People often believe that if they were to lose mental capacity their next of kin would simply be able to manage their finances on their behalf. Unfortunately, ‘next of kin’ is not a legally recognised term and the reality is that your spouse or children would not automatically be granted access to assets in your sole name, such as your bank accounts. This demonstrates the importance of having a Lasting Power of Attorney (LPA) for financial decisions in place for this eventuality.
Even if someone has an LPA, it can be confusing as to what your attorney is or isn’t allowed to do on your behalf. Here are just a few common misconceptions:
- There is a misconception that if you make a power of attorney, you are immediately giving away control of your assets to someone else. This is not the case. Providing you still have mental capacity to make financial decisions, you should continue to do so and even if your attorney is assisting you, they should consult you before acting. LPAs are similar to insurance policies; you may never need to rely on your them at all but if you do, they are worth their weight in gold.
- If you have an investment fund which is run by an investment manager, you may assume that on loss of capacity, your attorney can simply continue with this arrangement. This is not the case. It is important that you have specific wording in the instructions section of your LPA to delegate investment decisions to the investment manager. Without this instruction, your attorneys will need to apply to the Court of Protection to appoint a discretionary fund manager to manage your investments.
- Many attorneys mistakenly believe that they can make unlimited gifts of any size from your assets, using the reasoning that ‘I know it’s what they would have wanted’. Whilst the attorney steps into your shoes in relation to the majority of financial decisions, there are specific rules around when and what value gifts they can make.
- An area that often causes confusion, rather than misconception as such, is the relationship between an LPA and a Will. Often clients will think that because they have one or the other, their affairs are in order and the devolution of their estate is certain. It is important to make the distinction between LPAs for management of your estate during lifetime and a Will for administration of your estate on death.
- A final misconception, and concern for many clients, is that after you lose capacity, your attorney will be able to change your Will. Again, whilst the attorney steps into your shoes regarding the majority of financial decision, this is not one of them. In order to alter your Will, the attorney would need to make an application to the Court of Protection for a statutory Will.