Understanding Powers of Attorney

What is a POA?

A power of attorney (POA) can be a tremendously useful document. Whether you’re preparing for later life, or perhaps you’re going to be overseas for an extended period of time, a POA allows you (the ‘donor’) to grant legal authority to another person (the ‘attorney’) to act on your behalf.

This authority can be granted over general matters, or it can be limited to specific areas. And depending on which type of POA you choose, it can be put in place permanently or temporarily. Therefore, it’s a very flexible document.

In this article, we’ll look at how POAs work in England and Wales, and we’ll identify areas where you’ll be able to provide value for your clients, particularly as there are a few traps along the way.

Getting it set up

The first, and possibly most important, point to mention is that a client can only set up a POA if they still have mental capacity. (‘Capacity’ is considered the safe, neutral term to use in this context.)

As you’ll likely know if you’ve had family members lose capacity, it’s not always something you can measure with any precision, and it can be fluid from day to day.

The Code of Practice for the Mental Capacity Act 2005 defines a person who lacks capacity as being “a person who lacks capacity to make a particular decision or take a particular action for themselves at the time the decision or action needs to be taken”.

The application form for a Lasting POA, which is one of the different types of POA, requires a ‘certificate provider’ (typically someone with professional skills such as a doctor or solicitor) to confirm that the donor has capacity and understands what they are doing. Other types of POA, however, don’t have this safeguard, so decisions made by an attorney could be open to challenge if there were question marks about the donor’s capacity when they set up the POA.

If your client loses capacity and doesn’t have a POA in place, there is a fall-back provision in the form of a deputy order. To be granted one, the deputy (typically a family member) must apply to the Court of Protection. The deputy can then act on your client’s behalf in much the same way an attorney can.

However, this is not a straightforward process, and there are costs involved. A deputy must also submit regular accounts to the Court of Protection, so it’s best avoided if possible. Therefore, the best advice here is to set up a POA in advance of any potential loss of capacity.

We’ll come onto the different types of POA shortly, but whichever type your clients use, they may want to consider adding specific wording if they use a discretionary investment manager (or might want to use one in future).

In 2015, the Office of the Public Guardian (OPG) – the body tasked with overseeing POAs – updated its guidance to say that donors ought to include specific wording in the POA to allow the attorney to appoint a discretionary investment manager. This seems to have been prompted by a large financial institution deciding that this was necessary based on their understanding of common law agency.

This was the stock wording they provided.

My attorneys may transfer my investments into a discretionary management scheme. Or, if I already had investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue. I understand in both cases that managers of the scheme will make investment decisions and my investments will be held in their names or the names of their nominees.

In 2022, however, they amended their guidance to suggest donors seek legal advice on whether this wording is needed or not. As a result, there are now mixed views in the industry on whether or not this wording is needed.

If setting up a new POA, however, there are no drawbacks to including the wording, and you never know how a compliance team at a given DFM may view this issue in 10-20 years’ time. Therefore, it may make sense to include it to be on the safe side.

Different types of POA

In terms of POA types, the most common is the Lasting POA (LPA), and it’s estimated that there are over five million LPAs currently in force. There are two types: health and welfare, and property and financial affairs.

An LPA must use the prescribed form (LP1F), and it’s this form that is the instrument of the POA. In other words, there is no further form or document issued.

The LPA must be registered with the OPG at the outset, and it can’t be used until then. However, once it’s registered, it remains in force if your client loses mental capacity at any point, which is particularly useful.

Attorneys can be appointed ‘jointly’ or ‘jointly and severally’. If appointed jointly, it means the attorneys must act unanimously. If appointed jointly and severally, however, it means they can act individually or unanimously.

Appointing attorneys jointly provides a stronger safeguard against ill-advised decisions by an individual attorney, but it can prove cumbersome if every instruction needs to be signed by all attorneys, particularly if they live in different places. One might also argue if the attorney isn’t fully trusted to make a decision, they shouldn’t be appointed at all.

An attorney can no longer act if they’ve lost mental capacity, they’ve died, they’ve been declared bankrupt or they’ve got divorced from the donor. If your clients want to prepare for these eventualities, they can appoint replacement attorneys under an LPA. It’s important to note that a replacement cannot step in temporarily to cover for an attorney – they can only act if an original attorney is permanently unable.

Replacement attorneys must notify the OPG and send them the original LPA along with all copies. The OPG will then reissue the LPA. Technically, a replacement attorney can start acting on behalf of the donor as the original ceases to be able to act, but it’s possible that financial providers may be cautious about accepting instructions from a replacement attorney in this interim period before the LPA is reissued.

Enduring POA

Lasting POAs were introduced in 2007. Prior to that, we had Enduring POAs (EPAs). These only related to property and money.

EPAs are still valid, and can still be used. While there was a standard form to use, they didn’t need to be registered with the OPG. The quirk here is that they must be registered with the OPG once the donor loses mental capacity for them to remain in force.

It may be tempting for clients to put off registering an EPA until they are fully certain the donor has lost capacity. However, the official guidance says that they must be registered “as soon as the donor starts to lose capacity”.

The risk to a client is that they make a large financial decision on behalf of the donor using an unregistered EPA, which could then be challenged later on by another interested party such as a family member if they didn’t think the donor had capacity.

Ordinary POA

Depending on their circumstances, a client could also look at creating an Ordinary POA (OPA) (sometimes called a General POA). These are particularly useful when time is of the essence or if it will only be needed for a short period of time.

This is a relatively simple document that can be drawn up by a solicitor or even the client themselves, and there are templates online. If a client is looking to draw one up themselves, there are few points to note.

If a general power is being granted (i.e. it applies to all the donor’s affairs) the document must specifically refer to section 10 of the Powers of Attorney Act 1971. However, if it’s only being granted for a specific or limited affair, it doesn’t – they just need to specify what aspects it relates to.

While it can be a simple document, the client will be advised to set out in precise terms the limitations of the OPA (e.g. a house sale) and consider whether it should have an automatic end date. It’s possible to appoint more than one attorney, and a client ought to indicate whether they can act jointly or whether they can act jointly and severally.

In terms of formalities, an OPA must be executed as a deed. This means it must be in writing, it must state its intention to be a deed, and it must be signed by the donor and witnessed.

Trustee POA

You may have clients who are trustees of family trusts. They might also be a trustee of their pension if it’s a bespoke SIPP or a SSAS.

While LPAs, EPAs and OPAs can be set up to cover most of the donor’s affairs, they can’t be used to delegate trustee powers. To do this, the donor needs to set up a Trustee POA under section 25 of the Trustee Act 1925.

These are very straightforward to do, but they can be overlooked, and this could leave an attorney unable to make important decisions on trust or pension investments, for example.

It’s important to note that these cannot be used in the long-term, as they automatically come to an end after 12 months. If you have a SIPP or SSAS client who is concerned about capacity, they may be advised to transfer to a pension scheme where they are not trustee and where they can simply rely on a Lasting POA.

POA administration

Anecdotally, it seems one of the main challenges with POAs is getting them accepted by financial providers, and you hear of different providers having different policies and approaches. There are a couple of areas where this has been brought to light.

In 2020, the OPG introduced the ‘Use an LPA’ service. This is an online portal whereby donors can use it to generate a temporary access code that financial providers can use to check details of the LPA. Not all providers use this, however.

There are also differences amongst providers when it comes to copies of POAs.

The Power of Attorney Act 1971 says that a copy of a POA carries the same legal weight as the original if it has been certified as a true copy by the donor, a solicitor or a notary public.

Financial advisers, despite being regulated and subject to strict rules, are not on the list. However, some providers are more relaxed than the legislation and will allow advisers and other professionals to certify copies.

In terms of the certification itself, the Gov.uk guidance provides standard wording, and the person certifying must sign and date every page. It might also be advisable for the certifier to print their name and their law firm (if a solicitor).