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Do your clients really understand LPAs?

Client education on LPAs must come before a decision about whether to include them in a financial plan

The most common misconception around lasting power of attorney is that it is relevant only for those in later life.

Leaving aside the equally problematic subject of what ‘later life’ even means nowadays, comments such as ‘I don’t need an LPA at my age’ and ‘There is no risk of my getting dementia yet’ (sadly untrue) can make this a thorny area to broach with clients.

In my opinion, LPAs should be in place for everyone, regardless of age or current health. While important for everyone to have, there are a few areas where this type of planning is key, such as clients going in to drawdown, completing a defined benefit pension transfer, looking at equity release or those with discretionary managed funds.

In relation to discretionary managed funds in particular, specific wording needs to be added to the property and financial affairs LPA in order for these arrangements to continue – wording which would not generally be included in an LPA unless specifically requested.

If we stop to consider this further, what if a young person were to be injured and incapacitated following a car accident, a sports injury or even on a night out? If they were to receive a lump sum from compensation or an insurance pay-out, who would manage their money? Without an LPA, it would potentially be left up to social services to step in.

Short of having a property and financial affairs LPA in place, even joint assets will be frozen by the bank until somebody is appointed to legally access the funds. Hard to believe, I know, but this is the case and is often the most surprising element for clients to understand.

Spouses or children would not be able to access these accounts, potentially leaving them in a very vulnerable position. In this instance, they would need to apply for deputyship, a long-winded and onerous process often costing thousands of pounds and taking up to nine months to complete. Even then, it is not guaranteed a client’s family would gain control, as around 743 deputyship orders have been granted to social services since 2007, according to UK charity Rescare.

LPAs should be in place for everyone, regardless of age or current health

When families do get control of the money, they usually opt to appoint solicitors to manage the funds, along with ongoing high monthly fees. Of course, this also means the adviser is cut out of any management.

I know this all sounds doom and gloom, but there is so much client education to cover off in this area, and it’s vital to understand the risks and benefits associated with having, or not having, LPAs set up.

Health and welfare

Moving on to the health and welfare LPA, it’s important for clients to understand that, without one in place, they cannot challenge care decisions for family members or make decisions about their medical treatment. This can be extremely traumatic for family members who are already going through a difficult time.

Putting these LPAs in place can help to ease the burden on loved ones and can help to minimise the risks of family disputes and upset when making big decisions.
Insuring your clients against these risks is key, and there are a few different avenues to explore to help your clients put LPAs in place.

Clients can complete LPAs themselves online if they wish. The benefit is the low cost attached to this option but the risk is that the Office of the Public Guardian is very strict about how the documents are completed and executed. When sending documents off for registration, they can easily be rejected, leaving the client to pay re-submission fees each time until the document is accepted.

Alternatively, you can arrange for a solicitor to complete these for clients, which would ensure they are completed correctly. However, there tend to be considerable costs attached and the client would need to take time to attend at least one meeting, if not multiple meetings, during office hours.

Instead, you can arrange for an estate planning specialist to complete these for clients. You could arrange this yourself by completing the (generally straightforward) required training. This option would provide you with a further income stream for your business and keep you in full control of your client relationship.

I haven’t even touched on business LPAs. These are not often discussed but are very important, as most family members wouldn’t have the knowledge or qualifications to continue running affairs for your business-owner clients. Business LPAs are usually a standalone document, solely appointing attorneys to deal with a client’s business dealings if they become incapacitated.

Educating clients on LPAs – and showing them the risks of what could happen if their planning isn’t complete – is key. Regardless of current age and health, LPAs are vital planning tools for all clients to have in place well in advance of them ever being needed.

Scarlett Musson is business development director at APS Legal and Associates, The SimplyBiz Group

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