Do you have a Power of Attorney?
When starting a business you will of course try to plan for every possibility.
However, one thing often forgotten about is what should happen if you lose the ability to look after your finances and business yourself.
Most people think of mental incapacity in the context of dementia or Alzheimer’s Disease, and consider it to be an issue for much later in life. It is true that these conditions sometimes come about as a gradual decline, which allows time to take action in advance. But mental incapacity can arise through an accident or a stroke where there is no warning and it can happen to anyone regardless of age. Would you be prepared?
What are Powers of Attorney?
A Power of Attorney is a document by which one person (known as the donor) appoints another person or persons (known at attorneys) to make decisions on their behalf. There are three main kinds of Power of Attorney:
- Ordinary (also known as General) Power of Attorney – these are a simple form of Power of Attorney that are often used for a single transaction, or while the donor is temporarily out of the country. However, they will become invalid as soon as the donor loses capacity, and so cannot be relied on as a protection against incapacity.
- Enduring Power of Attorney (EPA) – these have been discontinued, but EPAs made before October 2007 will continue to be valid. An EPA appoints attorneys to look after the donor’s finances, and can still be used after the donor has lost mental capacity, although at that point they must be registered at the Court.
- Lasting Power of Attorney (LPA) – these replaced EPAs in 2007. They work in a similar way to EPAs although they must be registered before they can be used. However, there are now two different types.
What are the two types of Lasting Powers of Attorney?
There are two types of LPA available, a Property and Financial Affairs LPA, and a Health and Welfare LPA.
- The Property and Affairs LPA allows an individual to appoint someone to manage their financial affairs, including business assets, property and money. For example, if you are a sole trader it could enable someone else to carry on your business and access the business’s bank account, while if you have set up a company it would enable someone to exercise your shareholder voting rights and act as company director on your behalf. This form of LPA is very similar to the old form of EPA and can be used as soon as it is registered.
- A Health and Welfare LPA empowers your attorneys to make decisions on your behalf relating to personal healthcare, welfare and medical decisions, including power to give or refuse consent to life sustaining treatment. Unlike the Property and Affairs LPA, the attorneys appointed are only able to act if the donor is not able to make decisions on these issues themselves.
Registration of both types of powers
EPAs are only registered if the person loses mental capacity. Unless the EPA specifically says otherwise, the attorneys can act under the EPA, as and when is needed, whilst the person still has capacity. When the attorney feels that the donor is losing capacity, they must then register the EPA with the Office for the Public Guardian. This is a legal obligation for the attorneys.
Registration of LPAs is not dependent on the donor being incapacitated and the attorneys under a LPA can only act once the LPA has been registered. It is usually a good idea to register LPAs with the Office of the Public Guardian as soon as they have been prepared. These are then available to use as soon as they are needed.
What happens if you do not have an EPA or LPA and you lose capacity?
If you do not have an EPA, or LPA, and become incapable of managing your affairs, a third party, usually a friend or relative, can make an application to the Court of Protection to be appointed as a Deputy for you. However this process is much more time consuming and more costly, and does not allow you to make a choice for yourself as to whom you wish to deal with your affairs.
A deputyship application usually takes around four to six months, and in the meantime no-one would have any access to your funds and assets, or be able to carry on your business. In the demanding world of business, such a delay could be fatal. By contrast, a registered LPA can be used immediately.
LPAs for business owners
As a business owner you have additional things to think about when making an LPA. For instance, it may be that the person you think best placed to carry on your business if you lose capacity is not the same person you would want to act as your attorney in relation to your personal finances. It is possible to make two different LPAs appointing different people in relation to different assets. This is something on which we would recommend you take legal advice, to ensure that the two different LPAs fit together properly with no gaps.
An LPA should be part of any business owner’s planning for the future. It is comparable to an insurance policy: you hope that you’ll never need it, but it’s reassuring to know that it’s there, and in the worst case scenario, it will make things much easier for everyone. In the event you do lose capacity to run your business yourself, an LPA could mean the difference between your business failing, or continuing to run to support yourself, your dependants and employees.
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