Who will look after your investments if you are unable to do so?
It is a sad fact of life that as we get older and more decrepit, we may reach the point where our questionable investment decisions are a genuinely result of diminishing mental capacity.
So before you squander all your hard-earned investment gains on the next Northern Rock, what can you do to protect your wealth in the twilight years?
Powers of Attorney
A simple power of attorney gives someone else legal rights over certain aspects of your life, particularly financial matters, and is often used by people out of the country or otherwise uncontactable for long periods of time. However, this type of power is automatically rescinded should the person granting the power become mentally incapacitated in any way.
Of more use, therefore, when planning for your dotage is the relatively new-fangled Lasting Power of Attorney (LPA), which replaced the old enduring power of attorney on 1 October 2007, although an Enduring Power of Attorney (EPA) set up before the date of change is still valid.
LPAs
The LPA system was revised to ensure greater protection for the person granting the power than was available under the old system, as it seems that occasionally, unscrupulous relatives were getting themselves ill-gotten gains through the EPA rules.
All LPAs are administered and recorded by the Office of the Public Guardian and there are now two separate types; a health and welfare LPA and a property and financial affairs LPA. Although we are focussing on the latter type, be aware that you would need to be very careful in nominating a health and welfare attorney, as it is this person who would decide when, and where, you would be parked in a nursing home…
Each type of LPA costs £120 to register, however the Office of the Public Guardian website warns that you should expect the whole process to take 11 weeks (if there are no problems with your registration) due to an exceptionally high level of applications at the current time.
You might also remember that the level of these fees caused quite a stir when this new system was introduced in 2007. They were reduced from £150 to the current level of £120 in April 2009 and the documentation required was simplified at the same time.
The new LPAs can be structured so that they only come into effect once mental incapacity arrives, meaning you can draw one up now, safe in the knowledge that should you lose your marbles, your portfolio need not go the same way.
Property and financial affairs
As the name suggests, a property and financial affairs LPA grants legal power to another person (your attorney) to deal with your property and financial affairs. Note however, that you do not have to give blanket control over everything property and financial related but you can specify exactly which area, or areas, the LPA covers.
An appointed attorney is legally bound to always act in the best interests of the grantor, and should, therefore, act accordingly. However, with something as personal as an investment portfolio, they are unlikely to manage it in exactly the same fashion as you would have done. In any event, given a change in your circumstances, you'd probably want a more conservative approach. When establishing an LPA you can include guidance to assist your attorney when they are making your investment decisions.
If you've set up an LPA or are in the process of doing so, let us know about your experience in the comment box below...
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