If you have a family here's why you need a lasting power of attorney - whatever your age

Setting up a lasting power of attorney (LPA) gives you control over who can manage your finances if you can no longer do so.   

Research from the investment and retirement services provider Canada Life suggests that 78 per cent of people aged 40 and up haven't arranged a power of attorney.

This means there are potentially millions of adults that don't have appropriate plans in place for if they became unable to make decisions relating to health and financial affairs.

Planning for later life involves thinking about topics that most of us would rather push to the back of our minds.

But it's important that we do consider them, so our loved ones aren't overwhelmed if they have to deal with practicalities such as managing our money.

An LPA is a document that gives someone you trust – called your attorney – the ability to make decisions for you if you can no longer do so, for example because of an accident or illness.

While you can set up a power of attorney for someone to make decisions relating to your health and care, in this guide we'll discuss the LPA for property and financial affairs.

What is a lasting power of attorney – and why is it important?

The unfortunate reality is that if you become too ill or injured to make decisions for yourself and you don't have an LPA set up, it's already too late.

Close relatives or trusted friends can't legally take control of your finances without a court order in place.

Importantly, not even a spouse or long-term partner has the automatic legal power to manage someone's affairs – something that can catch many couples out.

With no LPA in place, family members must apply for a Court of Protection order instead. This is more burdensome, time-consuming and costly, with the decision about who can manage your affairs ultimately resting with the court.

If you want more flexibility and control over who can take over your financial affairs, it’s best to plan ahead by setting up an LPA.

A financial adviser can help you set up an LPA. You can find a local financial adviser in your area with Unbiased*, a platform which matches you with an appropriate professional.

What countries does this information apply to?

We’ve written this guide for people making an LPA in England and Wales. There’s a different system in place in Scotland and Northern Ireland, so the information doesn’t apply if you live there.

You can read more about the separate rules at Mygov.scot and NI Direct respectively.

The differences between an LPA and a Court of Protection order

Do you need an LPA if you're young?

You might not consider setting up an LPA until later life, when you've perhaps had health concerns or are just thinking about how your family can manage your affairs smoothly.

For younger people it's reasonable that other concerns are front of mind, such as paying off a mortgage or building up a pension, perhaps using a self-invested personal pension (Sipp).

Unfortunately, unexpected events happen throughout life. Many people are comfortable with buying life insurance to protect their family against these scenarios.

You can view setting up an LPA as another way to protect them. It shields them from onerous administration and costs in the event of you being unable to manage your finances.

It also gives you more flexibility because you can set instructions and preferences on how they manage your money.

The £92 registration fee sounds high, but the application fee for a Court of Protection order is four times higher.

> Read more: Have you got a will? How to get one written for free this month 

What’s the difference between an ordinary power of attorney and an LPA?

An LPA is exactly that – it gives your attorney the ability to look after your affairs for a long period.

You can also make an ordinary or limited power of attorney, which only gives someone power to deal with certain issues or to deal with your affairs for a fixed time.

If you want an ordinary power of attorney, it’s a good idea to speak to an adviser who can help you with the wording. It’s important it’s drawn up with care so that your attorney knows exactly what powers you’re giving them.

Key tip: You shouldn’t use an ordinary power of attorney if you have a physical or mental health issue that could lead to you becoming mentally incapacitated. 

If this happens and you just have an ordinary one set up, it will be revoked – you should make an LPA instead.

What can an attorney do under an LPA?

Your property and financial affairs attorney will be able to take on tasks like:

• managing your current account and savings accounts 
• looking after your tax affairs and dealing with HMRC
• buying and selling property
• looking after your investments
• dealing with your pensions

While they can manage your money, there are rules that govern what they can and can’t do.

For example, your attorney must keep your money separate from their own. This usually means opening a different account so that the funds aren’t mixed up.

They must act with your best interests in mind. Practically, this means considering your wishes, and factoring in your beliefs and values.

You can also set instructions and preferences when you make an LPA, which the attorney needs to follow.

Instructions are legally binding, and the attorney can’t override them. Meanwhile, preferences aren’t legally binding – your attorney can override them if it’s in your best interests.

An example of an instruction could relate to investments – for example your attorney must engage a financial adviser before making an investment of more than £5,000.

An example of a preference could relate to day-to-day management of your accounts – for example you’d prefer to maximise your Isa allowance each year.

> Read more: How to choose the right stocks and shares Isa

How to set up a lasting power of attorney 

Setting up an LPA involves choosing your attorney (or attorneys). 

Then you must make the LPA online using the gov.uk website. You’ll need to create an account and pay the £92 application fee.

But an LPA isn’t valid until it’s actually registered – to do this you need to print out the forms so the people mentioned on the LPA can sign and witness them.

Then you have to send it to the Office of the Public Guardian (OPG). It’s best to do this as soon as possible after you make the LPA, because this gives the OPG the chance to spot mistakes while they can still be changed.

For instance, if you have made an LPA but not registered it and then lose mental capacity, the LPA can only be registered if there are no mistakes.

Key tips on setting up an LPA:

• Pay attention to the order in which the forms need to be signed. If you and your attorney don’t do this in the right way, you’ll have to sign them again – this could lead to having to pay the application fee again too.
• If you make a mistake when signing the forms, you're not allowed to cover it with tippex. You’ll need to cross it out and amend it as close to the original section as possible – and importantly, get everyone to initial each change.
• You need to use a black or a blue pen across the whole document and pencil isn’t allowed – and keep in mind the OPG prefers black ink.