LPAs allow people to choose someone they trust to make decisions on their behalf if something happens and they are unable to make decisions for themselves. With an ageing population that is borrowing for longer periods and starting the mortgage process later in life, financial advisers are under increasing pressure to enquire about LPAs.
However, in addition to statistics provided by the Office of the Public Guardian (OPG), which governs LPAs, a recent survey of 2,000 UK residents by consumer campaign group Which? also showed significant gaps in public understanding of the power of attorney system.
While LPAs are most commonly set up by individuals who are facing a deteriorating disease, like dementia – which one in three people will develop; or a brain injury, for which someone is admitted to a UK hospital every 90 seconds – it is advised that everyone have one.
As Stuart Wilson, CEO of Air Group, pointed out in a recent piece for Mortgage Solutions, LPAs are a major safety net for those with property assets in case of the unthinkable.
Julian Mann, independent mortgage and protection adviser at MCB Financial Services, added that later life borrowers were particularly affected.
This means identifying and managing vulnerability has become an increasingly important topic for advisers.
What is an LPA?
An LPA is someone legally appointed to make decisions on someone’s behalf for the rest of their life should they become medically incapacitated and unable to understand or make decisions for themselves. At all times the attorney has a legal duty to act in the best interests of the donor. Attorneys don’t have to be family members – just anybody the donor trusts to look after them properly.
An attorney can only act in accordance with the power they have been granted by the LPA, which can be restricted by the donor.
An attorney cannot use a financial LPA to make a will on a donor’s behalf. If a donor has lost capacity and the attorney feels that the donor requires a new will, they must make an application to the Court of Protection. The Court of Protection would then decide if a “statutory will” is required.
There are different types of LPA and various ways to appoint them, such as jointly or with reserves. It is recommended to have up to two ‘first choice’ LPAs and two reserves.
A property and financial affairs LPA is an attorney who can deal with any decisions regarding the donor’s property and finances, including things such as managing buying and selling the donor’s property, paying household bills and managing the donor’s bank account.
You can also have a health and welfare LPA who can make health and care decisions including what residential care setting the donor lives in.
The benefits of an LPA
According to the OPG, there are many misconceptions, such as the next of kin having the final say or a joint bank account and joint names on a home meaning the other party can legally make decisions for them. They don’t and can’t.
Fiona Bushell, will, trust and estates solicitor at Irwin Mitchell (pictured), said having an LPA in place can therefore save a person months and thousands of pounds in court and legal fees in the case of incapacitation.
She said: “Getting an LPA costs £82 per LPA for the registration fee but it can’t be used until it’s registered – which generally takes the OPG up to five months.”
Wilson added: “LPAs should be mandatory with equity release products, especially in a sector dominated by drawdown where if a customer isn’t able to make decisions for themselves – for whatever reason – but doesn’t have an LPA in place it means they can’t access the money that is rightfully theirs.”
Get professional help to avoid pitfalls
LPAs are fraught with bureaucratic potholes that can cost time and money.
Bushell said: “It’s important to take advice and explain the different pitfalls and options, especially after taking all that time, or if you lose capacity since making the LPA, then you’re back to getting a deputyship.
“People can do LPAs themselves online but there are a few quirks about it and they are quite lengthy documents and have to be signed in a particular order. If they’re not signed in that order then the OPG will reject it and keep the fee. They don’t offer refunds, but you can then pay £41 to resubmit.”
What people often miss
There are different ways to appoint attorneys, so choosing the right type of LPA from the beginning is vitally important.
Bushell said: “If you appoint first place attorneys jointly so they all have to agree together on a course of action and one of them dies, or you divorce, then all of their appointments get terminated.
“Whereas, if you set up replacement attorneys during the first round then you won’t have that problem. You can also nominate replacements depending on how you make those appointments in the first place.”
LPA versus court appointed deputies
The automatic go-to should the worst happen without an LPA in place is deputyship. It is run by, and answerable to, the Court of Protection, unlike LPAs. As well as eliminating the donor’s choice in who represents them, the process takes months and can cost families thousands of pounds when time and money will be serious and urgent factors.
Bushell said: “With the LPA there’s no waiting around for the court application, and they’ll be able to act on the individual’s behalf the very next day. If you lose capacity without an LPA then your family or friends has to apply to the court of protection for a deputyship order. The deputy acts in the same way as an attorney but they answer to the court, rather than the individual whereas the LPA answers to the OPG.”
How does an LPA affect brokers and lenders?
Clients with power of attorney are subject to greater scrutiny by lenders and equity release providers. They will generally avoid them if they can due to the extra paper work and checks, such as any limits on the attorney’s conditions.
Darryl Dhoffer, mortgage and protection consultant at The Mortgage Expert, who specialises in complex cases, said: “The sale of mortgaged property and the subsequent closure of a mortgage is generally accepted by all lenders only if power of attorney allows the donor to deal with financial affairs.
“An LPA case has extra underwriting being undertaken, so in general, any capital raising or change of ownership overall will see very few mortgage lenders willing to accept, if at all.
“That said, if capital raising is to help with donor care costs or home alterations for mobility support, this may be granted. It is also possible to undertake a product switch with the existing lender, but not all lenders, and this will be down to [each individual] lender.”
Stuart Wilson, corporate marketing director at More 2 Life, added: “There has been significant progress made in improving processes across the industry. With vulnerability moving ever higher up the regulator’s agenda, advisers should also remember that lenders are equally committed to good customer outcomes and typically eager to help.
“Almost two thirds, 63 per cent, of respondents to our survey said industry support had improved over the last 12 months so, in addition to their own colleagues, advisers will have a range of resources to access which can help them to understand and embed best practice within their business.”
Other roadblocks around LPAs and deputyships
Mann, who has spent the last nine years advising in the later life sector, told of a rare, recent case in which a client had dementia, but already had an LPA. The client’s local council had refused to provide vital night time care, so her family had to fund it and was looking to remortgage, a process that usually takes up to six weeks.
He said: “It’s stress, time and money. We started in November 2020 and we still haven’t completed. With late term mortgages, the lender or solicitor must still confirm that the client has lost mental capacity, which doesn’t apply to other mortgage types.
“The lender won’t accept the application until the incapacity has been confirmed. We looked into getting a specialist medic for an independent assessment, but that’s £900 and causes more stress and anxiety. Even the valuation was hard because the valuer was refused entry to the house by the client three times as she didn’t know who they were.”
He added: “When someone has an LPA it’s still very difficult. There’s a lot of people who need to be helpful for that document to be usable and it isn’t actually always the case.
“The common problem is that GPs are reluctant, or refuse to write a letter to state that the client has lost mental capacity. We spent nearly a year getting nowhere with this poor lady’s GP, which has caused major issues getting her overnight care.”
What should financial advisers do about LPAs?
When it comes to the difficult client conversations around vulnerability, there are some approaches which can make it easier and less awkward for all concerned. This can be difficult unless advisers can have a face-to-face meeting, which has been hampered by the pandemic in recent years.
If an adviser is not satisfied that their client is capable of giving instructions, then they should ask if they have an LPA in place. If they do, and are happy for third parties to take instructions from the attorney, then that might be possible.
However, if a client loses capacity in the middle of a transaction without an LPA, the transaction will be stalled for several months while the deputyship order goes through the courts.
More 2 Life’s Wilson said: “The focus must be on making clients feel valued and supported in order to be open to have these often deeply personal conversations. Our recent research into vulnerability found that 50 per cent of advisers reported that the lack of face-to-face meetings during the pandemic made it harder to identify vulnerable characteristics.
“Involving family in the conversation where possible will also help vulnerable clients to feel supported, and family may be able to provide more context on the client’s situation that they themselves would not think to mention. This is something that advisers are already prioritising, with 75 per cent of those we surveyed in 2021 stating that they were keen to involve clients’ family members in the equity release process. Only four per cent felt that family involvement was not at all important.”
How to manage suspicious LPAs
Bushell advises that in circumstances where there seems to be something funny going on between the LPA and the client, the broker must make a referral to the OPG to raise those concerns, and they will do their own investigation if necessary.
She recommended that advisers do not proceed until the investigation is satisfied that the instructions are what the client would or does want and to either terminate them or put them on hold pending the outcome.
