In this edition we take a look at:
Do you need a Lasting Power of Attorney?
The Secret Court – What is the Court of Protection?
The Court of Protection and gratuitous care payments
What happens if you don’t make a Will?
Do you need a Lasting Power of Attorney?
While many make a Will to ensure that someone is appointed to look after their financial affairs after their death, people often fail to consider doing the same to take effect during their lifetime should they lose capacity. With an aging population, it is becoming increasingly common to lose mental capacity as a result of illnesses such as dementia, Alzheimer's or stroke. Whilst circumstances for personal welfare can often be arranged by family and care services, most banks and financial institutions will refuse to deal with anyone other than the account holder for financial matters if no other person has been given the correct authority in the form of Power of Attorney. This can cause immense difficulties for families who wish to look after their mentally incapable relative and can be particularly difficult if couple's finances are mainly in the name of the one who has lost capacity.
So how do we prevent this?
In order to ensure that your finances are well looked after should you lose capacity, it is necessary to make a Lasting Power of Attorney (LPA). Through an LPA you appoint someone you trust to act as your attorney should you become unable to make decisions for yourself. Your attorney can also act on your behalf, under your instruction, whilst you retain capacity which can also be very useful if you have a period of time in hospital or out of the country.
You can only make an LPA if you have the capacity to understand the extent of the powers and the authority that you are giving to the attorney. A professional with experience of assessing mental capacity, such as a solicitor, doctor, or a person who has known the donor for more than two years, must sign a certificate to confirm that the donor has the capacity to understand the document.
Who should the Donor appoint?
Donors can appoint more than one attorney to act for them and in most cases couples appoint each other and their children or other close family members. While there is no restriction on how many attorneys can be appointed it should be considered that if there
are a number of attorneys it may become difficult for all the attorneys to reach a consensus. When more than one attorney is appointed, the donor can specify that they are to act jointly — in which case all decisions must be made by all attorneys; or jointly and severally — which means attorneys can act alone or together. In the majority of cases attorneys are appointed jointly and severally as this is the most practical option. If they are appointed jointly and one of them were to die then the LPA would become invalid.
What can an attorney do with an LPA?
Attorneys can make any financial decisions that the donor would usually make himself. For example, attorneys can deal with the donor's bank accounts, make investments with the donor's money, manage the donor's business or even sell the donor's house. It is therefore imperative that the donor completely trusts his or her attorney to make the right decisions. In some circumstances a donor may have particularly complex finances or business interests in which case it may be a good idea to consider appointing a professional attorney such as an accountant or solicitor, as well as, or instead of family members.
The donor's interests are protected by the Mental Capacity Act 2005 Code of Practice. This requires an attorney to act in the best interests of the donor and this must be the primary concern when making any decision. In addition attorneys are obliged always to seek the donor's input before making any decision.
Who should consider making an LPA?
We advise that ideally everybody should make an LPA as it cannot be predicted when someone could become mentally incapacitated as a result of an accident or serious illness. It is of high importance if someone is diagnosed with the early stages of dementia, Alzheimer's or another illness which affects mental capacity that they prepare an LPA as once capacity has been lost an LPA cannot be made. An LPA could also be helpful for people who suffer from mental health problems and who may be unable to make financial decisions, or who find looking after their own finances stressful or confusing.
What if an LPA is not made before someone loses capacity?
It is not impossible for a family member, friend or professional to take control of someone's finances once mental capacity has been lost. If this happens then an application must be made to the Court of Protection for the appointment of a deputy.
Whilst this is possible, it is a more expensive and a lengthier process than having an LPA in place. The role of a deputy is also more restricted than that of an attorney. The Court take the view that, as the person being looked after has not made the decision to appoint a Deputy the appointment is more restrictive and there is supervision from the Court of Protection. This means that the deputy must submit yearly accounts and may even have home visits from Court of Protection Officials. In addition a Court application must be made for any big financial decisions such as the sale of a property and this will incur Court fees. It is therefore preferable to avoid the need for a deputy to be appointed by having an LPA in place. This will ensure that the person you trust to manage your financial affairs is in control.
If you would like to know more about making an LPA please feel free to contact:
If you have a relative with dementia, there is a good chance you will have had dealings with the Court of Protection. It’s a little known specialist court that helps to protect some of the most vulnerable people who lack the capacity to deal with their own property and affairs or to make decisions about their personal welfare. It performs a vital function, but you may have seen the press describe it as "Britain's most secretive court".
News stories about the Court of Protection may lead to you to be anxious about involving the Court in your relative’s affairs but in reality there is no great mystery, the Court is simply there to help.
Loss of mental capacity can occur at any age and for a variety of reasons but, with an ageing population, dementia in the elderly is more prevalent than ever. When this happens, family members are often asked to deal with the financial affairs of their loved ones, only to find that they hit a brick wall if their relative has not planned ahead and made a Last Power of Attorney.
Alternatives to the Court of Protection
Having a power of attorney in place will mean that the Court of Protection’s involvement is not likely to be needed as your relative will have had the foresight to decide who they want to deal with their affairs before they lost their ability to do this for themselves.
Without a power of attorney the only option for relatives is to apply to the Court of Protection to authorise someone to make these decisions by way of an appointment of a deputy.
Who can be a deputy
Anybody over the age of 18 can apply to be appointed as a Deputy and the role can be taken by a relative, friend or, in complex cases, a solicitor. Once appointed a deputy must always act in the best interests of the person who has lost capacity.
How to apply
There are specific Court forms available to make an application asking the Court to appoint a deputy or for a variety of decisions about the person who lacks capacity. The COP application forms are all available at online https://www.gov.uk/become-deputy/apply-deputy. At Freeths we have a specialist team available to guide you through this process.
Responsibilities of a deputy
A property and affairs deputy’s responsibilities may include:
- Opening and operating bank accounts
- Paying bills
- Claiming benefits
- Buying or selling and maintaining property
- Employing and managing carers
- Filing tax returns
- Accounting to the Court on an annual basis
Appointment of a welfare deputy is rare, although individual applications can be made to the Court of Protection for one off welfare decisions, such as:
- Deciding where an individual should live
- Deciding whom the individual has contact with
- Giving or refusing consent for medical treatment
Wills and gifts
- Having a deputy does not mean that someone can no longer make a Will but if mental capacity is so far reduced that a person does not have the ability to express their wishes then the Court can also help your loved one to make a statutory Will.
- Deputies and Attorneys (under a power of attorney) only have limited powers to make gifts from the assets of someone who lacks capacity but in certain circumstances they can apply to the Court of Protection for authority to make larger gifts if this is in the best interests of the person who lacks capacity.
- Fees are generally payable from the assets of the person who lacks capacity. The Court and its administrative arm, the Office of the Public Guardian, apply their own fees for considering and dealing with applications.
- In addition the Deputy is required to take out an annual security bond to insure against their actions as a Deputy.
Our advice is that you consider who you would like to act for you in case you ever lose capacity and prepare for this by making a Lasting Power of Attorney, but if, like many of us, this is put off until it’s too late we can help guide you through the process of applying to the Court of Protection and prevent it from being such a scary place.
If you would like to know more about making an application to the Court of Protection please contact:
The Court of Protection and Gratuitous Care Payments
Court of Protection (CoP) patients often have carers who are family members; this is especially common, for example, when the person is a child and a parent will often be part of the child’s care team. These family carers often receive payments from the patient’s funds for their services, referred to as “gratuitous care payments”.
There has been much debate surrounding gratuitous care payments and in the light of this the senior judge of the CoP recently authorised the publication of a judgment (Re HNL) on this subject, to provide further clarity. A crucial point, in the judgment, is that gratuitous care payments can only be paid by a lay Deputy (e.g. a family member) with the authority of the Court.
The case of Re HNL concerned a patient called Helen who suffers from intractable epilepsy which has led to other cognitive impairment. Helen had surgery for her condition which unfortunately was unsuccessful and resulted in a medical negligence claim and she received a lump sum of £600,000 and periodical payments of £25,000 per annum.
Helen’s brother, Adrian, was appointed as her Deputy by the Court and gave up his job in order to be his sister’s primary carer and case manager. He received a gratuitous care payment of £23,000 a year for his services. On the instructions of the Office of the Public Guardian, who supervise Deputies, Adrian applied to the Court for an order to authorise the remuneration he had already received and his future payments. The Court authorised the past payments on the basis that they were justified and directed that a brain injury case manger’s report should be obtained to evaluate and quantify the services provided by Adrian for his sister. This report quantified the value of those services at substantially in excess of the £23,000 per year that Adrian was receiving, with the report’s author commenting that Adrian was providing “an incredible service” to his sister.
In making his decision in this case, Senior Judge Lush set out the relevant law on gratuitous care payments which the Court has power to award under the Mental Capacity Act 2005. He pointed out that:
- A Deputy should always apply to the Court for authority to pay himself a payment, and a lay Deputy should also apply for authorisation if he or she wishes to pay a payment to another family member.
- The ceiling for a gratuitous care payment will be the commercial cost of care reduced by 20% to reflect the fact that such payments are not subject to tax or National Insurance.
- Payments should be appropriately indexed to inflation proof their value.
In the case of Adrian’s pay, the Court decided that the high standard of services provided, the fact that Helen could afford the payments, and that there was an enormous saving over the commercial cost of the services, meant that the continued payment of £23,000 per year to Adrian should continue.
Senior Judge Lush’s decision to publish this judgment is helpful as it clearly sets out when the Court is likely to authorise the payment of a gratuitous care Payment, how it will assess the situation, the guidelines for deciding on the amount of the payment and, perhaps most importantly, the need for Court authorisation when a lay Deputy is paying themselves or a family member for care.
The Office of the Public Guardian have recently published their own guidance on family care payments which makes it clear that all lay Deputies, whether paying themselves or another family member for care, must obtain Court authority. Where professional Deputies are acting they must take the best interest approach and the Public Guardian will not require Court authorisation as long as the professional Deputy has shown the payments are in the patient’s best interests. Where a conflict may arise over the rate of pay then it is always advisable to apply to the Court for approval.
If you need assistance with making an application to the Court please contact:
What happens if you don't make a Will?
There are four main reasons why people die intestate:
- the deceased failed to make a Will;
- a Will he or she made was invalid;
- a Will he or she had made was revoked by later marriage or remarriage;
Contrary to popular belief, an intestate estate does not go directly to the Government. Instead the intestacy rules apply, as set out in the Administration of Estates Act 1925. The Inheritance and Trustees’ Powers Act 2014 came into force on 1 October 2014. It made some important changes to the intestacy rules for deaths occurring on or after the 1 October 2014 which now take effect as follows:
If there is a surviving spouse:
Q. Is the estate worth more than £250,000?
`No' - Entire estate passes to the spouse.
Q. Does the deceased have children or other descendants?
'Yes' - spouse receives:
- statutory legacy of £250,000 free of tax and costs plus gross interest at the Bank of England base rate from the date of death until payment; and
- half of the remainder of the estate absolutely.
children (or other descendants) receive:
- the other half of the remainder of the estate
'No' - spouse receives entire estate.
If there is no surviving spouse:
Q. Does the deceased have children?
'Yes' - The children will receive everything in equal shares absolutely. This will be held on trust until they reach 18. If a child of the deceased has also died leaving children of his or her own, then his or her children will inherit that child's share.
'No' - Where the deceased dies without leaving a spouse or a civil partner (including where the spouse or civil partner dies within 28 days of the deceased) then the estate passes in the following order, passing only to the next category if there are no surviving persons in the previous category:
- His parents in equal shares, or to the survivor.
- His brothers and sisters in equal shares absolutely, to be held on trust until they reach 18. If his brothers or sisters have also died leaving children of their own, then their children will inherit their share.
- His half brothers and sisters in equal shares absolutely. This will be held on trust until they reach 18. If half brothers or sisters of the deceased have also died leaving children of their own, then their children will inherit their share.
- His grandparents, in equal shares, or to the survivor.
- His uncles and aunts in equal shares absolutely. This will be held on trust until they reach 18. If his uncles and aunts have also died leaving children of their own, then their children will inherit their share.
- His half uncles and aunts in equal shares absolutely. This will be held on trust until they reach 18, If half uncles and aunts of the deceased have also died leaving children of their own, then their children will inherit their share.
If the deceased left no surviving blood relation his entire estate passes to the Crown.
For many people the intestacy rules ensure that their estate is distributed exactly as they would have directed had they made a Will. ie. with most estates going to spouses or children. However, this is by no means always the case and the rules often fail to take into account the complexity of modern families.
The problems which arise most often relate to the following relationships:
It is not unusual for couples to decide that they are happy to cohabit and start a family without going through the formality of getting married. However, if a couple were to live together for their whole adult life or have children together, one partner would not benefit from the other's estate under the intestacy rules. The estate would either pass to the children or the couple's wider family. This can cause significant problems especially if the couple's home is in the deceased partner's name and can often lead to complicated and costly claims under the Inheritance (Provision for Family and Dependants) Act 1975, where the cohabitee argues that reasonable financial provision should have been made for them by the deceased.
Even if the deceased acted as a parent of the child for their whole life, the intestacy rules only provide for biological or adopted children of the deceased.
If the deceased has remarried, leaving children from a previous marriage, the deceased's children will only benefit from the estate if it is worth over £250.000. Otherwise, everything will go to the new spouse and will pass under that spouse's Will or to his or her family under the intestacy rules when he or she dies.
Estranged family members
The rules do not look at individual family relationships. Therefore even if the deceased has been estranged from a child for many years, if the deceased dies intestate the rules will benefit all of his or her biological children equally. Another problem is that spouses who have separated but never divorced will still inherit even if they no longer live together or are in new relationships.
It is very important for you to consider whether you would be happy with the distribution of your estate should you die intestate. Ultimately, to ensure that the people you love are looked after exactly as you wish the best course of action is always to make a Will.