What are Powers of Attorneys?

Capacity - how to deal with the financial affairs of someone who lacks capacity

29 January 2021

A Power of Attorney is a very important estate planning tool, especially when an individual loses capacity. Whilst the term ‘Power of Attorney’ seems to be thrown around a lot, it is often misunderstood or not used correctly. In fact there are several different kinds of powers of attorney that can be used for different purposes.
 

In general, a power of attorney it is a legal document where an individual (known as the ‘Donor’ – the person giving the power) appoints one or more Attorneys (third parties who are authorised to act on behalf of the Donor). The Donor must be over the age of 18 and have mental capacity to enter into any type of power of attorney.

It is important that you understand the differences between each power of attorney and what your options are.

Ordinary Powers of Attorney

What is an ordinary power of attorney

An ordinary power of attorney is usually what comes to mind when you hear the term ‘power of attorney’. It should be distinguished from an Enduring Power of Attorney (“EPA”), or a Lasting Power of Attorney (“LPA”), which are discussed below.

Ordinary POAs are most commonly used in a commercial context, usually in relation to the Donor’s property and affairs, or a specific commercial decision. One example might be a POA for someone to execute documents on the Donor’s behalf, such as during the conveyancing process if the Donor is abroad or otherwise unable to physically sign.

 

What authority is given?

The scope of the attorney’s authority will depend on the provisions of the power itself. Some may be general, allowing the attorney to do anything that the donor could lawfully do themselves. Others may be limited to a specific matter or decision. The power of attorney should make the scope of these powers very clear.

 

How is it executed

This type of power of attorney must be executed as a deed by the donor and the attorney, while they have the mental capacity to do so, and each in the presence of an independent witness.

The deed should state the date on which it is intended to commence, which can be immediately or a future event. It should also state its duration, or give an end date or event upon which the power ends.

When granting another individual to act on your behalf, consideration should always be given to the trustworthiness of the attorney – you are effectively giving someone the power to act on your behalf, so you should be sure that they will use this privilege properly.

Similarly to an LPA or EPA, there can be more than one attorney appointed on either a joint or joint and several basis.

 

How is it terminated

Apart from the end date specified in the deed, the attorney’s authority will also end in the following circumstances:      

  1. If the attorney or donor die;
  2. If the attorney or donor lose their mental capacity;
  3. On agreement between the donor and attorney;
  4. On revocation by the donor.

In this respect, an ordinary power of attorney differs from EPAs or LPAs, where the attorney’s authority actually begins on the donor’s loss of capacity.

 

Enduring Powers of Attorney (“EPA”)

What is an EPA?

An EPA is a type of power of attorney which enables a person to act on another’s behalf in the event that they have lost the mental capacity to do so themselves. It is created by the donor whilst they have capacity. An EPA relates only to the property and affairs of the donor.

Since 1 October 2007, EPAs have gradually been replaced with LPAs. It was felt that the old EPA regime could leave donors vulnerable to unscrupulous attorneys, due to a lack of regulation and oversight by the Office of the Public Guardian. EPAs can no longer be made but any EPAs which are validly still in force will continue to be so.

 

What authority is given by an EPA?

An EPA is created in a prescribed form, and gives the attorney(s) named the general authority to deal on the donor’s behalf with all or part of their affairs, or to do specific things. A grant of general authority gives the attorney the power to do anything which the donor could lawfully do themselves, subject to some limitations on making gifts.

An attorney can be any adult individual, you wish, as long as they are not bankrupt. You can also appoint a trust corporation.

 

How is it executed and registered?

An EPA must be signed by both the donor and attorney as a deed, but not necessarily at the same time. Both signatures must be witnessed, and the witnesses must also sign the EPA.

Unlike LPAs, provided that the donor of an EPA has not included a restriction saying that the EPA can only be used when they have lost mental capacity, the EPA can be used by the attorney(s) without it being registered with the Office of the Public Guardian (“OPG”).

This made the EPA much more open to abuse from attorneys who could misuse their position claiming they were managing the affairs of a donor without the same level of validation now required for the LPA.

The EPA must be registered with the OPG as soon as the donor starts to lose mental capacity or has lost capacity. The registration cost is £82 per application from 1 April 2017. 

 

How can it be terminated or revoked? 

Before registration, and while the donor has capacity, the EPA can be revoked at any time. This does not have to be in writing but notice must be given to the attorneys. 
 
Once the document is registered, the donor cannot revoke it without confirmation from the court.  For an attorney, a joint and several may disclaim their appointment without affecting the EPA, but a joint or sole attorney disclaiming will revoke the entire EPA. 
 
If you have an EPA in place, you may want to consider ‘upgrading’ this to an LPA to provide yourself with greater protections.

 

Lasting Powers of Attorney (“LPA”)
 

What is a LPA?

From 1 October 2007, EPAs were replaced with LPAs. There are two types of LPA:
  1. Property and Financial Affairs - This can include paying the donor’s bills on their behalf, selling their property or investments and operating their bank accounts. 

    This type of LPA differs, as it can be used before the donor loses their mental capacity if they give consent. There is a practical use to this – if the donor is an elderly parent needing assistance or support with their financial affairs, such as phoning the bank or accessing their online account, then their attorney can help with this.  
     
  2. Health and Care – This is in relation to the donor’s health and care. The attorney under this document will be able to make decisions about the donor’s medical treatment, and if permitted by the donor, about life-sustaining treatment.

    This type of LPA can only be used in the event the donor loses their mental capacity. 

Who can be the Attorneys?

It is entirely the donor’s choice who to appoint – these can be different for each LPA, or the same. However, the donor should think carefully about who they appoint as attorneys, as they may need to work together on the same decisions. 
 
The donor can specify that their attorneys should act jointly on decisions, or jointly and severally. This latter means that attorneys can act individually.  The donor can also appoint replacement attorneys to act if the primary attorneys are not able to act. 
 
In the LPAs, the donor can include their own instructions, which the attorneys must follow. They can also include preferences, which should guide the attorney’s decisions but which are not intended to be binding. 

 

What is a Certificate Provider?

An LPA should include a certificate by someone who has known the donor personally for at least two years, or a professional such as a GP or solicitor. The certificate states that: 
 
  1. The donor understands the scope and purpose of the LPA;
  2. That there is no fraud or undue pressure on the donor to execute the LPA; and 
  3. That no other reason prevents the LPA being made. 

 

How is the LPA registered and terminated? 

Unlike the EPAs, the LPA cannot be used until it has been registered with the OPG. This costs £82 per LPA. 
 
While the donor has capacity, the LPA can be revoked at any time. This can be done by notifying the attorneys and the OPG. An LPA is also revoked on the donor’s death. 
 
If there is a sole attorney, or attorneys appointed on a joint basis, the following events will terminate their appointment:
  1. The attorney disclaims their appointment;
  2. The attorney’s bankruptcy;
  3. The death of the attorney; or
  4. The attorney losing the mental capacity to act.

 

The idea of losing our capacity can be an uncomfortable and often a very distant thought. In the event you lose capacity, you will no longer be able to make such decisions, and without an EPA or LPA for your loved ones to deal with your financial and health decisions they would need to make an application to the Court of Protection. This can be both time consuming and expensive. 
 
Having protection in place to ensure that you and your affairs are looked after by a trusted relative, friend or professional provide some important reassurance. It may be one of the most important decisions you make. LPAs are useful documents which can be tailored to your specific wishes. They are flexible and often indispensable tools. Even if you currently have an EPA in place, while this will continue to be valid, you may wish to consider replacing this with an LPA under the current system. 
 

Further information

If you have any concerns about capacity, or if you are contemplating making a LPA for the first time, please get in touch with our team for more information. 

 

About the authors

Diva Shah is an Associate in the Private Client team. Diva acts for various clients including high net worth individuals, entrepreneurs, executors, trustees and individuals who lack mental capacity on a broad range of matters. 

Phoebe Alexander is currently a trainee solicitor in the Private Client team, where she assists with the administration of trusts and estates, and the drafting of Wills and Lasting Powers of Attorney. Phoebe also assists with Court of Protection matters, including the drafting of Deputyship applications. 

 

 

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