Matters of the mind: how to incapacity-proof your finances


Author: Helena Luckhurst


If someone asked you what will happen to your assets on death, you’d no doubt reach for your Will.  However, have you considered what will happen to your assets if you ever lose capacity to manage them?  Would your family be able to access them to ensure the household bills get paid, or to pay for your care if you were physically incapacitated as well?

Under English law, if you ever lose capacity to give instructions in relation to assets that you own in your sole name and some jointly owned assets (most notably a jointly owned home), no one else can give those instructions for you without having to make a lengthy and costly application to the Court of Protection to be appointed as your deputy.  Your assets can drift ‘rudderless’ for several months while the application is being made – not helpful if your assets need active management or you had intended to sell them.  Thereafter, there will be the need to produce yearly accounts to the Court of Protection too – all very intrusive and lots of paperwork for your family to have to deal with.

It need not be like this, though, if you make a Lasting Power of Attorney for Financial Decisions.  This is a private arrangement whereby you can appoint an attorney, or several attorneys, to take financial decisions on your behalf if you ever lack capacity to do so yourself.  Some people appoint their spouse as their attorney and their children as replacement attorneys, in case their spouse is ever unable to act, for example.  However, whoever you choose should be trustworthy and capable with money, or willing to take advice if necessary.  Other than registering the Lasting Power to ensure that it can be used immediately if needed in future, there is no further contact with the Court of Protection or its administrative office.

I often think of Lasting Powers as a type of ‘insurance’ in case the worst happens.  Chances are, you will retain capacity to deal with your finances throughout your life but if you have a Lasting Power in place, you will have done all that you can for yourself and your family to help ensure that, if you do suffer incapacity in future, be it temporary or permanent, your family have the legal standing that they need to start dealing with your assets.

There is often a perception that Lasting Powers are the sort of planning that can be put off until well into retirement.  Unfortunately, though, we know from practice that unexpected health complications following surgery or accidents can cause mental capacity problems at any age.  Families where only one spouse holds the majority of the assets, or the family income is coming into an account in only one spouse’s name, are also particularly at risk and need protecting.

One less than obvious category of person that really ought to have a Lasting Power in place at any age is the family business owner.  If you are a director and shareholder of a family business or one with only a few other director/shareholders, I recommend reviewing your corporate governance documents (e.g. the articles of the company and any shareholders’ agreements) to see what provision is made for incapacity of directors.  Often there is nothing.  If a director/shareholder loses capacity and the other shareholders together lack the necessary majority to vote for a replacement director, the smooth running of the company could be at risk.  Managing the impact of incapacity on a business is a business risk that is often missed.

If you haven’t already put a Lasting Powers of Attorney for Financial Decisions in place, why not resolve to make this the year that you do?  New Lasting Power forms, with a more user friendly format, came into force at the start of July.  Another incentive to put them in place now.

Helena Luckhurst, Partner, Fladgate LLP (hluckhurst@fladgate.com)

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