Hello, my name is Jade Smith and I am a Business Relationship Manager at Equilaw. Today, I am joined by Malcolm Emery of Legal Studio Solicitors who specialises in private client matters including Lasting Powers of Attorney
In today’s podcast Malcolm is going to explain the different types of Lasting Powers of Attorneys that can be put in place and the importance of doing this if you are releasing equity from your property. I will refer to Lasting Powers of Attorneys as LPA’s
Q – Malcolm, first question could you please explain the different types of LPAs that are available.
A – Yes, of course, there are two different types of LPAs available. The first is known as a property and affairs LPA which allows decisions to be made about your financial affairs. This may include doing simple tasks such as paying bills to dealing with more complex issues like arranging an equity release mortgage or selling property.
The other type of LPA is known as a Health & Welfare LPA and this document allows decisions to be made about your health and welfare. Decisions relating to your health could include making medical appointments and discussing ongoing treatments with the GP, whilst welfare decisions may involve where you should live if you are unable to stay at home.
The individual putting the LPA in place is known as the Donor and the individuals they appoint to represent them are known as attorneys.
Q – Great, so I am guessing that the property and affairs LPA is the important one as far as an equity release is concerned?
A – Yes, that is correct because the decision on whether to take out an equity release is a financial one.
Q – I understand that most LPAs put in place by married couples will appoint the spouse as one of the attorneys. Are there any issues with this if a client wishes to release equity?
A – Yes, problems can arise if the spouse is also a co-owner of the property, and they are appointed as sole attorney or jointly with others. This is because it is not possible for the spouse to sign the mortgage deed as both co-owner and the attorney in these circumstances. For the equity release to proceed the co-owner can act as the attorney but they would need to appoint someone to sign the paperwork on their behalf as the co-owner of the property.
Therefore, if a client is thinking about putting an LPA in place and their spouse is also a co-owner of the property it would be safer to appoint the spouse with someone else to act as attorneys on a joint and several basis.
Q – Thank you Malcolm, with this in mind, are there restrictions on the number of attorneys that the Donor can appoint?
A – No, a donor can appoint as many attorneys as they wish although for practical reasons it is probably best to aim for between two to four attorneys.
Attorneys can be appointed on a joint basis which means that all of the attorneys must act together. The advantage of appointing attorneys on a joint basis is that it will reduce the risk of the LPA being misused although the downside is that if one of the joint attorneys is unable to act (i.e. because of death or incapacity) then the other attorney(s) are unable to continue to act.
Another option is to appoint attorneys on a joint and several basis which means that the attorneys have the choice to act together or alone. As the attorneys can act on their own it does not matter if one of the attorneys is unable to act. The remaining attorneys can continue to act.
It is also possible to appoint attorneys jointly for some decisions and jointly and severally for others, but it is important that the LPA is very clear on this.
For example, the Donor may decide that the attorneys must act jointly in relation to the potential sale of the family home, but all other decisions can be made on a joint and several basis.
It is also possible to appoint replacement attorneys to act when the originals are unable to do so. The LPA should make it clear when the replacement attorneys’ appointment will start.
For example, let’s assume that the there are three original attorneys appointed on a joint and several basis and two replacement attorney who are also appointed on a joint and several basis. If one of the original attorneys is unable to act do all the replacement attorney step in at this point or perhaps only one of them does. The LPA must be very clear on when the replacement attorneys will start to act.
Q-Thank you, so what if the Donor is worried about the attorneys making decisions that they may not be happy with. Is there anything the Donor can do to control the decisions his or her attorneys may make in the future?
A – The golden rule for any attorney is that any decision they make must be in the Donor’s best interests. However, it is possible to include what are known as preferences and instructions on the LPA itself. The main difference between the two is that a preference is not legally binding on an attorney whilst an instruction is. So, for example, an instruction might be that before selling the Donor’s property the attorneys must obtain a current market value of the property from a chartered surveyor.
The problem with the inclusion of instructions on the LPA is that they may become outdated by the time the LPA is used. They are a little bit like having a tattoo. Once they are on there, they are on for life. The only way a Donor can remove an instruction is by cancelling the LPA and starting again.
An alternative to including instructions on the LPA itself is to set them out in a separate document known as a statement of wishes. Although a statement of wishes is not legally binding on the attorney it does offer the Donor the advantage of being able to update it on a regular basis.
Q – Great, thank you for explaining Malcolm, can an LPA be used as soon as it has been signed?
No, an LPA must be sent off to the Office of the Public Guardian for registration first. The registration process takes between 8 to 12 weeks to complete. Once the LPA has been registered with the Office of the Public Guardian it will be returned the original LPA to the solicitor who prepared it if they prepared it.
Q – From speaking to our financial advisers, the concern a lot of their clients have about putting an LPA in place is that they will lose control over their affairs. Is this correct Malcom?
A – Attorneys can only use a Health & Welfare LPA if the individual has lost capacity. The position is different in relation to a Property & Affairs LPA. When the document is prepared the individual will be asked to choose when the attorneys can use the document. Attorneys can use it as soon as it is registered with the OPG which is useful if the individual is able to make their own decisions but there is another reason why they may want attorneys to help. For example, whilst on holiday or the individual may have a physical condition that makes it difficult to sign a document or speak to someone on the telephone.
In a situation where a client only has a Property & Affairs LPA Equilaw will still need their client to sign their mortgage contract. If the client wishes for Equilaw to interact with their attorney, the client would need to sign a third party authority form that confirms they are not gifting this party any funds, they are over the age of 18 and are a family member.
In a situation where a client has lost mental capacity, Equilaw can proceed with a Property & Affairs LPA. However, before Equilaw can take instructions from the attorney they will require a written opinion from the client’s GP or medical consultant that they no longer have the capacity to make their own decisions.
Q – Thank you Malcolm, if a client is in the process of releasing equity from their property are there any future possible consequences of not having an LPA in place.
A – Yes, if the equity release has a drawdown facility and the client loses capacity it will not be possible to release additional funds under the mortgage if they have not put a property & affairs LPA in place. In this situation the clients’ financial affairs will be frozen, and it will be necessary for a family member to apply to the Court of Protection to be appointed as a deputy. A deputy is like an attorney and once the application is approved the Court will issue an order to the deputies setting out what they can and can’t do. Therefore, in the initial application to the Court it should be made clear that the deputy needs permission to drawdown additional funds under the equity release.
Q – Just one final question before we finish. I have come across a document called an enduring power of attorney. Could you please explain to the listeners what an EPA is please?
A – The EPA was the predecessor to the property and affairs LPA until 30 September 2007. However, if the EPA was executed correctly on or before this date it is still valid and can be used. If the Donor has lost capacity it must be registered with the Office of the Public Guardian before it can be used by the attorneys.
Thank you so much Malcolm, the information shared today will really help financial advisers understand the types of LPA’s and the importance of them when clients are releasing equity.
Thank you for everyone listening, we have more specialist podcasts in our series with Malcolm all available to download and listen to today.
