The key reason for financial planning is to make sure we have everything in place for any scenario, even the unthinkable ones.
Nicholas Hamilton, financial planner at Mazars, rightfully noted that mental incapacity can happen at any time, age and regardless of any underlying health conditions.
One way to mitigate such an unfortunate turn of events is having lasting power of attorney (LPA) – a legal document giving a nominated person or people the power to make financial decisions on behalf of the incapacitated.
But a study by consumer publication Which? revealed that, while the vast majority of Brits (85%) know what an LPA is, very few actually understand its workings.
Of the 2,000 UK adults surveyed, 16% believe that the individual loses access to their finances when the document is registered, while just 15% are confident enough to give someone else responsibility over their money.
Among other misconceptions is that an LPA is not needed while healthy (70%) or that it can be set up at any time in life (77%).
What’s true and what’s not
As a result, Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, believes there is a need to bust myths about LPAs.
“A lasting power of attorney should be a huge source of comfort as we get older, but for far too many people, it’s a source of mistrust and confusion instead,” she said. “Knowing you have someone you can trust to take decisions in your best interests in the event you are unwilling or unable to do so yourself can be very comforting not just for you but your wider family too. Unfortunately, we’re letting myths and misunderstandings confuse us into missing out on this vital bit of safeguarding.
“It’s important to bust key myths about LPAs. For instance, you do not hand over control of your affairs once an LPA has been registered – you remain in control and your attorneys must make all reasonable efforts to help you make decisions.
“Should a time come when decisions need to be made on your behalf, your attorneys need to demonstrate they are making decisions in your best interests and in line with your wishes. You can appoint more than one attorney if you want more visibility of decision-making and attorneys can be removed if needed.
“People tend to worry about rare horror stories of vulnerable people befriended by fraudsters who use a power of attorney to take their money. However, a power of attorney can actually protect you from this kind of thing. Some conditions, like dementia, can make it difficult for people to understand who to trust or the consequences of their actions, so putting someone reliable in charge of their financial decisions protects them from giving it away to fraudsters or con artists.
“If you are having health issues, then knowing you have an LPA in place can take away an enormous amount of stress at a difficult time – they are not something to be mistrustful of.
“But they’re not something to leave until later in life. We should consider putting one in place when we draw up a will. Often, we have no warnings of when we might lose the capacity to make financial decisions, so the sooner you draw up an LPA, the sooner you’ll be protected.”
But Which? found that another big problem within the LTA system is being created by financial institutions.
In a different survey of 8,000 of its members, the publication discovered that around 31% of people with an LTA found banks were the most difficult to deal with, with many saying their institution lost LPA documents, failed to explain the registration process properly or required them to make unnecessary appointments to visit a branch.
Some people were asked to go in person even during the pandemic, despite online registration being an option for most banks.
Jenny Ross, Which? money editor, said: “People who take on the responsibility of helping a family member or friend to deal with their financial affairs should not have to jump through hoops when dealing with banks, but our research reveals many are still facing an uphill struggle to put the legal arrangement in place.
“The creaking power of attorney system needs urgent improvement, particularly to address the public’s lack of awareness of how the process works and the difficulties people face when registering with banks. This problem has been going on for years.
“Government proposals to modernise LPAs – such as introducing a fast-tracking service, digitising the registration process and improving awareness – are much needed to make the system fit for purpose in the 21st century.”