How to Manage a Loved One’s Finances
03 February 2017
There are a variety of reasons why someone may want their finances managed by to a loved one. One of the most common reasons that we see is that a person is getting to a stage in life when they want to plan ahead and recognise that, at some point in the future, they may become unable to make decisions for themselves. In these circumstances they want to ensure they have someone they trust in place to act on their behalf and in their best interests.
Unfortunately many people wrongly assume that their spouse, child or next of kin can simply step in automatically and start dealing with financial matters on their behalf if needed. This isn’t the case.
If you are looking to choose someone to manage your finances, or if you want to manage the finances of another person, it’s vital to understand the legal position.
The first step is to consider the capacity of the person whose affairs need looking after. Are they currently able to make decisions about their own affairs and understand the consequences of those decisions? This is what is meant by having ‘mental capacity’.
Sometimes the answer to this question is obvious but often it is not quite so clear. If the person concerned does not have the mental capacity to manage their own affairs then the options available to loved ones wanting to deal with matters is limited. As stated earlier, a loved one can’t automatically step in as they have no legal authority to act.
Unless the person concerned has already planned ahead by putting in place an Enduring Power of Attorney (before December 2007) or Lasting Power of Attorney (after December 2007) then someone will need to apply to the Court of Protection to be appointed as a Deputy for the person who no longer has capacity.
Being appointed as a Deputy is not a straightforward process, and it can take around 6 months to get appointed by the Court. It requires a significant amount of information and medical evidence to be collated and submitted for the Court to review. It is also costly with the initial application fee alone being £400 plus further fees with every ongoing application where the Court has to approve the decisions that the Deputy wants to make.
Alternatively, if the person concerned does have mental capacity then that person should strongly consider appointing someone they trust under a Lasting Power of Attorney to act on their behalf as their Attorney.
It’s important to emphasise that a Lasting Power of Attorney can only be put in place by the person who is giving authority over their own affairs. It cannot be done on behalf of someone – for example, a child cannot put a Lasting Power of Attorney in place over their mother’s affairs. Even though they may have their best interests at heart, the law does not allow someone to deal with another person’s financial affairs without having the correct authority in place.
A Lasting Power of Attorney gives the Attorney appointed the legal authority to act on behalf of the other person. There are two types of Lasting Power of Attorney available: one enables the Attorney to deal with decisions relating to the property and financial affairs, and the other type covers health and welfare issues. More than one Attorney can be appointed under a Lasting Power of Attorney (LPA) and you can also appoint substitute Attorneys in case the first choice is unable to act. You can also limit and restrict how and when the Attorney acts.
In summary, if someone has mental capacity to make their own decisions, they currently have 2 options. The first option is to put LPAs in place now so they have peace of mind that, should they become unable to manage their own affairs in the future, that there is someone they trust to act on their behalf. The second option is do nothing. If this second option is chosen then it’s important that the person understands the risks involved. During a time when they are extremely vulnerable, they may end up having to burden a loved one with the long process of being appointed a Deputy, or may even end up with someone they wouldn’t have chosen making decisions for them, like the Local Authority.
Putting a Lasting Power of Attorney in place doesn’t need to be complicated or expensive.