Everybody knows that it is important to have a will in place. Likewise, appointing someone to act on your behalf if you lose mental capacity is very important. As part of an estate planning “health check”, Hesketh Henry has always recommended that clients have in place enduring powers of attorney (“EPA”) appointing people – whether friends or family members – to act on their behalf in relation to property and in relation to personal care and welfare matters should they lose mental capacity.
Due to the misuse of enduring powers of attorney, particularly in relation to elderly people, Parliament has reviewed, and significantly amended, the legislation governing EPAs. In this article, we unravel the issues you should consider when appointing an EPA attorney.
EPA in relation to property
An EPA in relation to property enables an attorney to act on your behalf in relation to personal financial matters. It does not extend to any roles you may have as trustee of a trust or estate.
You can appoint one or more persons to act as attorney. You can direct that they act together or can act separately. You can, and we would recommend that you do, nominate a substitute attorney. In particular, if you appoint attorneys to act jointly, it is important to appoint a substitute, as should one be unable to act, the remaining attorney cannot act on his or her own.
You can specifically state the property matters that you wish your attorneys to act on and any limitations on the way in which they can deal with those assets. You may wish to consider appointing different attorneys to act in respect of different assets. Of course, if you make restrictions on the attorneys’ ability to act, it may mean that your personal finances may not be managed appropriately if you were to lose mental capacity.
Consultation and information requirements
The new EPA document specifically asks you to consider whether you wish to require your property attorney to consult with other people. For example, you may wish to ask your attorney to consult with your children about a large financial matter such as the sale of the family home. Alternately, you may wish the attorneys to consult with a trusted financial adviser.
You can require your attorney to provide information to specified persons if they ask for it or to provide information on a regular basis. For example you may wish your attorney to prepare financial accounts and provide those to your children or financial adviser.
However, be aware that if the requirements for consultation or disclosure are too onerous, an attorney may be impeded in acting proactively.
Signing of your will on your behalf
A significant change to the legislation is that now you may give your property attorney the power to sign a will on your behalf, provided that will is then approved by the Family Court.
Initially, you may think it unwise to have someone else determine how your assets will be managed on your death. However, if you were to lack mental capacity for a long period of time it may be necessary to update your will. It is more efficient to have an attorney do this and seek approval from the Family Court, than have to apply for a property manager to be appointed and for that person to then seek the approval of the Family Court for the proposed new will.
Power to benefit self and others
Previously, the legislation allowed for an attorney to make gifts or benefit other parties in certain circumstances as a matter of right. However, the new rules allow you to specifically prohibit any gift or benefit completely. The property EPA document can also allow specific benefit. For example, you may wish the attorney:
- to continue with your annual gifting programme to a trust;
- to charge for their services or to pay out of pocket expenses;
- to personally benefit; for example if you have appointed your spouse as attorney, you may wish him or her to be able to use your funds to maintain his or her lifestyle.
When the property EPA will take effect
A property EPA can take effect immediately or only take effect on you losing mental capacity. How the document is drafted will depend on your view. We find that often younger clients do not want the EPA property document to come into effect unless they have lost mental capacity, whereas older clients find it useful to have it ready to be used immediately if they fall ill or if there is some uncertainty as to whether mental capacity has actually been lost.
The changes in the legislation now make it clear that an attorney must consult as much as he or she can with the person who has granted the EPA. This provides greater protection for you.
You can also specify how and by whom mental capacity is to be decided. Generally, this will be by a medical professional, but you can specify that a psychiatrist must undertake this assessment.
EPA in relation to personal care and welfare
A personal care and welfare attorney is able to make decisions on your behalf in relation to medical treatment, care arrangements and other personal matters if you were to lose mental capacity.
You are only able to appoint one person to act, but can appoint a substitute attorney. The reason you can only appoint one person to act is to prevent a deadlock between attorneys when a decision in relation to welfare and care needs to be made.
You can specify that the EPA personal care and welfare can only act in relation to specific matters. However, as the EPA only comes into effect if you lose mental capacity, generally you would not want to limit the exercise of the EPA.
Consultation and information requirements
You can now require that your EPA attorney in relation to personal care and welfare must consult with other persons or to provide them with specific information. Ultimately, any decision will be that of the personal care and welfare attorney.
When the personal care and welfare EPA will take effect
A personal care and welfare attorney can only act on your behalf if you do not have mental capacity. This decision will be made by a medical practitioner. Again you can specifically state how mental capacity is to be assessed, as with an EPA property.
Independent legal advice
There is now a requirement that you must obtain independent legal advice before signing an EPA. This will mean that if we act for both you and your attorney, you may need to see a solicitor outside our firm to have the document signed. This may make the signing of attorney documents more expensive. However, we believe that EPAs are an important documents to have in place especially as clients grow older. If a client loses mental capacity without creating an EPA, application must be made to the Family Court for appointment of a welfare guardian and a property manager. This is a complicated and expensive process.