By Alan Morahan, Managing Director, Employee Benefits Consulting, Punter Southall Aspire
Those following the news lately may have heard about the predicament Kate Garraway faced after her husband was hospitalised in March 2020. Having contracted COVID-19, Kate’s husband Derek showed serious symptoms and was placed into a medically-induced coma to stabilise his condition. Thankfully, he was rid of the virus by the summer, but sadly his vital organs remained severely damaged.
In late November, moreover, Kate also revealed that the family was facing huge financial problems as a result of Derek’s coma. Many insurance documents and bank accounts were in his name, with Kate unable to act on his behalf to access/amend these in the best interests of the family – even though she was married to him.
This kind of situation is all too common in the UK, and it often stems from a lack of will planning and power of attorney. Below, we outline how these work together to help see households through times of financial difficulty when tragedy strikes.
Although the subject is unpleasant, please use the story above as a reminder that life is full of unexpected events and it is important to prepare for horrible times, even as we hope for the best.
The importance of power of attorney
Power of attorney (POA) is a legal document giving someone else your permission to act on your behalf, should you be unable – or unwilling – to later take key decisions for yourself. The types of scenarios that can trigger this are numerous including incapacity (e.g. in the case of Kate Garraway’s husband above). The onset of mental conditions such as dementia can also lead to a loss of capacity in old age. In this case, having POA established early is especially key since the likes of Alzheimer’s are often not detected and treated until late into the onset of the condition – making it harder to set up the POA needed to help look after the individual and manage their estate. Sometimes, an individual simply wants to give up their decision-making power to a trusted loved one, rather than deal with the complexities themselves. In any case, having POA is very useful and important.
For many families, setting up POA can be the most important estate planning decision they ever take. Suppose you live in a household with one breadwinner, a homemaker and 3 dependent children. The family’s finances depend completely on the first person. What happens if he/she suddenly gets into an accident, leading to a long coma? Without power of attorney, assets in their name are locked up – including savings, investments, and pensions. Bills may go unpaid as the family desperately goes through an arduous process to access the money needed to keep everything afloat. POA, in other words, is not just for the elderly who are looking to tie up any loose ends with their estate. It is an important consideration for anyone with financial affairs that may affect others.
Types of power of attorney
There are different types of POA – property and financial affairs, and health and welfare. The type you need depends on your financial goals and situation. The first gives your attorney (your legally designated representative – but not necessarily a lawyer themselves) power to make decisions on your behalf about money and property such as paying bills, collecting a pension and even selling your home. The second gives them permission to decide upon your medical care, daily routine (e.g., dressing and washing) and moving into a residential care home.
Regardless of the policy, these types of Lasting Power of Attorney (LPA) can only be activated once it has been determined that you can no longer make independent decisions. There is one other category of POA widely in use in 2021, which is called Ordinary Power of Attorney. This policy will expire if you lose mental capacity, so is not useful if you are looking to preempt many medical conditions (e.g., Alzheimer’s). However, it can be a useful option if you want someone else to make decisions for you temporarily – such as during a long season spent living abroad, or whilst you are recovering from a serious injury.
Establishing power of attorney
The case of Kate Garraway might lead readers to ask: “What would be best in a case like this? Should I have both Lasting Power of Attorney and Ordinary Power of Attorney?” In certain cases, it may indeed be wise to establish both, although for many estate planning needs the former will likely be sufficient. Whether you want to set up a property and financial affairs POA (LP1F) or for health and welfare (LP1H), the relevant forms will need to be filled in and sent to the Office of the Public Guardian. Form LP3 will also need to go out to anyone cited as a “person to be told”, although this can also be done digitally for convenience.
It can be difficult to find the right people to act on your behalf. One issue you’ll need to address is whether you want them to act “jointly” or “jointly and severally”). The former can be useful in some cases, yet the latter is usually better as it lets each of your attorneys act independently on your behalf. This can be especially helpful if they live a long way apart from each other. In any case, it can provide a lot more peace of mind to appoint people who know you well, who you trust to act in your best interests. Bear in mind that if you just appoint one attorney and they own a property with you, he/she will need to find another person to act as a “trustee” if you lose your mental capacity and the property needs to be sold.
To discuss your estate planning needs and/or for help setting up a Power of Attorney, contact your adviser.