’s a 20% chance you will have dementia. And, there are approximately 152,000 strokes in the UK every year. Plainly there are many more life-changing conditions that also prevent you from managing your finances – both short-term and lifelong.

LPAs should be mandatory in certain circumstances

There is a very strong argument that in certain circumstances LPAs should be mandatory. If not mandatory, as a minimum they should be discussed before any financial product is sold that has a lifespan that continues into retirement. This could include bank accounts, mortgages, business finance, and many others.

The reason is simple: if you are no longer able to manage your finances due to health reasons, no one else can do it for you without legal permission.

No legal document? Then no power to support

Most people incorrectly assume that if their partner suffered a stroke or developed dementia then they could carry on operating their finances as if nothing had happened and would have uninterrupted access to things like their bank account or pension income – this is not the case.

Guidance from the British Bankers’ Association means that banks will often freeze joint accounts if one of the account holders is mentally incapable unless a Power of Attorney is in place. The reason is that joint accounts can only operate if there is continuing agreement of both parties – plainly this can’t happen if one party is not capable of agreement.

No LPA means be prepared for huge costs

In the absence of an LPA, someone needs to apply to the Court of Protection for a ‘property and financial affairs deputy order’. This allows a deputy – or preferably deputies – to deal with your finances.

It is always advisable for more than one person to apply to be a deputy. If only one deputy is appointed and they couldn’t act for any reason (for example, being on holiday, becoming bankrupt, or death), then someone needs to go through the whole process again.

The Court of Protection prefers family and friends to be deputies, however, if there are family disagreements or if your assets are complex, it may be best to appoint a Solicitor. Also, appointments are usually made ‘jointly and severally’, which means that any one deputy is able to act independently at any time.

The Court forms are available on Gov.uk. They require information regarding your assets, income, and liabilities, a medical certificate, and a declaration by each deputy to confirm they are suitable and will undertake their duties properly. It’s worth noting that many NHS doctors will not complete the medical certificate, and those who do may charge up to £300.

Typically, it takes about a month to obtain the information and complete the forms, and often people get support from a lawyer as the process is complex.

£365 is then payable to the Court, and it takes on average a month to issue the formal application. Then your proposed deputies need to notify various family members, including yourself, even though you may not understand. This gives everyone a chance to object to the appointment of a deputy. You plainly have no control over this.

Assuming no objection, the Court requires an insurance policy, called a Surety Bond which pays out should a deputy illegally take your money. For £500,000 cover, the annual premium is about £1,000. With the bond in place, the Court issues the property and financial affairs deputy order (the Order) along with guidance for the deputies.

A separate bank account needs setting up to manage your financial affairs. And your deputies will send the order to all the companies that you have dealings with.

The Office of the Public Guardian will charge a fee of £100 to consider what supervision level the new deputies should be allocated to. There is also an annual supervision fee of £320 year for assets of over £21,000 and £35 if less.

This whole process takes about six months.

Needless to say, if you, or your client, have a Power of Attorney in place this whole process can be avoided.

Indicative costs

Every case is different, and the table below assumes a more complex case as the legal fees for a simple case can be much less.

It looks at an estate that’s valued at £500,000 for a single individual. For larger estates, the cost of the Surety Bond will increase. It assumes legal advice is taken for the LPA and would automatically be required for an application to the Court of Protection. It also assumes no ongoing legal support is required as many people using an LPA do not need additional support.

Lasting Power of Attorney for financial only		Attorney via Court of Protection
Year 1		Year 1
Legal Fees (inc VAT)	Up to £1000	Legal Fees (inc VAT)	Up to £2,500
Court Application	£82	Court Application	£365
		Medical Certificate	£300
		Supervision level	£320
		Surety Insurance Bond	£1000
Total Year 1	Circa £1000		Circa £3,800
Years 2 to 5	£0	Annual ongoing fee
		Supervision Level	£320
		Insurance Bond	£1000
Total 5-year costs	Circa £1,000		Circa £9,000

In summary, I would urge anyone with any financial assets – significant or otherwise – to look into putting a Lasting Power of Attorney in place. Quite simply, it provides much-needed protection for managing your financial affairs, should the worst happen and you suddenly find yourself incapacitated mentally and/or physically due to ill health or an accident.

If you would like to know more about LPAs and how we can help you protect yourself and your loved ones, please get in touch with FJG’s Wills, Life Planning & Probate team, call 01206 700113, or email [email protected].