When the law changes it can mean that our clients need to make updates to existing arrangements in order to avoid unexpected challenges at times of need.
In 2007 Lasting Power of Attorney (LPA) arrangements replaced the Enduring Power of Attorney (EPA). Although at first glance these documents serve the same purpose, differences in how they work in practice mean that clients with EPAs may not be able to get all the support that they need or want.
In the case study below, Sue Nicolson, Associate Solicitor in our Crewkerne office, shares how she recently advised a client on how setting up a new LPA will allow him to continue to support his father.
Why a change in financial circumstances created an unexpected challenge for my client.
J, a client of mine, acts for his retired father E under an Enduring Power of Attorney (EPA), which was drawn up before the government replaced them with Lasting Powers of Attorney (LPAs).
Valid EPAs may still be used, but no new ones may now be taken out. J has used it successfully (though with considerable effort) to set up savings accounts where his father’s money earns better interest. An unintended side effect of this, and of the recent increases in interest rates, has been that his father will soon become liable for income tax, for the first time since retirement.
Aiming to reduce the tax liability, J started the process of opening a cash ISA in his father’s name. He then received an unpleasant surprise – HMRC guidance to ISA providers is that a Power of Attorney cannot be used to do this, unless it has first been registered with the Office of the Public Guardian. While an LPA cannot be used without being registered (the result being that most LPAs are registered as soon as they are signed), a suitably worded EPA is effective without registration. Indeed, J cannot register the EPA unless his father has lost capacity (which he has not), and doing so would stop his father from acting for himself. He is therefore unable to open the ISA.
How my advice helped
My advice to J was that he should speak with his father about setting up an LPA to replace the EPA. As well as being one way of overcoming the ISA issue, LPAs are more widely known and understood by financial institutions, so attorneys may find that applications and transactions proceed more smoothly. In addition, newer LPAs can be verified electronically by financial institutions, meaning you do not need to provide them with the original document (or certified copy). Furthermore, since they are registered up front, no action would need to be taken in the event of E losing his capacity, unlike an EPA. It is important to note that an attorney under an EPA loses their ability to act from the moment that capacity is lost until the date that the EPA has registered, which can take at least two months. LPAs are also more flexible where several attorneys are appointed to act jointly – for example, in identifying replacements to step in if the original attorneys are no longer able to act.
I reminded J that an LPA can also be drawn up to cover his father’s health and welfare matters, which was not possible with EPAs. He and his father are now discussing setting up both types of LPA, which of course must be completed while his father still has capacity.
J’s father was wise to set up his EPA at the time, and in replacing it with LPAs he will be safeguarding his own well-being and simplifying J’s role as his attorney.
Call our expert solicitors today
Powers of attorney are important documents, and they hand over a lot of control and responsibility to another person. It is important that you understand the nature, effect, and effectiveness of any power of attorney before starting to act.
Our expert solicitors can guide you through the process and help you to make appropriate and legally valid provisions.
For further information, please contact Sue Nicolson in the wills and probate team on 01460 279100 or email S.Nicolson@hklaw.uk. Humphries Kirk LLP has offices in Parkstone, Poole, Southbourne, Wareham, Swanage, Cranborne Chase, Crewkerne and Dorchester.
Enduring power of attorney (up to October 2007)
Before 2007, it was possible to create an ‘enduring power of attorney’ which related only to financial decisions. Any enduring powers of attorney that were made before 2007 remain valid and many are still in use today.
Lasting power of attorney (after October 2007)
Lasting powers of attorney were introduced in 2007 to allow people to appoint attorneys in respect of both their financial decisions and their healthcare decisions. Separate documents are required to appoint each type of attorney, although there is no obligation to make both types.