One of my definitions of real love is leaving your affairs tidy. As we age this is something we alone can do. It isn’t something we can delegate.
I am surprised but quite a number of people seem not to know the difference between a will and a financial decisions lasting power of attorney.
A will speaks from death and is the document detailing
(i) who is to bring your financial affairs to a tidy end; and
(ii) who is to inherit whatever remains. A will has no application in your lifetime. In contrast a financial decisions lasting power of attorney only applies in lifetime and has no relevance on death.
So long as you have mental capacity, writing a financial decisions lasting power is the ‘easy’ mechanism to appoint named others to administer your financial affairs should you cease to have capacity.
Should you lose capacity and not have a financial decisions lasting power in place, before anyone can access your funds or manage your assets they need to apply to the Court of Protection to be appointed your Deputy. In every single way I can imagine this is a process best avoided. No one will thank you for not having written a financial decisions lasting power.
Within the lasting power document you can specify if you have financial ‘preferences’ for your attorney(s) to follow (e.g. ‘I prefer to invest in ethical funds’) or if you have ‘instructions’ they must follow. In its guidance the Office of the Public Guardian says ‘The only circumstance in which you must write an instruction is in a finance lasting power if (i) you have investments managed by a bank and want that to continue; [and] (ii) you want to allow your attorneys to let a bank manage your investments.’
Many of us have funds managed on our behalf by a discretionary manager. Should we lose capacity, if we want our funds to remain managed by that manager, our financial decisions lasting power has to authorise it as an instruction e.g. ‘My attorney(s) may transfer my investments into a discretionary management scheme. Or, if I already had investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue. I understand in both cases that managers of the scheme will make investment decisions and my investments will be held in their names or the names of their nominees.’
Attorneys must be careful when making gifts pursuant to the lasting power. There are strict limits on the kinds of gifts that attorneys can give on behalf of the person who has lost capacity (‘the donor’). They can only give presents on ‘customary occasions’ which are defined to include weddings, birthdays and religious holidays. Gifts should be reasonable in size and take into account how much money the donor has. The Office of the Public Guardian guidance says ‘Your attorneys must apply to the Court of Protection if they want to make gifts … on your behalf like the payment of school fees for grandchildren or the making of interest free loans to family’. This is the case even if such payments or loans were a regular occurrence when the donor had capacity.
In a 2018 case, the Court of Protection considered the issues it would take into account when considering if to authorise a gift by the donor to minimise Inheritance Tax (‘IHT’) on her death. The donor was 72, a widow, her assets were circa £17m and her attorneys wanted to give away £7m in the hope she would survive 7 years (or at least 3 years) and thereby save IHT of up to £2.8m. There was no question that £10m was more than amply sufficient to meet her needs.
In reaching its decision the court had reference to the donor’s attitude and generosity in lifetime to making gifts and her known views on tax mitigation.
The conclusion I take from the case is that if the donor might want their financial decisions attorney(s) to make gifts on their behalf, they should leave evidence with their finance lasting power as to their attitude and approach to lifetime giving and tax mitigation so the Court of Protection knows their views when it is asked to consider the matter.
There is a second lasting power dealing with the donor’s health and care should the donor cease to have capacity. Should, for example, the donor have a preference to die at home in their bed; their place to say this is in the preferences section of their health and care lasting power. In this situation there is a read across to their financial decisions lasting power in that they might want to say in the preferences section of that document if needs be their attorneys should fund their elder care by equity release. In essence in a semi coded way saying to children who are appointed to act as their attorney(s) ‘please be generous to me with my money.’
You can write lasting powers without seeking help from a knowledgeable specialist. Frequently there are complexities that I think warrant involving an expert. If I might be able to help, please get in touch.
ROBERT SCHON PLANNING AND TAX ADVICE 