Article by Alex Truesdale, July 2020
As the war on COVID-19 enters its next phase, the possibility of immediate enforced self-isolation before one has experienced coronavirus symptoms now arises. Whether through test, track and trace or as a result of an infection within a child’s school ‘cluster’, a sword of Damocles now hangs over many of us. And the timing of an instruction to self-isolate could mean the interruption of commercial transactions, missed deadlines or lost financial opportunities. “It’s another example of the catch-22 surrounding Lasting Powers of Attorney,” says Alex Truesdale, Cobham-based City solicitor turned Willwriter. “We know we should have them, but don’t prioritise putting them in place while we can because we don’t need them – but by the time we do, it’s too late!” Lasting Powers of Attorney (‘LPAs’) are legally binding documents in which the ‘donor’ authorises trusted relatives, friends or professionals to take decisions for them should they lose ‘mental capacity’ to do so. Mental capacity can be lost in a variety of scenarios. This risk grows as we age. However, whilst dementia, Alzheimer’s and disruptive medical incidents such as stroke or seizure are the most obvious causes, acquired brain injury from a traumatic event such as a fall, a road traffic accident or a blow to the head can rob an individual of their powers of self-governance at any time.
Add to this the difficulties in signing and witnessing documents in self-isolation and LPAs become essential tools in one’s personal and financial risk management toolkit at any age. “Over the past ten years I have seen a sea change in the attitudes of clients in their 30s and 40s who are realising that LPAs are critical to ensuring that their personal and business goals are not disrupted. Clients now see LPAs as ‘life logistics insurance’ and increasingly want to make them for themselves, rather than enquiring on behalf of older relatives.”
There are three types of LPA: each addresses a different set of risks.
Personal financial affairs
Once mental capacity has been lost, without an LPA sole and joint bank accounts cannot be operated; transactions involving the sale, purchase or letting of real property are disrupted; and proceeds of life assurance or critical illness policies and long term sickness benefits cannot be accessed.
Reasserting control over the financial affairs of a patient without an LPA involves applying to the court for a ‘deputyship’ which is time-consuming, expensive and intrusive.
Losing the ability to exercise voting rights as a shareholder or partner can mean the paralysis of the company or partnership and its bank accounts. Special care has
to be taken to ensure that appropriately skilled attorneys are selected, which is why business LPAs are commonly made entirely separately from personal finance LPAs.
Health and welfare
Without an LPA, a patient’s healthcare team and/or a social worker would make decisions ranging from occupational therapy to end of life care. ‘Next of kin’ is a legally meaningless phrase: although loved ones may be consulted, they cannot mandate how you are treated and one relative does not automatically outrank another.
So whilst it is never too early to put Lasting Powers of Attorney in place, it is all too often too late. Now is the perfect time to start the process.
Increasingly, parents or grandparents are choosing to assist their child or grandchild with the purchase of property, but do not have the protection of being named on the legal title to the property.
If the contribution is a loan or investment and not a gift, this should be recorded in writing, especially in the case of family loans.
A Declaration of Trust is essential here:
- A gift to a child may not be intended as a gift to the child’s partner as the other joint owner. If the relationship breaks down, the child’s share can be protected by a Declaration of Trust.
- A gift by a parent can be beneficial for inheritance tax purposes. The Declaration of Trust records and clarifies the gift which avoids future issues within the family and HMRC. If a parent making a lifetime gift wants to ensure all their children are treated equally, but cannot make the same lifetime gift to all, this should then be reflected in an appropriately drafted Will, usually involving a discretionary Will trust.
- Without a Declaration of Trust, there is more chance of costly and time-consuming disputes about the division of proceeds when a property is sold or the relationship breaks down.