Lasting Power of Attorney
The UK population is expected to rise to almost 75 million by 2039, with more than one in 12 people aged over 80. A 55-year-old male today can expect to live for another 31 years on average and a woman age 55 today can expect to get close to her 90th birthday.
Alongside retirement planning it may be prudent to also prepare for the possibility that as we become older we may be less able to make important choices about our finances and personal welfare.
The Lasting Power of Attorney (LPA) was introduced in England and Wales in October 2007, building upon and replacing the previous Enduring Power of Attorney Act 1985. This legal document allows an individual to appoint an attorney to make certain decisions on their behalf in specific circumstances and gives them the option to specify when they wish to grant that control. An attorney could be a friend or family member alternatively you could appoint a professional attorney.
There are two different types of LPA: personal welfare, and property and affairs:
This allows the attorney to make decisions about an individual’s healthcare and welfare, including refusing or consenting to medical treatment on the individual’s behalf and deciding where they live. These decisions can only be taken when the individual lacks capacity to make them themselves.
Property and affairs
This allows an individual to elect someone to take over decisions about personal spending as well as how property and financial affairs are managed. Unless the power is restricted in some way, this can apply while the individual is still mentally capable. An individual may be spending long periods out of the country and not wish to discuss financial matter over the phone or by email. In this case they may wish to delegate certain powers for ease. This type of LPA remains valid even if the individual becomes mentally incapable. Alternatively, it could be stipulated that the LPA does not come into effect until the individual lacks mental capacity.
It is possible under each LPA to appoint different people to make decisions. Some individuals may wish their financial arrangements be made by a professional fiduciary and the responsibility for their personal welfare to be left to someone else.
The LPA must be registered with the Office of Public Guardian (OPG) for it to be valid and certain formalities must be followed.
There are controls in place that ensure the individual setting up the LPA understands the powers they are giving to their attorney and have not been placed under undue influence. The registration of the LPA cannot take place until this has been done.
The LPA registration currently takes between eight and ten weeks to register, this includes a four week waiting period, required by law, to enable those involved to raise any concerns.
It can be expensive, time-consuming and stressful trying to arrange a LPA after someone becomes mentally incapacitated. Planning ahead and arranging the LPA will help avoid unnecessary stress, expense, and delay and gives the peace of mind that the individual has granted decision-making powers to those they trust.
Deeds of variation remain unchanged
Following the revelation that Ed Miliband had been “accused” of using perfectly legal means of avoiding IHT by using a deed of variation – that moved ownership of some of the family home into his and his brother’s names – the government decided to review these arrangements.
They had a call for a review of the use of Deeds of Variation for tax avoidance purposes.
The aim of the review was to:
- explore the differing circumstances in which they were used for tax avoidance,
- develop a fuller understanding as to the frequency with which these type of plans were used,
- examine in more depth how the current tax provisions worked, and
- establish what changes, if any, should be made to deeds of variation.
It has now been announced that ‘Following the review announced at March Budget 2015, the government has decided that it currently will not introduce new restrictions on how deeds of variation can be used for tax purposes. However, they will continue to monitor their use.’
This really comes as no great surprise as since the transferable nil rate band was introduced in October 2007, the advantages of a variation have been limited. Before then they were widely used to set up discretionary will trusts ensuring that both nil rate bands of a couple were utilised.
That is not to say they are no longer useful; they still have value to wealthy families in ‘generation skipping’ and repairing perceived injustices in the legacies, amongst other things.
For instance if you have a potential inheritance tax liability it is possible to use a deed of variation to adjust the deceased persons estate to place all funds into a discretionary trust. This trust can now lend money to you which means you have use of the money without it falling into your estate. However, care needs to be taken on this type of planning to ensure that other IHT rules are not breached.
Please call us if we can help in this area.