Lasting Power of Attorney and The Joint Bank Account Myth
Lasting powers of attorney (LPAs) in England and Wales were created under the Mental Capacity Act 2005 and replaced the former Enduring Powers of Attorney (EPA). Their function is to allow a person to look ahead to a time when they may, perhaps, lack the capacity to look after their own personal and financial affairs. The LPA allows them to appoint an authorised ‘Attorney’ to make decisions on their behalf and was meant to take away the jargon and make appointing an Attorney a simple process.
When should an LPA be made?
The Citizens’ Advice Bureau suggests an LPA should be made if a person has been diagnosed with, or thinks they might develop, an illness which will prevent them from making decisions themselves, such as:
However, as shown on The One Show, without an LPA, an unforeseen accident can cause untold misery for those who need access to finances, yet are unable to have that access. So, we would suggest, that it there is never a wrong time to make – and indeed register – a valid LPA document.
A Valid LPA
In order to make a valid LPA, a person (known for the purposes of the LPA as ‘The Donor’) needs to be over 18, have the required mental capacity, correctly complete the prescribed form, have a person who can act as a ‘Certificate Provider’ and a ‘Person to be Notified’ – A registered will writer can help provide these for you if you do not know the relevant people yourself.
Registering an LPA
There are two types of LPAs:
1. Health and Personal Welfare LPA
2. Property and Financial Affairs LPA
Yet is only a Property and Financial Affairs LPA that authorises the Attorney to deal with the financials such as bank accounts, stocks and shares and business matters.
Once an LPA is signed by the Donor, all Attorneys and the Certificate Provider, it must be registered with the Office of the Public Guardian before it can be used to access the Donor’s bank accounts or records. An LPA cannot be used until it is registered. The process of registration can take up to thirteen weeks and so registering the documents before they are required is perhaps a wise option. Also, if there are any mistakes, albeit minor errors, on the documents then – even if the forms are correctly signed and witnessed, the Office of Public Guardian will insist that the forms are changed and re-registered with a second fee charged. This may cause further problems if, in that time, the Donor has lost capacity and can no longer sign!
The Bank Account
If a person holds a bank account in their sole name and the bank becomes aware that this customer has lost mental capacity, they will freeze the account. Access will only be restored with a Court of Protection order for Deputyship or a duly registered Lasting Power of Attorney. To apply to the Court to be a Deputy can take several months and there are instances where families have argued amongst themselves regarding the best person to take the appointment causing further distress and cost. So, the best scenario would have been if the account holder had made a LPA or Property and Financial Affairs and then have named the person they think best placed to make financial decisions on their behalf.
Of course banks do not take the action of freezing the account lightly, and will only do so if they have received the appropriate level of proof, however, if the person who has lost capacity is the main breadwinner for the family the loss of access to money can cause terrible problems.
Possibly a person has made a Lasting Power of Attorney for Property and Financial Affairs, but did not decide to have it registered. This process can take up to thirteen weeks, which means three months of no access!
A Property and Financial Affairs LPA can be registered even before the Donor (the person who makes the LPA) has lost capacity and will, therefore, be ready when required.
So, you might think, the way to get around this is by setting up a joint account with someone you trust. There are a number of reasons why this is not always a good idea.
What if the trusted person (i.e. the other joint owner of the account) dies before the incapacitated person?
Firstly, the bank would immediately freeze the account in the same way as when the account was held by a sole owner.
Secondly, monies held in a joint account do not pass under a person’s Will but automatically pass in full to the other joint owner, so if the now deceased had any of their own money in the account this would pass immediately to the incapacitated person. The same would happen if the incapacitated person died. Their monies in the account would pass to the other person with whom they held the account, even if this person was not an intended beneficiary.
If the trusted person stayed alive, they’d be no problems though?
Firstly a bank may insist that a separate account is set up for the incapacitated person.
Secondly, the bank freezes the account until it has received assurance that the interests of the incapacitated party are being upheld. They do this as they have a duty to protect the assets of the mentally incapacitated person. The British Bank Association booklet entitled “You and your joint account” states at page 6:
‘If the other joint-account holder becomes mentally incapable, the bank or building society must get an order from the Court of Protection (in England and Wales), which protects the rights of mentally incapacitated people, before they can let you use the account.’
The freezing of a joint account has a serious knock-on effect as the joint owner cannot even withdraw what is their own money without an order from the Court of Protection. This could be devastating, especially if the joint owner is having their only form of income paid into this joint account. They will now not have access to their own pension payments for many weeks.
A Registered Lasting Power of Attorney is sufficient for a bank to allow the joint account holder access to their account.
The other reason for not having a separate account is how the monies in the account will be viewed by the authorities.
When it comes to paying for care, for example separate accounts are a necessity. ‘This is because a local authority ought to be means testing the person who is in receipt of the service (for example, home care or residential care), and no one else.’
The one thing all these issues have in common is that life is much simpler for the person taking care of someone who has lost capacity – and remember this could happen to anyone due to accidents or unexpected illnesses – when a Lasting Power of Attorney in in place and registered.
You may never need it – but it’s there if you do and that is something you can bank on!
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EMH Financial Planning
11 Constable Gardens
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