It pays to plan ahead for your old age

Should the worst happen, makes sure you put your legal arrangements in order, says Sarah Moore.

Not many of us want to plan for a time when we might be incapable of making our own decisions, perhaps as a result of old age. It lies somewhere between making a will and filling out your organ donation form on the list of things people want to spend their spare time on. However, as with most things that end up sitting on your to-do list for months at a time, it is worth giving serious consideration to the subject.

Power of attorney gives another person ("the attorney") the legal authority to help you ("the donor") make important decisions, or to make those decisions on your behalf. There are a few different types of arrangement available the right one for you will depend on your circumstances.

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How does lasting power of attorney work?

Lasting power of attorney (LPA) is the most commonly used form, with 1.8 million arrangements currently registered in the UK, according to Ofcom, the UK's communications regulator. LPA is most suited to those who have been diagnosed with an illness such as dementia, or for those who want to ensure that they have arrangements in place should they become ill later in life. LPA only kicks in when you lose the mental capacity to make decisions for yourself.

There are two types. The first is a health and welfare LPA. This is someone who can help you to make decisions on your daily routine, medical care, and where you live, for example. They can also make judgements about spending to "maintain or improve" your quality of life, such as buying clothes, decorating a room in a care home, or paying for extra support so that you can go out more, visit friends, or go on holiday. However, a health and welfare attorney has to ask the person in charge of your finances for money to cover these expenses.

The second type of LPA is the one most of us are familiar with the property and financial affairs power of attorney. This person (or people) look after decisions such as the purchase and sale of property, payment of the mortgage and bills, and decisions about pensions, investments and benefits. You can set out the exact parameters of the decisions you would like someone to be able to make on your behalf.

To avoid confusion and misuse of this power, a financial affairs attorney must keep records of the transactions they make on your behalf, and keep their own money separate from yours. Note that you cannot nominate a property and affairs LPA who is also an undischarged bankrupt.

Unless the LPA specifies otherwise, an attorney can spend money on gifts to your friends, family members or acquaintances, but only on "occasions where you would normally give gifts", such as birthdays or anniversaries, as well as on donations to a charity that you "wouldn't object to". For any other gift or donation, the attorney would have to apply to the Court of Protection, even if you have given a gift of a similar nature before.

This would include things like paying school or university fees, handing out interest-free loans or letting someone live in your property without paying market rent. Also, if granted permission to do this, the attorney would have to make sure that you can afford any payments for example, that such outgoings would not affect your ability to pay for care-home costs.

Similarly, if the attorney wants to buy or sell property on your behalf they must get legal advice if the sale is below market value; they want to buy the property themselves; or the property is being given to someone else. Importantly, a financial and property affairs LPA is the only form of LPA that is valid in relation to a telecoms account. Once it's been set up, the attorney should have the same rights over the account as the original account holder.

How to arrange an LPA

To set up an LPA, first choose the person or people you want as your "attorneys". Often this is a family member or close friend, but you can nominate an independent person such as a solicitor (though this will incur a fee). If your assets and wishes are fairly complex, you might want to pay a solicitor to draft the LPA, perhaps at the same time as drawing up a will.

Even if your wishes are straightforward, some people use a solicitor to act as an intermediary in discussing your wishes with family members, or explaining potentially sensitive topics, such as why you've picked one person over another, says Lucy Malenczuk, senior policy manager at Age UK.

You can get the forms from the Office of the Public Guardian, which protects the assets and looks after the financial affairs of those who lack the capacity to do so. Once you're happy with the arrangements, sign the form alongside your attorneys, witnesses and a "certificate provider", whose role is to confirm that you are making the LPA by choice and that you understand what you're doing.

Attorneys can witness each other signing, but they can't be your witness, or sign as the certificate provider. You will have to pay £82 for each type of LPA (this may be cut or waived for those with an income below £12,000 or those on certain benefits). In Scotland the arrangement is called a continuing power of attorney, and costs £75. In Northern Ireland, you pay £115 for an enduring power of attorney.

Alternatives to an LPA

It's natural to worry about the potential for abuse of an LPA. Indeed, retired senior judge Denzil Lush a legal authority in this area has criticised the Ministry of Justice for being "disingenuous" in promoting the use of LPAs too aggressively, says Max Walters in The Law Society Gazette. The alternative the appointment of a deputy by the Court of Protection allows for a great deal of scrutiny, says Lush. Deputies must record a full list of assets and accounts in an annual report, and provide a bond that can be drawn on in the case of wrongdoing.

As with an LPA, there are two types a property and financial affairs deputy, who would carry out tasks such as paying your bills or organising your pension, and a personal welfare deputy, who oversees medical treatment and care. If you don't have an LPA drawn up, and lose mental capacity before you can arrange one, the Court of Protection will appoint someone as your deputy.

Of course, there is no perfect solution and if you are making these arrangements, you are right to take the potential for abuse seriously. LPAs were specifically brought in to improve safeguards over the previous regime yet 1,058 attorneys and deputies were referred for investigation into financial wrongdoing in 2016, according to a Freedom of Information request submitted by Telegraph Money.

That was up 20% on the year before, and almost double the number investigated in 2013. That said, the number of people drawing up such arrangements has jumped too more than two million LPA registrations had been filed by the end of 2016, with the number of appointments more than trebling between 2010 and 2015, according to Old Mutual Wealth.

In any case, LPAs are not the only option. You can, for example, hand over power of attorney temporarily ("ordinary power of attorney"). This may be suitable if you know you'll be in hospital for a prolonged period and need someone else to carry out tasks on your behalf, such as paying bills. Ordinary power of attorney becomes invalid if or when you lose mental capacity. Another option is "third-party bill management".

The UK's strict data protection guidelines mean it can be near-impossible for family members to make even basic arrangements on someone's behalf unless they have legal authority. So Ofcom requires all telecoms providers in the UK to offer this service, whereby account holders can nominate a friend or relative to help manage their account. This person receives copies of your bills and can pay them on your behalf, but is not liable for them.

This can be especially useful where a friend or family member has inadvertently signed up for something they may not really need, such as an expensive internet and television package. While limited in scope, this arrangement alone may suffice for some people.

And while you can't 100% guarantee that your exact wishes will be carried out in the future, there are ways to make an LPA as watertight as possible. Make the instructions very detailed and specific; nominate more than one attorney; and/or appoint a solicitor to act as attorney too. If you pick several attorneys, you can specify the exact parameters of their powers, such as whether they can make decisions unilaterally, or must all agree.

Permission can also be varied by the type of decision. Having more than one person involved particularly a neutral party can act as a sensible check and balance. Finally, notes Malenczuk, be aware that you can always cancel or amend an LPA if you change your mind about its contents such as your future care arrangements at a later date.