Power of Attorney is a vital consideration in succession/continuation planning – but rarely mentioned in published guidance on these topics. Christmas may not be the best time of year to look at succession and continuation planning, but the month or two at the start of the year can offer pause for reflection when days are short, farming or estate activity is at a low ebb and the annual tax return it out of the way. At its simplest, the grant of a power of attorney allows your appointed ‘attorney’ (or attorneys) to manage your affairs.
Lasting Powers of Attorney (LPAs – not to be confused with local planning authorities or the Law of Property Act 1925) are covered in England and Wales by the Mental Capacity Act 2005, and they are administered by the Office of the Public Guardian. Comprehensive information and step-by-step guidance can be found on the government website, https://www.gov.uk/power-of-attorney/overview. Lasting Powers of Attorney have now replaced ‘Enduring’ Powers of Attorney for practical purposes, although the latter may still be encountered and used – but the rules are different.
There are two types of LPA: (1) Property and financial affairs, and (2) Health and Welfare. They are not interchangeable so if you want to grant full powers of attorney you need to make both types. For example your attorney for property and financial affairs may be able to sell your house for you, but not to make decisions on your health treatment if you were unable to do so yourself. You do not need to be incapacitated for an attorney to act on your behalf, unless the power of attorney you have granted says so.
Why could this be important in a family business? Say Arthur is a sole trader or senior partner in a family farming business. He suffers a stroke at the unfortunately age of 45. Decisions need to be made about his business, and about various choices in his treatment. The existence of a Lasting Power of Attorney, properly registered with the Court of Protection, will allow Arthur’s attorneys to make these decisions and implement them on his behalf. Alongside a will, there is every reason to say a Lasting Power of Attorney is a vital tool in the succession and continuation plan for any family business.
So how should Arthur make his two powers of attorney (Property and Financial; Health and Welfare)?
- Obtain the official forms and guidance from the government website;
- Consider who he wants to act as his attorney, and whether he wants two or more attorneys. The appointment of at least two attorneys is desirable in case one proves incapable of acting (eg death, bankruptcy, mental incapacity). Attorneys can be appointed to act jointly – in which case they must decide everything and act together at all times; or jointly and severally – so that each attorney can act independently of the other. The appointment can also be hybrid – joint action for the big issues (like selling real property); joint and several for smaller items like the payment of routine bills.
- Consider the nomination of ‘replacement’ attorneys. These attorneys are only called into action if the first attorneys are incapable of acting. This might include the situation where one of a pair of attorneys appointed to act jointly is unable to do so. In that case, the replacement attorney takes over from all the original attorneys.
- Consider who needs to be notified that the LPA is being made. This list might include close relations, business partners and key associates. These people are listed on the application form, must be notified of the proposed LPA and can therefore object to its creation (perhaps because they think the nominated attorneys are unsuitable, or because the donor lacked competence to make a LPA for example).
- The forms are filled in. This must be done in the right order: first the donor form (the person granting the LPA); then the certificate; then the attorney(s) themselves. The Certificate must be given by either certain types of professional (eg GP, solicitor) or somebody who has known the donor for at least two years and feels confident in confirming the donor’s competence to make a LPA. Only one certificate is needed where there is a list of people to be notified of the LPA, but two are needed where nobody is listed. Some people are specifically barred from certifying a LPA, eg anybody associated with a care home where the donor is living.
- The LPA cannot be used until it has been registered with the Court of Protection. This is meant to take up to six weeks although the current rate is up to 10 weeks for a straightforward application. The attorneys apply for registration and do not need to do this until they want to use the LPA. However, it is generally better to apply straightaway in case there are objections or administrative errors in the making of the application – if registration is delayed it may be too late to rectify the problems with a new LPA (eg the donor is no longer competent to make a LPA). The LPA itself can impose restrictions on its implementation (eg not effective until the GP has confirmed that the donor is no longer competent to act) or this can be left for the attorneys to decide – confirmation of registration does not mean that the attorneys have immediately ‘taken over’ the affairs of the donor. Delayed or invalid applications may leave no choice but to apply to the courts for an order – likely to be a far less certain, expensive and time consuming process.
- Along the way it may of course be very sensible to take legal, property, health and financial advice. However the government seems to have gone out of its way to make the actual appointment and registration of attorneys under a LPA a very straightforward process. The current fee to register a LPA is £130, so making both types would cost £260 before any professional advice or certification fees (eg the family doctor may well want a fee to cover his or her efforts in certifying the application).
Effective LPAs could make all the difference between stalled business or family affairs, and the ability of an attorney to step in at short notice and act in the donor’s best interest while he or she is incapable of doing so for themselves (either short term or long term). For anybody in charge of a business, or with family dependents to consider, this could be a vital safeguard. And don’t forget the importance of ‘replacement’ attorneys because people don’t always die or become incapacitated in the right order as recent family experience has demonstrated. I would be interested in readers’ experience with LPAs (or the lack of them), or your response to the considerations in this article.
Well worth a look as we look forward to the new year.
As ever this article offers no more than a summary on LPAs, and there is much more detail to be found in the Office of the Public Guardian’s guidance (see website above) but I hope it will act as a useful prompt to readers.