A recent study by the Solicitors for the Elderly (SFE) in the UK reported that 86% of people want their family or closest friends to make decisions on their behalf if an illness or accident leaves them incapacitated.
And given that there are at least six legal options for ensuring this happens, known as Lasting Power of Attorney/LPA (or POA), it would be logical to assume that these documents would be familiar to anyone putting an estate plan in place.
Yet only 12% of these same people have some form of Lasting Power of Attorney/LPA in place to ensure that their wishes become reality.
We get it. Legal documents can be very confusing at the best of times and deciding on the best type of Lasting Power of Attorney/LPA can be utterly challenging. But we’re here to tell you that it doesn’t have to be. Understanding the Lasting Power of Attorney/LPA can and should be easy so that you can make the right choices for you and your family.
Once you understand what a Lasting Power of Attorney/LPA is, how it works to protect you and your loved ones, and what type is right for you, the rest of the POA process can be easy and stress-free to complete.
Lasting Power of Attorney/LPA: An Overview
One of the key pieces in any estate planning is a Lasting Power of Attorney/LPA, which is a legal document used to appoint what is called an agent (a person, lawyer, or even bank) to manage your affairs in case of sickness, accident, or lengthy absence when important decisions might need to be made (a world yacht tour, for instance).
There is often some confusion about the relationship between a POA and your Will (another important estate planning document). Put simply, your POA does not and cannot replace a legal Will as an expression of your wishes.
In fact, a POA ends (loses its power) the moment you pass away. After this point, your Will takes over as the primary document, empowering your named Executor to replace your named agent as the most important person in managing your estate.
So, the best advice is to make sure that your POA is completed properly (including signing and witnessing), registered in accordance with UK regulations, and that you have named a successor agent (the next person in line) in case of an unforeseen accident.
In order to apply for any type of POA there are a few government requirements you need to meet:
- You must be 18 years of age or older
- You must be of sound mind, which means that you have the mental capacity and be in the condition to make your own decisions.
POA fact: you do not need to live in the UK or be a British citizen to make a POA.
Types of Lasting Power of Attorney/LPA
There are various types of a POA, each designed with a specific purpose, so choosing the right one for your needs is an important decision that you need to make. Here is a quick guide to the six most commonly used types of Lasting Power of Attorney/LPA in the UK:
- General Lasting Power of Attorney/LPA
The General Lasting Power of Attorney/LPA is also known as an ordinary Lasting Power of Attorney/LPA provides your agent with a wide range of control over your financial, business, and legal decisions. Unless specified in the POA, these powers include the freedom to:
- Manage your bank accounts, including making withdrawals and pay bills
- Buy and sell property on your behalf
- Enter into contracts or other forms of legal agreements.
The general Lasting Power of Attorney/LPA is suited to use for a specific period of time or planned period of absence (as in a period working or travelling out of the country).
- Durable Lasting Power of Attorney/LPA (DPOA)
DPOA becomes effective the moment you sign it unless you specify otherwise in the document itself. This is different from springing or special POAs, for instance, which are triggered on a certain date or by a specific event.
Most importantly, a DPOA gives your agent the power to manage your affairs even if you become incapacitated at any point in your life. Being incapacitated usually terminates an ordinary POA.
Do know that most of the types of POA discussed here can be made durable by adding a clause stating your intention to do so. This is known as creating an enduring Lasting Power of Attorney/LPA (EPA) or lifetime Lasting Power of Attorney/LPA.
- Special or Limited Lasting Power of Attorney/LPA (LPA)
Limited Lasting Power of Attorney/LPA (LPA) is the opposite of general POA. It gives your agent a power to act but only for very specific reasons or purposes.
A limited POA might let your agent pay your bills, for instance, but not withdraw cash from your bank account. The power of the POA expires on a set date (when you return from your trip) or once the specific purpose for the POA has been completed (the sale of your house). One option is to have a few limited POAs in place to manage different elements of your estate. This is also sometimes called a special Lasting Power of Attorney/LPA.
- Springing Durable Lasting Power of Attorney/LPA
The Springing Durable Lasting Power of Attorney/LPA goes into effect only if a certain event or medical condition (usually one that is incapacitating) occurs.
This POA is best suited if your life might be suddenly disrupted by a work transfer to another country or puts you at more risk than usual for a serious injury.
When considering this type of POA, be sure to include a very detailed and clear definition of incapacity (late-stage cancer, for instance) to avoid confusion that can result in a costly court challenge. This is sometimes also called a conditional Lasting Power of Attorney/LPA.
- Medical Lasting Power of Attorney/LPA
The Medical Lasting Power of Attorney/LPA gives your agent the power to make decisions about your medical treatments (including surgery) and health care (including the release of medical records) and is usually triggered when you are incapacitated in some way. This is sometimes also called a health care POA (HCPA) or an advanced directive.
- Joint Lasting Power of Attorney/LPA
The Joint Lasting Power of Attorney/LPA means that you name two agents, who will have to agree on all decisions concerning the powers specified in the POA.
Although it might be tempting to name two agents (both children are the most common) through a joint Lasting Power of Attorney/LPA, always be sure to consider the risks associated with this type of document.
What happens, for instance, if no agreement can be reached by your agents? Or if there are challenges to having both in one place (a bank) at the same time to sign an important document?
Choosing from the various types of Lasting Power of Attorney/LPA in the UK can be a bit confusing. My Estate Planning provides a free Lasting Power of Attorney/LPA form to help you put together a detailed list of your needs and to match those needs to the best type of POA that will suit your lifestyle and respect your decisions.
Always remember that regardless of the type of POA you choose, the agent you’ll choose has limited power to what is specified in the POA itself, so take your time and never be afraid to seek out the best advice possible as you plan your document.
What is the cost of a Lasting Power of Attorney/LPA?
Every application has a standard application fee attached (£82) with an additional cost (£82 each) if you decide to register both the health and finance LPA. Advisor costs can range from £250 to more than £500 so it is always best to do your research before making your final choice.
Why do you need a Lasting Power of Attorney/LPA?
The short answer is because you’ll never know what will happen to your life. Accidents or medical emergencies are unexpected events and a POA (or series of LPAs) is the best way to protect yourself and your family from the burden and potential costs that come from making costly decisions in times of crisis. A legal and binding POA is an important part of estate planning for anyone at any point in their life. It is always good advice to build a POA early in life and revise it as necessary when your life or financial situation changes.
Without a POA, your family might not be able to gain access or manage your financial assets (your accounts can be frozen) and make decisions about your medical care especially without getting an authorized and legal form in place.
By taking time now to create a POA, you make sure that your loved ones are cared for even if you are not capable of doing it yourself.
My Estate planning does not have to be complicated or confusing, especially when it comes to choosing the right Lasting Power of Attorney/LPA.
My Estate Planning encourages you to get all the facts that you need before making your decision, so never hesitate to contact us if you still have questions about how a Lasting Power of Attorney/LPA can work for you and your family.
And when you are ready to complete your Lasting Power of Attorney/LPA, we are always here to help build a plan that will ensure your wishes become reality.
Contact My Estate Planning anytime to speak with one of our POA experts or to make use of one of our free templates as part of your planning process.