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Why you should consider a Lasting Power of Attorney

Why you should consider a Lasting Power of Attorney

What are Lasting Powers of Attorney and why do I need them?
LPAs are the documents that enable another person or people (the Attorneys) to make decisions on behalf of an individual (the donor) when that individual is either no longer willing or able to make decisions for themselves.

There are three types of LPA; one relevant to a person’s business property and financial affairs (BLPA), one relevant to a person’s personal property & financial affairs and one relevant to a person’s health & welfare.

Under all types of LPAs, you can add restrictions or guidance to set out how your Attorneys should act on your behalf.

Both a BPLA and a Personal Finance LPA can be used at any time whilst the Donor still has capacity, with the Donor’s consent unless otherwise stipulated. However, a Health & Welfare LPA does not come into force until the Donor has lost the capacity and can no longer make health decisions for themselves.

1. Personal Finance LPA

A personal Property & Financial Affairs LPA grants your Attorneys the authority to make decisions concerning your personal assets and property such as property and bank/savings accounts, investments, pensions, life policies and anything else of a personal financial nature.

2. Health & Welfare LPA

Under a Health & Welfare LPA, your Attorneys can make decisions about anything to do with your health and welfare. This includes medical treatment, where you are cared for and the type of care that you receive, as well as day-to-day decisions such as your daily routine (i.e. eating, washing and dressing etc.). Within the document you must predetermine whether your Attorneys will be able to make decisions about life-sustaining treatment for you. If you do not, then all decisions in respect of life-sustaining treatment would be made by your medical team (not next of kin as is often expected).

3.         BLPA – Why make a separate Business LPA?

It is important that business owners not only choose someone they trust but also someone who understands their particular business and who will be competent to continue the running of the business at a time when they may not be able to consult with the business owner. The consequences of choosing the wrong person are significant, because if the chosen Attorney lacks competency, the Attorney may find themselves subject to a claim against either/both themselves and/or the business due to their unsuitability to act.

When choosing the Attorney, it will not usually be appropriate for the same person to be appointed Attorney for another under both the Personal and Business LPAs because numerous factors, including commercial legislation and practices, may prevent such a duplicate appointment from being allowed.

4.         What would be the position without an LPA in place?

LPAs should be viewed as an insurance policy, and like many other insurance policies, one would hope it/they will never be needed.

Without a Health LPA in place it is usually the carers, social workers and medical professionals who make decisions on behalf of someone who lacks capacity; and whilst they do of course act in a person’s best interests, the situation could become very difficult if there is disagreement between health providers and loved ones.

Without a finance LPA in place, an application to the Court of Protection (COP) would be the only available route to gain access to finances. Applications on average, take 12 months and would only concern health decisions if there were an emergency health and welfare issue to consider. Otherwise, the purpose of the application would be to appoint a Deputy over finances.

A Deputy is similar to an Attorney except they are Court appointed and the Court may impose additional restrictions upon them.

Crucially, the person that applies to become Deputy may not necessarily be someone the individual would have chosen when deciding who to appoint under an LPA.

During the 12-month application period, there would be no one legally able to make financial decisions so assets, including joint assets, would be frozen by banks etc until a Deputy is appointed. That could put the individual’s assets at risk, particularly where mortgages need to be paid.

Worst still, in the absence of a BLPA, the day to day running of the business would be hampered because certain tasks could not be carried out, such as paying staff or suppliers, and performing existing contracts. Where a business’ bank account includes the name of the incapable business partner, or more likely, Sole Trader, the banks will almost certainly freeze the account which would most likely expose the business to failure or winding up.

A BLPA should therefore be viewed as part of a business’ crisis management strategy.

Failure to have a BLPA in place during the life of a business has been known to result in insurance costs and claims being affected.

On the plus side… a BLPA is an entirely tax-deductible business expense.

5.         The Impact of a business owner losing capacity based on their business type:

  • Sole traders

A sole trader is not a separate entity to their business. For instance, if the business incurs debts, the trader will also be personally liable for the debts. A business’s creditors could pursue the sole trader to recoup outstanding loans via personal assets. At worst, a sole trader could be forced into bankruptcy to protect against creditors, or a creditor may apply to make the sole trader bankrupt.

A sole trader exposes their business to a high level of avoidable risk if they do not make provision for illness, holidays, or unexpected periods of incapacity.  

Sole traders often put in place insurances specifically designed to prevent such liability to creditors and another way to achieve added protection would be to put in place a readily available BLPA.

  • General Partnerships

A partnership occurs where two or more people run and own a business together with a view to making profit. The partners often have what is known as a ‘Partnership Agreement’, which is effectively a contract between the partners containing provisions relevant to the running of the partnership and its assets. Such agreements often also include provision to remove a partner who lacks capacity however since the Equality Act 2010 such removal would now be considered discriminative. Therefore, to avoid potentially discriminative actions, the partners should each consider putting in place a BLPA.

Given that partners are only deemed to be in business to make a profit, if a BLPA is absent and a partner can no longer make sensible decisions or appoints an inappropriate person to act as their attorney, the other partners can bring claims for losses against that partner or/and their poorly selected attorney. 

  • Limited Liability Partnerships

A Limited Liability Partnership (LLP) is a cross between a partnership and a limited company. Each partner has limited liability and will only incurred debts up to the amount of their original investment. It can be run flexibly and informally just like a partnership, whilst still complying with some company legislation. To enable the LLP to continue trading if anything were to happen to an LLP member, all members should consider appointing attorneys under their own individual BLPA.

  • Company director

A company may consider removing an incapable director by calling a shareholders’ meeting to remove him if he can no longer fulfill his duties because he has lost mental capacity. However, the issue of the Equality Act 2010 again arises here because that director would be unable to receive and accept notice of the meeting or suitably defend his position due to his lack of capacity. Therefore, removal of a director in this manner is no longer allowed regardless of what the company’s Memorandum or Articles of Association state. Instead, an application to the COP is needed to have a suitable person appointed as the Deputy for the director and to make ongoing company decisions on his behalf.  

If a company relied on its Articles of Association and removed the director regardless, it could well be subjected to claims later. Thus, to protect the company’s interests and avoid discrimination claims and regularity investigations, a BLPA should ideally be created by all directors.

6.         Safeguards

The LPA preparation process has various safeguards that are designed to protect the Donor from potential abuse. 

7. Registering a Lasting Power of Attorney

An LPA must be registered before it can become valid and Attorneys must not act under an LPA until it has been registered.

If circumstances change, the LPA would need to be cancelled and a new one prepared.

An LPA can be cancelled at any time before or after it is registered if the donor has the mental capacity to cancel it. Cancellation takes place via the Office of the Public Guardian.

8.         Advanced Decisions

“Living Will” is the old term for what is now referred to as an “Advanced Decision” (hereafter ‘AD’).

An AD sets out a person’s wishes surrounding the refusal of future medical treatment. Thus, if they a) lost mental capacity and were b) unable to communicate their wishes regarding treatment refusal AND c) they were in such a medical state that there was no prospect of recovering past artificial living, permanent medical intervention or resuscitation, then medics must respect the treatment refusals set out in the AD.  Even if the withdrawal results in that person’s death, e.g., if in a coma with no prospect of recovery other than to remain in that coma with the assistance of life support. 

An AD is legally binding, so medics/hospitals can be prosecuted if they fail to comply with its terms.

It is possible to set out in the AD treatments a person wishes to accept in future, but medics cannot be bound to administer treatment and so that element of the AD would remain unenforceable.

Medics can be bound to accept and administer treatments under a Health and Welfare LPA as set out above, which again, once registered, enables Attorneys to make flexible medical decisions as if it were the patient; but only at a time when the patient can no longer make decisions for themselves. This may not be preferable where a patient has strong wishes as to treatment refusals.

Where a person has both an AD and a H&W Lasting Power of Attorney in place, they both remain valid however decision-making priority is given to the document signed/registered second.

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