Power of Attorney pitfalls

A power of attorney (POA) is a tremendously useful document, as it allows a client to grant decision-making authority to another person they trust, typically a spouse or family member.

If you have clients who have granted POAs or are getting to a stage where one might be useful, here are a few key pointers to be aware of.

Encourage clients to act early

It’s important to note that a client can only grant a POA while they still have mental capacity. In broad terms, mental capacity means having the ability to make a particular decision at the time the decision is needed.

If a client were to lose capacity without having granted a POA, it can become challenging. In order to make decisions on behalf of the client, a family member or close friend would have to apply to the Court of Protection for a deputy order. A deputy can be thought of as a court-appointed attorney, and they would have full decision-making power.

It’s best to avoid this route if possible as it can be a long and expensive process, and it doesn’t stop once the order’s granted as there are records to keep and reports to file.

Until the point someone has authority to act on behalf of the client, their financial affairs would remain in flux, and it’s unclear if an adviser would still have the authority to continue acting for them.

Check they’ve got the right POA

The standard, formal POA is the Lasting POA, and there are two types: one for health and welfare, one for financial affairs. This replaced the Enduring POA in 2007, although all existing Enduring POAs still have legal effect. There is a standard format document, which is then submitted to the Office of the Public Guardian (OPG) for registration at the outset. It then comes into effect immediately.

A Lasting POA remains in force even if the client loses mental capacity, so it provides a useful safeguard. An Enduring POA can remain in force on incapacity, but it must be registered with the OPG. If an attorney were to continue using an unregistered Enduring POA in this situation, it could lead them open to investigation if they were perceived to have misused the client’s funds in any way. So while it might seem expedient to ignore a client’s incapacity and keep using it, thereby avoiding the hassle of having to send it off, it’s definitely not advisable.

A Lasting POA can be used in almost all financial situations. One key situation where it can’t is with trusts. Some clients may be trustees of family trusts, some might be a trustee of their pension if they have a SIPP or a SSAS. If they do need to delegate trustee responsibilities, they can do so using a specific Trustee POA drawn up under section 25 of the Trustee Act 1925. A Trustee POA is not a long-term solution as it expires after twelve months, and if a client is heading towards incapacity they may be advised to look at finding a replacement trustee.

If a client doesn’t want to commit to a Lasting POA or they want something quick and easy, they could grant an Ordinary POA. They can grant the attorney a general power, meaning they can make decisions on all the client’s affairs, or it can be a specific power limited to certain accounts or transactions. It’s easy to draw up but it must be executed as a deed, meaning it’s in writing and witnessed by an independent party. As incapacity is a theme throughout this article, it’s important to know that an Ordinary POA automatically ceases on the incapacity of the client.

Make sure copies are certified

On a more procedural level, the legislation says that a certified copy has the same legal validity as the original copy. This is useful as many clients will be loath to send original documents to financial services providers by post.

The sting in the tail is that, according to legislation, copies can only be certified by a select band of people comprising the client themselves, a solicitor or a notary public, with no mention of other regulated individuals such as financial advisers.

The copy must be certified on all pages, and the person certifying it must sign and date every page. It’s best practice if the person certifying also prints their name and firm’s name if a solicitor. Be careful as not all solicitors have the same approach to certifications.