Building financial resilience and being prepared for the unexpected is often one of the key benefits of financial planning. For example, you may have an emergency fund so you can comfortably absorb surprise costs such as home repairs or replacing your car.
You might also have protection policies that could ensure your family are financially stable if you suddenly fall ill or pass away.
However, many people overlook one crucial document that could offer valuable protection in a difficult situation – a Lasting Power of Attorney (LPA).
An LPA names a trusted individual (or individuals) to manage your affairs if you are not mentally capable of doing so yourself.
You can create a health and welfare LPA to choose somebody to make decisions about medical care and overall health. A separate property and financial affairs LPA nominates an attorney to handle all your financial matters, giving them access to your bank accounts, investments, and pensions.
These can be the same person or you could choose a different person for each role. If you are injured, fall ill, or are otherwise unable to make decisions, your chosen attorney(s) manage your affairs on your behalf.
4 in 5 UK adults do not have a Lasting Power of Attorney in place
An LPA ensures that your finances are managed according to your wishes, and you have a trusted person making decisions about your health if you can’t make those decisions yourself.
Without one, your family may have to apply to the Court of Protection and choose somebody to appoint as a “deputy”, giving them the legal power to make decisions for you.
This could be a long and stressful process for your loved ones during an already difficult time. It might also mean that somebody that you wouldn’t have chosen yourself ends up handling your affairs.
Despite this, research from Canada Life in 2022 found that four in five UK adults did not have an LPA in place.
This could possibly be because they assume that they won’t need it until they are older and more likely to face serious health problems.
Yet, an LPA is crucial at every stage of your life and without one, you may be vulnerable. Read on to learn why.
You can only create a Lasting Power of Attorney while you have the “mental capacity”
The primary reason to create an LPA as soon as possible is that you might not be able to choose an attorney at all if you wait too long.
You can only create an LPA while you have the “mental capacity” to do so. This means you can correctly understand and communicate information and make decisions about your life.
If you are already ill or sustain a serious injury, you may no longer be considered mentally capable, meaning you can’t legally put an LPA in place.
That’s why it’s important to set one up before you need it.
You could fall ill or sustain an injury at any age
An LPA often comes into play after a dementia or Alzheimer’s diagnosis as you don’t have the capacity to make your own decisions. As such, many people assume that they won’t need an LPA while they are young and relatively healthy.
However, there are various illnesses that may affect you throughout your life and you could sustain a serious injury at any age. In this situation, an LPA provides valuable protection.
Additionally, an LPA also covers mental health issues. So, if you feel that poor mental health is causing you to make damaging decisions about your finances, a trusted attorney can take over for you and protect your wealth.
Ultimately, you can never tell when you might need an LPA, no matter how old you are, so it’s important that you don’t delay in creating one.
An attorney doesn’t just make decisions about your wealth
Some people, particularly the younger generation, may feel that they don’t need somebody to handle their finances because they have limited assets. But an attorney makes decisions about many other areas of your life too.
For example, a health and welfare attorney has the power to make decisions about the medical care you receive. They can also decide where you live, what social activities you engage in, and who sees you. If you are unable to stay in your own home, they can also arrange care for your pets.
A property and financial affairs attorney will pay your bills and they can even authorise necessary repairs to your home.
So, regardless of the assets you hold, an LPA is important because your attorneys manage various aspects of your life, not just your wealth. This limits the disruption caused by your illness or injury as much as possible.
The government is streamlining the Power of Attorney system
You may have neglected to create an LPA because of the admin involved. There is a different form for each type of LPA, and they can be quite time-consuming to fill in.
Additionally, any mistakes could slow the process down and, unfortunately, this is relatively common. Indeed, Which? reports that the Office of the Public Guardian (OPG) rejected nearly 30,000 LPA applications in 2022/23 due to errors.
The good news is that the Power of Attorney system is moving online and the government plans to streamline the process.
As a result, it should be easier than ever to put this valuable protection in place for you and your family. And if you still have difficulty, a financial planner can help you complete the application.
Get in touch
We are here to help if you need guidance about creating an LPA or managing other areas of your estate plan.
Please give us a call on 01276 855717 or email firstname.lastname@example.org today.
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning.
Approved by the Openwork Partnership on 30/01/2024