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As the country's population continues to age, and medical advances bring people's life expectancy ever-higher, most people are aware that they need to start planning early for old age. Recent coverage in the media has highlighted the importance of making pension arrangements and the need to make a Will and review it regularly. However, few people are aware of the need to consider making arrangements to cover what might happen if they are no longer able to manage their own affairs.

Enduring Powers of Attorney

Prior to 1 October 2007, such arrangements were made through creating an Enduring Power of Attorney (EPA), which was a simple form appointing a person or persons (the attorneys) to act on your (the donor's) behalf in relation to your financial affairs. The attorney could act on behalf of the donor, unless any restrictions in the EPA provided otherwise, whilst they still have mental capacity to manage their own financial affairs. In addition to this, if the donor lost their mental capacity after making the EPA the attorneys were under a duty to register the document with the Court of Protection, which would then enable them to act (or continue to act) under the terms of the EPA.

The Mental Capacity Act 2005 brought about an overhaul of this system, and since 1 October 2007 it has no longer been possible to create new EPAs. However, EPAs created prior to this date still remain valid.

Lasting Powers of Attorney

The new system created by the Mental Capacity Act 2005 has replaced EPAs with Lasting Powers of Attorney (LPAs). One of the major changes has been the introduction of two different types of LPA; one which covers the donor's property and affairs and one which covers the donor's personal welfare. The donor can choose whether they wish to make either or both types of LPA.

The property and affairs LPA can be used to appoint an attorney or attorneys to make decisions about finances, for example operating the donor's bank accounts, making investment decisions, signing tax returns and buying and selling property.

The personal welfare LPAs allow an attorney to make decisions about the donor's welfare and health, i.e. on issues such as where the donor will live and what care or medical treatment they should receive. The donor of the LPA can also authorise the attorney to give or refuse consent to life sustaining medical treatment. The attorney can only act under this personal welfare power if the donor has lost the mental capacity to make these decisions themselves.

The donor can appoint one or more attorneys, and if they wish can appoint the attorneys to act together for some decisions and together and independently for others. Different attorneys for the property and affairs LPA and the personal welfare LPA can be appointed and they can appoint replacement attorneys to take the place of the original attorneys should the need arise.

Both forms of LPA allow the donor to place restrictions, conditions and guidance on the attorney which can allow a donor to be much more specific in their instructions than under the EPA system. A donor should carefully consider the scope of the power given to his attorney, and should discuss this with the prospective attorney(s) and seek advice if needed.

The execution requirements are much more stringent than under the EPA system. In addition to obtaining the signatures of the donor and the attorneys, a certificate of capacity must also be completed by an independent third party at the time of making the LPA. The donor must choose either two certificate providers; one person who has known the donor personally for at least two years and one who has the relevant skills to certify the LPA (such as a doctor or a solicitor); or must choose one certificate provider and name between one and five people who should be notified of the registration of the LPA. The certificate provider must confirm that they are of the opinion that the donor understands the purpose and scope of the power and that there is no reason why the document should not be valid.

The LPA system is therefore much more complex, and the creation of the powers is much more time consuming and costly than under the EPA system. While the EPA was much liked for its simplicity, it did have certain limitations that could render it invalid, especially in the case of attorneys being appointed jointly with the subsequent death of one attorney, this meant the EPA could no longer be used. This has been addressed by the LPA by allowing for a replacement attorney to be appointed if one of the attorneys is no longer able to act.

At the same time, to validate an LPA it must be registered with the Court immediately regardless of the donor's mental capacity. From the date that a property and affairs LPA is registered with the Court, the attorney has the authority to act in accordance with the terms of the LPA, and are under a strict duty to act in the donor's best interests and must have regard to the code of practice which has been produced to support the legal framework of the Mental Capacity Act. The same applies to a Personal Welfare LPA except that (as mentioned above) the attorney can only act once the donor has lost mental capacity. The role of an attorney appointed under an LPA is therefore much more onerous than that of an attorney appointed under an EPA.

It is therefore vital that anybody looking to create an LPA, in either form, seek expert legal advice before doing so. While many people might consider the task of creating an LPA too time consuming and expensive, it would be wise to think seriously about the security the power might provide you with. Unfortunately, there are very few alternatives. Indeed, if you lose your mental capacity and do not have an EPA or an LPA in place, an application to the Court will need to be made on your behalf for someone to be appointed as your deputy. This is a much longer process, the person appointed might not be your first choice, and whoever is appointed will have to comply with extensive reporting obligations to the court on an ongoing basis which makes the whole process much more time consuming and costly.

For more information on Powers of Attorney, please contact the private client practice on 01753 279031 or email privateclient@bpcollins.co.uk.