No one likes to think about what would happen if they ever lost the mental capacity to make their own decisions.
But it’s a reality you can’t ignore. This is especially the case as the population ages, and mentally degenerative diseases, such as dementia, are becoming more prevalent.
One of the best ways to prepare for a time when you can’t run your own finances is setting up a lasting power of attorney (LPA).
This legal document allows you to nominate someone you trust to manage your affairs on your behalf.
There are two types of LPA: one is for money and property, and the other is for health and welfare.
Rachael Griffin from wealth manager, Quilter, said: “Putting a lasting power of attorney in place is a vital part of financial planning. It provides you and your family with the peace of mind that your wishes will still be carried out should you lose the capacity to do so yourself.”
Despite the need for this crucial paperwork, the number of LPAs registered for those approaching later life remains worryingly low. Recent research from Abrdn found only 7pc of adults have a power of attorney in place.
It’s also worth bearing in mind that while an LPA is often associated with the elderly, there’s nothing to stop you arranging this documentation a lot earlier in life. In fact, it actually makes a lot of sense to do so, as none of us know what lies around the corner.
Emily Deane, technical counsel and head of government affairs at STEP, said: “Our personal circumstances can change very quickly. Lives can be turned upside down by an accident or sudden illness, or the onset of dementia.”
Having a plan for what will happen if you lose capacity gives you control over who gets to make decisions when you can no longer do so. Here, Telegraph Money explains what’s involved in setting up a power of attorney, and how to choose the right person for the job.
How to set up a power of attorney
People often set up a power of attorney at the time when they write (or update) their will.
By getting this document registered, it can then be activated if or when it needs to be used.
Traditionally, people have made LPA using paper forms, but you can now also do it online.
Either way, forms must be signed in the right order, first by you, and then by a “certificate provider”. This must be a friend or colleague who has known you personally for more than two years, or he could be a professional, such as a GP or solicitor.
Next, the forms must be signed by the “attorney” – that is, the person who you are assigning with the power to manage your affairs. Each signature needs to be signed by a witness.
All signed LPA forms must be registered with the Office of the Public Guardian (OPG) before they can be used. If you have completed paper forms, you post these to the OPG. If you use the online service, you will need to print out the forms and do the same. The OPG will check for potential fraud or exploitation, such as abusive carers obtaining control over an elderly person’s finances.
Registering your form with the OPG costs £82. To register both types would cost you £164.
In the past it took around 10 weeks to register a LPA, but due to hold-ups, including the Covid backlog, you need to brace yourself for longer waiting times. It can now take up to 20 weeks (and a lot longer if there are mistakes).
While it is possible to arrange an LPA yourself, it is quite a complicated piece of paperwork.
With this in mind, you might decide to arrange yours through a solicitor. Go down this route, and you can expect to pay around £350.
If your LPA is approved, the OPG will send back a stamped copy. Note that the document is not valid until you have received this confirmation.
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How to choose your attorney
You can pick anyone to be your attorney, as long as they are over 18, have the mental capacity to make their own decisions, and are not bankrupt.
But you need to choose wisely: it must be someone you trust to make the kind of decisions you would have made for yourself. This could be a family member, friend, or professional, such as a solicitor.
You can select one person to take on the property and finance LPA and another to take on health and welfare – or the same person to do both.
The person you choose needs to be willing to take on the responsibility. Opting for an attorney who is younger than you may also be a consideration.
Don’t leave it too late
It’s important to pick your attorney and set up an LPA at an early stage.
Ms Griffin said: “Recently there have been delays in the registration process which makes it all the more important to act sooner rather than later.”
Crucially, you have to apply for the power of attorney while you still have the mental capacity to do so.
Ms Griffin added: “Leave it too late and you risk people you do not know the ending making crucial decisions for you.”
Without the paperwork in place, loved ones have to apply to the Court of Protection for a “deputyship order” to appoint someone to act on your behalf. While you await the deputyship, no-one can manage your finances or support you effectively.
Having to go down this route is also costly. First off, there is a £371 application fee, and if the court decides your case needs a hearing, there will also be a £494 fee. The attorney who gets appointed will then have to pay an “annual supervision fee”, which could be £320.
“If family or friends have to go to court, this can be an incredibly time-consuming and expensive process – far more so than making an LPA,” said Ms Griffin.