Using Lasting Power Of Attorney For Care Planning
We covered setting up Lasting Powers of Attorney for care planning in the previous article – found here.
Once set up, there are considerations around the document will be used.
Firstly, it has to be remembered whose money it is. It’s what the owner of the LPA wants, not the attorney. It’s what’s in the best interest of the owner with regard to care funding, planning, preferences and care objectives of the owner. We can write to the attorney but only in that capacity. Here it is really important to have those annual financial planning reviews where we will get a true understanding of the donor, the owner of the savings, investments and property and how these financial assets need to be organised most efficiently to pay for care. Alongside this, a Letter of Wishes can further steer the attorney on the care goals and objectives for the money.
Here the role of the financial planner is crucial in supporting the attorney in managing the person’s money with a view to care funding. Both in the short and long-term. What are the person’s financial goals? Is it care funding, planning and protecting assets from care costs and tiptoeing through the deliberate deprivation minefield. Is it organising tax free, ‘above board’ family carer payments for care. Are there ‘shoulder’ financial goals like Inheritance Tax or Estate Planning that need to be accounted for as well as care fee planning.
Is equity release required to raise some funds on the family home to pay for care? Many would like to stay at home and pay for care at home and equity release can be a useful tool for doing just that. Should a Deferred Payment Agreement be considered?
Later Life: Who Decides When You Can’t?
The reality is the longer retirement lasts, the greater the chance of cognitive decline or dependency. Yet many existing financial plans, investments and pension drawdown plans ignore this fact, especially when those very assets are needed for care planning and care funding decisions.
This is why a key feature in our ongoing financial planning reviews with clients is Lasting Powers of Attorney (LPA). We consider discussions around LPA essential at the point of setting up pension drawdown, investments or any retirement income plans because these arrangements will often be needed for care fees. In fact, if you haven’t had this conversation with your IFA, it may be time to review your relationship. Pension drawdown specifically relies on flexibility, and it is critical to ensure that someone can act if they are no longer able to do so. Especially if that pension is needed for care fees.
Any investment strategy cannot be changed to reflect the changes in your lifestyle or a switch to care priorities unless there is an LPA (obtaining a deputyship order is expensive and time-consuming and often not practical). Therefore, not organising LPAs at the outset with on-going review, risks leaving older people unable to adjust investments according to the new need for care. LPAs are the greatest vehicle to maintain control in later life, especially when you have reached the care stage, because you choose upfront who makes decisions when you can’t and how those arrangements should be implemented with your care in mind.
One of the most common misunderstandings about LPAs is that once an attorney has been appointed, they can do whatever they wish with the donor’s assets. However, when the donor lacks capacity, the attorney (or attorneys) needs to act in accordance with the Mental Capacity Act 2005 and its code of practice, so actually legally they cannot do whatever they like – there are stringent rules.
It is also a common misconception that joint accounts are exempt from mental capacity issues that only affect one account holder. If two people share a joint account and one person loses capacity, unless this person has appointed an attorney to manage the account on their behalf, then the whole account will be frozen. Lack of access to bank accounts could leave care funding problematic whilst this problem is overcome.
It is the attorney’s role to act in the donor’s best interest, not their own. So, if a situation arises where the attorney might diverge from the client’s original intentions, it’s important that questions are asked: who is benefiting from these decisions? Depending on the extent of the incapacity, it is important to involve the donor in the decision-making process around their care insofar as they are able to participate. Account must be taken of the donor’s past and present care wishes and feelings, beliefs and values. These scenarios play a significant part of our ongoing financial planning reviews with clients.
Sometimes investment decisions need to be approved by the Court of Protection. And, if there is reason to believe that the attorney is not acting in the best interest of the donor, steps should be taken to report the attorney to avoid potential financial harm to the donor.
If an attorney’s investment decisions or risk appetite diverges from the client’s original intentions, the donor’s written wishes should be reviewed. What does the LPA or accompanying Letter of Wishes actually authorise? Any explicit investment limits, preferences, income needs or gifting restrictions. If the donor has documented clear investment instructions or letters of wishes, those should always be followed. It should be absolutely clear when the time comes what the donor’s wishes are around care and these should be communicated well in advance of ever needing care.
Where the LPA is not clear in certain areas, attorneys must act in line with the client’s best interests — that typically means meeting foreseeable income needs and possibly preserving capital for long-term care.
If an attorney’s decisions appear to conflict with the client’s stated objectives, we will engage with the attorney to understand their rationale, which could be based on tax planning, estate considerations, or changes in circumstances.
We then assess whether the attorney’s actions comply with the client’s risk tolerance and financial objectives, with the overarching consideration of whether a decision is in the donor’s best interests, before reaching a decision with the attorney.
Throughout this process, clear communication and thorough documentation are essential, with regular reviews to ensure the portfolio remains aligned with your goals and the attorney’s legal responsibilities.
Letter of Wishes
This is a separate and signed and dated document reviewed and updated at your annual review. It needs to be kept safely and securely alongside (but not attached) to your legal documents and financial planning paperwork. In short, ensure it needs to be readily available and can be found!
When planning for or paying for care it is important to know that the side Letter of Wishes is direct, professional and up to date. Any Letter of Wishes should explain your care objectives, preferences and patterns. It should indicate any triggers for such care planning, like if the property were to be sold meaning cash would be available, how should that cash be best utilised.
Here our financial planning review reports will also help guide both you, the attorney in establishing the goals and motives for the person who is preparing or is paying for care.
Harold Stephens
Harold Stephens is a local, later life financial and legal planning specialist with a special interest in long-term care provision and tax efficient funding options. If you, or your loved one, are at the point of care need and are currently making important care funding decision then get in touch now for an initial chat with one of our specialist advisers by calling 0117 3636 212 or emailing office@haroldstephens.co.uk.
We will also be putting on some in person events throughout October and November in the local area covering the topic of care funding decisions and related later life financial and legal planning. Event details are updated regularly here: https://www.haroldstephens.co.uk/events/
