The legal term ‘power of attorney’ can sound rather daunting when first encountered. Perhaps your solicitor has raised it as a possibility you may wish to consider, or a relative has been researching the topic. Perhaps you yourself are worried about future prospects and have begun to explore your options.
At its simplest, a power of attorney grants a person the authority to act on behalf of another, usually in relation to financial and legal matters. The term, though, is sometimes used quite loosely, and so I thought I would take a closer look at some important legal distinctions. The phrase ‘power of attorney’ actually covers two separate legal documents with different powers and suitable for different situations. These are:
(1) a general power of attorney, and
(2) a lasting power of attorney.
What is a general power of attorney?
A general power of attorney is a relatively straightforward document that authorises another person to act on your behalf in situations relating solely to your property and financial affairs. It cannot, however, be used to give people authority to make decisions about your health, welfare, or care.
People may use a general power of attorney if they are going abroad and need someone to manage their business or financial affairs whilst they are away – for example, accessing bank accounts, making payments, or signing contracts. They can also be used by an executor to delegate their powers in administering someone’s estate (often referred to as ‘probate’) to someone else for a period of up to 12 months. The key point to note about general powers of attorney is that they are best used for a specific purpose and for a limited amount of time.
They are not suitable for use as a long term way of getting someone to manage your affairs because a general power of attorney will automatically come to an end if you lose the mental capacity to make decisions for yourself, and that can leave you in considerable difficulty.
People who are said to have lost capacity, or lack capacity’ are unable to make decisions for themselves at that point in time. It is important to note that a loss of capacity can be either temporary or ongoing. The relevant definition is set out in Section 2(1) of the Mental Capacity Act 2005 which states:
‘a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.’
People can lose capacity for all manner of reasons. It could be due to an ongoing mental health issue such as dementia, or it could be due to a temporary illness or a brain injury.
As mentioned above, a general power of attorney will come to an end at the point you lose capacity. If your loss of capacity is ongoing or permanent then you could be left without the ability to make decisions or deal with matters for yourself, and you would be in a position where no one else could legally do so on your behalf without the intervention of the court. hen institutions such as banks discover that you lack capacity they will stop acting on your instructions, meaning you could lose the ability to deal with your own money or pay bills.
Once matters get to that stage, the court may have to become involved and someone would have to be appointed as a ‘deputy’, managing your affairs for you. Not only is deputyship a lengthy and complicated process, but the people who will make all the decisions for you are chosen by the court, not you.
So, how might you ensure that you retain control over your affairs, even if you lose the capacity to make decisions for yourself? This is where lasting powers of attorney can be invaluable.
Lasting powers of attorney
A lasting power of attorney, as the name suggests, lasts beyond the point you lose the mental capacity to deal with your affairs and so the person you appoint as your attorney can continue to act for you for as long as they are able. This is first of the two main differences between a lasting power of attorney and a general power of attorney.
The second difference is that a lasting power of attorney comes in two types:
(1) in relation to property and financial affairs; and
(2) in relation to health and welfare.
An attorney appointed under a general power can never deal with matters relating to health and welfare (e.g. medical care, where you live, what food you should eat, etc.). Only attorneys with lasting power can do so.
But what if you see the benefits of a lasting power of attorney but don’t want to give someone control over your affairs before you reach the point of losing capacity, or don’t want to give too much control to your attorney? A lasting power of attorney can in fact cater for this.
Firstly, a lasting power of attorney for your health and welfare only becomes effective at the point when you lack the capacity to deal with your affairs. Secondly, one for property and financial affairs can be written to include an express condition which means, again, that it will only becomes effective at the point that you lack capacity. If you were to regain capacity the power of attorney would be suspended and you would be able to continue to manage your affairs as normal.
Other conditions can be added to restrict what your attorneys can or cannot do, though it is important to seek the advice of an experienced solicitor because an overly restrictive power of attorney can be just as bad as not having one at all.
Lasting powers of attorney can provide many reassuring advantages when they are drafted by someone with experience, and by limiting them to periods when you lack capacity they need not be something you should be concerned about making.
Putting a bank account in joint names
Finally, a point on what not to do. Sometimes people are advised, wholly inappropriately, that they can get around having a lasting power of attorney by putting their bank accounts in joint names with someone much younger than them, perhaps their son or daughter. The thinking behind this is that should the older person lose capacity, perhaps through dementia, then the younger person can still access their money and pay bills, care home fees, draw their pension and so forth
The first and most important danger in this approach is that there are no safeguards to stop the younger person mishandling the older person’s money, whether dishonestly or not. The risk and implications of being left destitute do not bear thinking about. With a lasting power of attorney there are safeguards built-in which ensure the person you wish to appoint as your attorney acts in a responsible manner, and the Office of the Public Guardian and Court of Protection both have powers to stop abuse happening.
Secondly, should the bank become suspicious about the younger person constantly dealing with the older person’s money they could put a stop on the account, and if the older person has lost capacity at that point the account could be frozen permanently.
Finally, this approach does not take into account the need to deal with a whole host of other organisations (e.g. utility companies, the benefits agencies, the council, etc.) as well as non-financial issues (e.g. healthcare, social interaction, etc.).
Seek advice from an experienced lawyer who can explain the best way to tailor a lasting power of attorney to your circumstances whilst still giving your attorneys the freedom necessary to act in your best interests.