As the average age of the UK population increases, we become exposed to a greater risk of developing degenerative mental conditions such as dementia or Alzheimer’s which can severely impair the way we make decisions.

While it can be daunting to consider this, it is wise to consider what would happen to your wealth if you lost your mental capacity. Have you put any measures in place to ensure your finances will be taken care of?

Planning for the unexpected by creating a Lasting Power of Attorney (LPA) could be invaluable in preparation for the later stages in life. An LPA is a legal document that allows one person (the donor) to nominate another (the attorney) who they trust to make decisions on his or her behalf, should the donor lose their capacity to make viable choices.

Lasting Power of Attorneys replaced the previous system of Enduring Power of Attorney (EPA) after being introduced in October 2007. All EPAs created before October 2007 still remain valid. An LPA is designed to protect and support individuals who lack mental capacity, determining who can make decisions on their behalf and the principles that must be followed when making decisions.

The majority of LPAs are made in connection with property and affairs. The Mental Capacity act (2005) introduced two types of Lasting Power of Attorney:

1. Health and welfare – which can be used only when the donor lacks capacity. This includes:
• where the donor should live
• day-to-day care (including diet and dress), and
• whether to give or refuse consent to medical treatment.

2. Property and financial affairs – which may also be used while the donor has capacity. 
This includes:
• the buying and selling of property
• operating a bank account
• dealing with tax affairs, and
• claiming benefits.

Setting up an LPA 

It is worthy to note that attorneys can have restrictions applied to limit their scope as individual attorneys to reduce the risk of financial abuse.

A donor can choose to appoint family members as their attorney and/or someone independent to avoid a conflict of interest. Where there is more than one attorney, the donor must decide how they will act when making decisions, either jointly - where the decisions must be agreed upon together; jointly and severally – where decisions can be made by attorneys jointly or independently of one another; or a mixture of the two.

If there is no LPA, an application needs to be made to the Court of Protection to appoint a deputy. This then means any choice needed becomes that of the court and not of the individual, and there is an effort and expense involved often at a time of great stress. The powers given to any deputy without the need to refer back to the court of protection are also very limited.

While for many people an LPA is just a precaution when planning for old age and is never used, having an LPA in place is an important part of an overall financial planning strategy and they are best made in advance of possible use rather than at a time of vulnerability and emotional pressure.

An LPA is a powerful and important document, which should be considered in every individuals financial planning. The crucial thing is to set up a LPA while you are still mentally capable, to avoid any emotional distress for your family.