The power and purpose of a lasting power of attorney

Many advisers who have been in the profession for a long time have long-established relationships with clients.

Sometimes, they have looked after clients from the start of their financial journey, often beginning with their first mortgage and some insurance to protect them should they come into a position of financial difficulty due to illness or loss of a loved one.

The next stage is saving for the future, both in the short and the long term, using investments like ISAs and pensions to help achieve a client’s financial goals.

Further down the line, there may be inheritance tax planning to do and helping to manage income once a client retires, but in many cases the relationship can and should continue even after the client’s demise.

Family wealth

Often, an adviser’s clients will grow with them throughout their financial journey. Sadly, that journey will come to end at some point.

If an adviser is going to continue to manage a family’s wealth, which they have advised upon over the years and helped to build, then it’s probably best to start sooner rather than later.

After all, it is the family that is normally set to benefit, so the best scenario involves some forward planning and making sure the family is aware of the client’s wishes, not just on death but during the later years of their lifetime.

Pension freedoms is widely discussed and if utilised the funds can be passed to the beneficiary on death, with the assets remaining invested in a tax-efficient pension. This is a great opportunity for an adviser to interact with the potential beneficiaries and start to build a relationship with them, so when the time comes, they are familiar with them and can help with the process of moving to beneficiary drawdown.

This also necessitates complex decisions around managing retirement income during the client’s lifetime on how best to make it last – to meet their required standard of living while leaving behind a legacy, if that is their wish.

There may come a time in person’s life when making complex financial decisions becomes difficult. This could be caused by a number of things such as mental illness, injury or dementia.

According to Alzheimer’s Research UK, 24.6 million people in the UK – that’s 38% of the population – know a family member or close friend living with dementia and this is set to increase with one-third of people born in the UK this year likely to develop dementia in their lifetime.

The adviser will need to be able to deal with any issues that this brings. Having conversations with the family can facilitate a seamless transition later on. Conversely, a lack of forward planning could lead to a lot of frustration.

Legal tool

Setting up a lasting power of attorney (LPA) can help with this situation, but it is a bit like insurance; if you find yourself in a position where you need it but it’s not already set up, then unfortunately it’s too late.

LPA is a legal tool that that allows someone to grant another person over the age of 18 the power to make specified decisions on their behalf, usually because that person has lost the mental capacity to make their own decisions.

There are two types of LPA in the UK. A property and financial affairs LPA, which covers decisions around finance and property matters, and a health and welfare LPA, which covers decisions over care and wellbeing. Enduring power of attorney is also valid if signed before 1 October 2007, but this only covers decisions over financial and property matters.

A common misconception is that a spouse will simply be able to take over control of financial matters, but where policies or accounts are held in a single name the provider will only be able to deal with the named client and won’t be able to release information unless there is an LPA in place or the relative/friend has been appointed as a ‘deputy’ by the court.

Many people are still unaware of LPAs or what one can do for them. Although it’s true to say there has been an increase in the number of people registering LPAs, according to the Office of Public Guardian, this still only equates to 1% of the UK adult population.

Risk and reward

Legal specialists warn that failure to set up an LPA may mean someone unsuitable assumes control of an individual’s financial affairs. It could also mean that an individual’s assets are frozen for a period of time while his or her mental capacity is assessed to determine whether or not they are in a position to make their own decisions.

The benefits of having an LPA in place from a client’s point of view is the reassurance that the ‘attorney(s)’ they have appointed can act jointly or independently and make decisions for them, if required.

It will also protect the client’s loved ones from potentially having to go through the Court of Protection to appoint a deputy, which can be a long and expensive process. Making sure your clients have LPAs in place is another layer of insurance – effectively insuring against the loss of mental capacity – and can cost less than mobile phone or pet insurance.

For the adviser, introducing this subject into the conversation (perhaps alongside making a will and entering drawdown) shows they are looking to protect the client’s future and are adding value to their proposition by educating clients on the rewards and risks of having an LPA or not.

It can also allow the adviser to build relationships with the next generations of the family. Having an LPA in place will facilitate the transition from dealing directly with the client to dealing with the appointed attorney should the need arise.

Colin Durrant is a protection specialist at Zurich