Deadline Approaches - Enduring Power of Attorney vs Lasting Power of Attorney

After signing a will, the second most important document a person signs is arguably an Enduring Power of Attorney (EPA). 

It is the document that grants power to another named individual or individuals to deal with your financial affairs in the event of your incapacity.  It can also be framed, if worded in a particular way, for immediate use, for example, to deal with your affairs when on holiday or working abroad.

Recent law in this area in England and Wales goes back to 1985. But it is in line for a significant shake-up with the onset of the Mental Capacity Act 2005, parts of which come into force in October this year.

If the timescale remains unchanged, new Lasting Powers of Attorney (LPA) will come into effect on 1 October.  From that date, no new EPAs can be signed, although EPAs signed before that date can be registered after that date.  For many years to come, therefore, the law relating to EPAs will remain relevant. 

Regulations covering LPAs were laid before Parliament in April, setting out the forms and registration process for an LPA.  Those regulations also govern the registration requirements for an EPA after October 2007.

Some of the key questions arising are:

- What makes an LPA different from an EPA?

- Why should you have an EPA now?

- Why would your Financial Planner want you to have an EPA/LPA?

Differences between an EPA and LPA

There are two main differences between an EPA and an LPA.  The first is registration.  At the moment, an EPA is only registered in the event of incapacity of the donor.  As a result, many EPAs will never need to be registered. For new LPAs, registration is part of the process of creating a valid document at the start.  This means a registration form and a fee at the outset.

The Scottish experience here is interesting.  The rules north of the border changed in 2001, involving a simple 10 page registration form and a fee of £35. The proposed registration fee in England is around £150.  It remains to be seen whether the cost and paperwork will act as a barrier to the take-up of the new LPA.

The second main difference between an LPA and an EPA is the scope of the powers. The new LPA can cover welfare and care issues as well as financial matters if the client chooses.  Historically an EPA only delegated powers relating to a person's financial affairs.  This expansion of the potential powers to be delegated has been in force in Scotland since 2001.

The experience there is that, in the first few years after the law changed, there was less interest in the welfare aspects and stronger interest in financial powers of attorney, called Continuing Power of Attorney (CPA) in Scotland.  Many more CPAs were registered than Welfare Powers of Attorney in the first few years after 2001. 

However from year four of the new rules onwards the number of CPAs dealing with both financial and welfare issues exceeded those dealing with just financial or just welfare issues.

Since 2001 in total over 90,000 new Powers of Attorney have been registered in Scotland, either financial or welfare or combined.   I read into that statistic that solicitors and their clients initially remained focussed on the financial aspects, but in time became more familiar and confident about granting Powers of Attorney dealing with care and welfare issues, so that clients now routinely grant both types of Power of Attorney. Time will tell if the same happens with the new LPA. 

Why should you have an EPA now?

In view of the forthcoming registration fees and forms which come with an LPA, it is not hard to see why many solicitors are writing to clients to prompt them to sign an EPA now before the law changes. 

Why would your Financial Planners want you to have an EPA/LPA?

If your Financial Planner is interested in providing lifetime financial advice to you, they should be interested in encouraging you to sign an EPA/LPA.  If you lose capacity and no EPA/LPA exists, there is no-one with immediate authority to sign documents on your behalf and your affairs are effectively frozen until further legal action is taken. 

With an EPA/LPA, things can proceed more easily and any paperwork can be signed by the attorney (usually a family member), thus allowing your affairs to be run more smoothly.  The costs and delay involved in going to court to have a receiver appointed are therefore avoided.

Standard Life carried out a survey in 2006, looking at the appetite people had for wills, trusts and Powers of Attorney.  It showed that 74 percent of people asked did not have a Power of Attorney. 

That is a worrying statistic. 

Some of the hesitation is connected with the image of Powers of  Attorney.  Many people consider them as part of the "care of the elderly" advice arena, which is entirely wrong.

One only needs to think about what happened to Top Gear presenter, Richard Hammond, to realise that younger people can sustain brain injuries and be out of action for a few months, during which time their affairs need be administered.  An EPA, and soon LPA, are documents that all clients should be advised to look into and sign.
 
In conclusion, they should be a bread-and-butter part of your financial housekeeping. 

Key Considerations

Don't make the mistake of thinking that an EPA/LPA does not apply to you.  No one has the foresight to know when one may be required by you/your family, and not having one in place will probably cause more trouble than you would possibly want.

ACTION POINT

If you're unsure whether or not you have an EPA, contact your solicitor and ask what you need to do to get one. If you don't have a good contact, we'll be happy to put you in touch with a reliable solicitor.