You’ve got the power: What should you think about when managing a loved one’s finances?
Medical advances mean that we’re living longer. That’s the good news. The bad news is that for some of us, our bodies will survive our minds.
And it’s for this reason that we are seeing more Lasting Power of Attorneys (LPAs) and deputyships in force. These are legal documents that give someone else – usually a family member or a close friend – responsibility over a person’s finances if they no longer have the mental capacity to manage their money themselves.
While, a deputyship is granted when an individual has already lost mental capacity, an attorney can be appointed by the donor when they were of sound mind.
They can be responsible for all aspects of someone’s financial well-being, including life savings and property, so this isn’t a decision which should be taken lightly.
If you hold strong objections to their wishes, you should reconsider whether you are in a good position to act as an attorney
While most people who are appointed will have the donor’s best interests at heart, unfortunately there are some who don’t.
Figures obtained by Royal London under Freedom of Information rules show that the number of investigations into the actions of attorneys and deputies has gone up by approximately 45 per cent over the past year. That’s 1,647 investigations into attorneys, and 82 investigations into deputies in the 2017/18 tax year alone.
Of course, part of the growth in the number of investigations will be a direct result of there being more LPAs in force.
But Royal London’s personal finance specialist, Helen Morrissey, points out that there are more people acting as attorneys who have no real experience, and end up crossing lines – either deliberately or inadvertently.
She highlights one recent case in which a son-in-law had been appointed as an elderly woman’s attorney. He gifted £324,000 to his wife (the daughter of the elderly woman), claiming that this gift was for inheritance tax purposes. But given that the donor only had total assets of around £1m, the judge ruled that the gift amount was too large, and ordered the daughter to restore some of the money.
The son-in-law was also stripped of his position as attorney, and a deputy was appointed instead.
To prevent cases like this and help well-meaning people execute their responsibilities properly, Royal London has issued a paper with some tips for attorneys.
Know what you’re taking on
Agreeing to be an attorney means you have an integral part to play in protecting the wellbeing of loved ones. It’s a selfless thing to do, but it’s also a heavy weight to bear.
Morrissey warns that the responsibilities are complex, meaning it’s important to understand what you are taking on. “Decisions must be made in the donor’s best interest, and you should consider how they have conducted themselves in the past, and make decisions in keeping with what their wishes would be.”
You should ask the donor to put instructions in place to guide you. And based on these directions, ask yourself whether you agree with the donor’s views on how they would like their medical care carried out, or what happens to them on death.
As Morrissey points out: “if you hold strong objections to their wishes, you should reconsider whether you are in a good position to act as an attorney.”
Keep everyone in the loop
It might sound obvious, but it’s important to make sure that the family, friends, carers, and advisers of the donor are all aware that you are planning to act as an attorney before going ahead with the paperwork.
Having a frank conversation gives everyone the chance to understand what this means for them, and it could prevent issues from flaring up later down the line.
As well as giving family and friends an opportunity to ask any questions, Morrissey points out that it will make it easier to carry out your duties. Make sure you also notify local authorities and financial institutions of your role, which will clear the decks for them to deal with you later down the line.
Have records of everything
Safeguards for deputyships are more stringent; while deputies must submit an annual report to the Office of the Public Guardian outlining any decisions made with the donor’s money, the rules aren’t so clear-cut for LPAs.
Regardless, Royal London recommends that attorneys should keep detailed records of any financial decisions they make on behalf of a donor, and the rationale behind them, just in case they are challenged on them at a later date. “It is best to start keeping a record of any transactions you have made as soon as possible, and if you have consulted anyone or taken regulated financial advice regarding these,” says Morrissey.
Given that it can take time and money to request a new certified power of attorney document, the personal finance expert also says it’s a good idea to have several copies to use when needed.
Eggs in two baskets
When managing the finances of a donor, you must keep their money separate from your own.
In fact, confusion around gifting is where a lot of the issues around LPAs arise – as we saw with the case study earlier. This is partly because there’s a grey area around what constitutes a “reasonable” gift.
While gifting money from someone else’s estate is largely a no-go area, there are exceptions. These include gifts for customary occasions like weddings, helping someone financially who the donor has previously supported or who is related, and looking at the size of the person’s estate to determine whether the gift is of a “reasonable value”.
“Care must also be taken to think about what the donor’s future needs are likely to be and whether the gift might also have an effect,” says Morrissey, pointing out that you should consider, for example, whether the donor might need to go into residential care in the future.
While there has been some criticism that LPAs do not have more safeguards in place to protect against those who overstep the mark, it’s not just down to the regulator to make sure individuals are taking this responsibility seriously.
Even if you unintentionally act outside of the rules, mistakes can have a devastating impact on family relationships. And with the number of LPAs on the rise as the population ages, many more of us will be expected to understand the rules going forward.