What do LPAs do?

What do LPAs do

Lasting Powers of Attorneys (LPAs) present a means by which you are able to appoint someone trusted to make key decisions for you should lose the ability to do so yourself, this is called a ‘loss of capacity’ This is the broadest answer to the question ‘What do LPAs do’?

 

  • LPAs allow you to appoint someone you trust to act on your behalf.
  • They enable decisions around health and finance.
  • In their absence, the court of protection’s involvement may result in great cost and delay.

 

LPAs can only be made while the person making them has mental capacity. They may take several months to register and useable. The length of this process leads a vast majority of people to appoint professionals to undertake creation of the documents (since errors are common and may not be detected for a long period of time).

If someone loses mental capacity (e.g. from stroke, dementia or head injury) without an LPA in place, a Deputyship must be applied for through the courts. These are much more expensive to pursue and may take more than a year to obtain. During this time, payments may continue to leave your bank accounts and key decisions around your lifestyle may be made by authorities.

 

There are two types of LPA: the ‘Health and Welfare’ LPA and the ‘Property and financial affairs’ LPA. These are separate documents intended to guide your attorneys in the management of health and financial matters, respectively.

 

Health and Welfare LPA

 

The ‘Health and Welfare’ LPA permits your attorney to make a range of decisions with respect to your welfare including (but not limited to) matters as critical as the delivery of ‘life sustaining treatment’. Remember, life sustaining treatment may include things you consider mundane, such as provision of asthma or diabetes medication. Crucially, these decisions encapsulate ‘consents for treatment’.

 

Property and Financial Affairs LPA

 

The ‘Property and Financial Affairs’ LPA permits your attorneys to make decisions about the management of your money and property. This might include matters such as payment of bills, collection of benefits etc.

 

A really important difference between the two is that the ‘Health and Welfare’ document may only be enacted when you can be shown to have lost capacity. The ‘Property and Financial Affairs’ document may apply as soon as it is registered with the authorities (this is because such documents are often used by those travelling abroad to permit management of assets domestically).

 

The Government has recently conducted research into these documents as part of a wider push aimed at driving uptake. Their findings are stark, (research compiled by the Office of The Public Guardian, 2019):

  • While 40% of people have wills less than 1% have Lasting Powers of Attorney;
  • 45% of people under 45 knew nothing of Lasting Powers of Attorney when asked;
  • 33% of people over 65 develop dementia. One person is hospitalised every 90 seconds with brain injury;
  • 60% of people (wrongly) believe a ‘next of kin’ would have final say if they are unable to make decisions themselves.
  • 60% of people believe that if they share a joint bank account with another the other can make decisions for them legally.
  • 53% of people know someone with an LPA
  • 40% of people who are not interested in a LPA say they ‘do not think they will lose capacity or don’t want to tempt fate.

 

Put simply these documents are crucial and under used, more ominously their absence can prove catastrophic, leaving affairs in limbo for extended periods, at a time of crisis.

If you would like to discuss making these documents, please visit our website at www.confidencewills.co.uk and speak to us without obligation.

 

LPAs for Business Owners

LPAs for Business Owners

LPAs for Business Owners – Against a backdrop of antidiscrimination legislation and shifting demographics the use of separate ‘personal’ and ‘professional’ LPAs for Business Owners grows increasingly common.

 

  • Legislation acknowledges the need for separate Business LPAs
  • Distinct Business LPAs allow Attorneys to put the interests of a Company first
  • Removal of a mentally impaired director may take an impractically long time

 

Personal Lasting Powers of Attorney (LPAs) are typically used by a ‘Donor’ to appoint trusted third parties to make critical finance and welfare decisions, on their part, if they are unable to (owing to loss of capacity for instance) or (in the case of financial matters) choose not to.

 

It is now acknowledged in law that there are “Cases where the donor should have made two LPAs: one for their business affairs and the other for their personal finances” (Senior Judge Lush).

 

A Business LPA bears both differences and similarities to personal documents. A key tenet of the Mental Capacity Act 2005 is that Attorneys must act only in the best interests of the Donor. Companies, however, have their own distinct legal personalities. Whilst an Attorney appointed under a Business LPA still acts for the Donor as an individual, legislation recognises that decisions made by e.g. company directors, must be made in the interest of the entity, even when these are contrary to those of the individual.

 

It’s important to differentiate a Business LPA from a Business Power of Attorney, the latter are made frequently but do not persist in situations where a party loses mental capacity, as do Business LPAs.

 

LPAs for Business Owners

The importance of Business LPAs is highlighted when one considers a situation in which the Director of a company loses mental capacity. The director in question cannot be removed from the company simply for mental health problems, as legislation prevents this on the basis of its being discriminatory. Further, any company action e.g. a shareholder vote, to remove such a director cannot be implemented, since notice cannot legally be served on one without capacity. In the absence of a Business LPA, the only way to manage such a situation is to pursue a deputyship through the courts which may take many months.

 

A critical (and challenging) component of putting a Business LPA in place is selection of suitable Attorneys. The powers conferred on such individuals are significant as are the challenges they face. At the broadest level, Attorneys must have knowledge of their fiduciary obligations. They must also potentially have matched technical expertise/qualification with the Donor e.g. Attorneys for accountants and solicitors must be so qualified; performance of regulated financial services demands authorisation on the part of the Attorney.

 

The pool for candidates may prove shallow. Selection from competitors raises questions over the management of conflicts of interest and commercially sensitive information. Conflicts may even arise when considering those within the same company, particularly where the duties of a director must be resolved with an interest in ownership, as in the case of director shareholders.

Business LPAs are critical documents which must be created and managed with great care. If you are considering creating these, we strongly recommend speaking to a professional. Visit us at www.confidencewills.co.uk to book a free consultation without obligation. Nothing in this article should be considered financial or legal advice.

 

Leaving money in trust for grandchildren UK

Leaving money in trust for grandchildren UK

Leaving money in trust for grandchildren UK, with families increasingly dispersed, relationships between individual members grow more diverse and leaving money in trust or grandchildren (UK) becomes more popular.

 

  • Discretionary trusts give ongoing decision-making powers to trustees
  • Assets may be protected from bankruptcy and divorce
  • Trusts may persist for 125 years

 

At the broadest level a trust describes an arrangement in law where property is legally held by one group of people (the trustees) for the benefit of another (the beneficiaries). Trustees owe a fiduciary duty of care to beneficiaries and must act in their interests.

 

The type of trust likely viewed as most attractive for the purposes of leaving money to grandchildren is the ‘discretionary trust’. This is an arrangement by which, beneficiaries may be named by the party making the trust, but which gives trustees discretion as to how the trust’s contents are put to their benefit.

 

These trusts may be created in life or created by a will on death, and persist for up to 125 years, rendering their life span long enough to accommodate multiple generations. At the heart of these trusts’ operation is the notion that beneficiaries lack an absolute right to assets held by the trust (only having the hope thereof).

 

Two broad aspects of these trusts render them attractive for gifting to grandchildren, firstly the discretion conferred on trustees allows them to react to prevailing circumstances (potentially decades from the time the trust is made). Secondly, the nature of arrangement means that assets are not legally included in the beneficiaries’ estate. This separation offers a potentially significant level of protection.

 

Regarding the former, the trustees’ ongoing power to make decisions allows them to protect trust assets from misfortunes which may befall beneficiaries, such as divorce, bankruptcy, profligacy, alcohol or drug abuse. Resources may be directed to one (of several named beneficiaries) in particular need at a certain time. Rights to occupy property may be managed or withheld. Money might be released over time as beneficiaries mature.

 

The absence of absolute rights to trust assets, on the part of a beneficiary, excludes them from means testing for care home fees or benefit applications. These assets are also afforded protection in bankruptcy or divorce.

 

Leaving money in trust for grandchildren UK

With respect to inheritance tax, property passing into a discretionary trust are taxed as normal on entry i.e. assets above the Nil Rate Band (NRB) are taxed at 40%. In the case of lifetime trusts, IHT can become payable in life. Subsequently, anniversary charges (of up to 6% of assets above the NRB) may be levied against the trusts every 10 years. Exit charges on distribution of a trust fund are also charged (these are calculated with reference to the period of time since the most recent Anniversary charge, the maximum exit charge being 6% of assets over NRB). Being relevant property trusts, gifts to discretionary trusts are not eligible for inclusion in Residents Nil Rate Band calculations.

 

Income above £1,000 from trusts is taxed at 45% or 38.1% for dividends. Recipients are then supplied with a certificate by which they can claim the tax back (if they do not pay tax or do so at the lower rate). Exemptions & allowances (half the CGT allowance for an individual is available to these trust) notwithstanding, CGT is payable by the trusts at rates of 20% for non-residential property and 28%for residential.

Nothing included in this article must be taken as advice on taxation or finance, you should seek advice on all such matters from a professional. If you would like to discuss the use of discretionary trusts in your will visit www.confidencewills.co.uk now and book a free consultation.