Dangers of Informal Financial Arrangements with Relatives
15 February 2019
In a recent survey, 25% of adults we spoke to over the age of 45 told us they have access to a relative's bank account who isn't their spouse. We outline the dangers of making informal financial arrangements with family members, as opposed to appointing an Attorney in a professionally drafted Lasting Power of Attorney.
1. Activity is Not Regulated or Supervised
When you make an informal financial arrangement with a friend or family member, the way in which they access and use your money will not be monitored or regulated by a supervising body. This means that you are relying entirely on goodwill to ensure the security of your finances.
Of the UK adults that we surveyed, 11% said that they would worry their relative would borrow money from them if they were short themselves. A further 5% told us they suspect that a relative might already have taken money from them.
With an informal financial arrangement, such as giving a relative access to your bank account or opening a joint account with them, no one will be monitoring how this person uses your money. This means that you could be putting your finances at significant risk.
If you put a Lasting Power of Attorney (LPA) in place, you can legally appoint your friend or family member as your attorney instead. A Property and Financial Affairs LPA will grant the named attorney legal authority to handle your financial affairs on your behalf, under the supervision of the Office of the Public Guardian (OPG).
The OPG is a Government body which protects people who are unable to express their wishes. As such it is responsible for overseeing Lasting Power of Attorney and Deputyship arrangements in England and Wales. If the OPG suspects that an attorney is not acting in the best interests of the person who has appointed them, then they will step in and launch an investigation. They also have the power to remove an attorney from their role if they see fit, and appoint a deputy in their place.
2. The Friend / Family Member Isn't Legally Protected
If you grant your friend or family member access to your finances on an informal basis, they will not be acting within the parameters of the law and, as such, will have little to no legal protection. This means that even if they were acting in good faith and in your best interests, they could still face allegations of financial impropriety after your death.
If they were managing your finances within a formal, legal arrangement such as a Lasting Power of Attorney, then their actions will have been supervised by the OPG and they will have been acting within the law.
Any allegations of financial impropriety are likely to arise only after your death, meaning that it's too late for you to vouch for your loved one. This could be a devastating unintended consequence of an informal financial arrangement.
3. Disagreements Between Family Members
If there are any discrepancies after you die as to how your money has been spent, then disagreements could quickly arise between family members as your affairs are wound up and your Estate is administered. If there is any uncertainty around how your money has been spent, then there will be no way of proving this one way or the other.
This could add years to the Probate process and could also cause upset to your loved ones at what is already a time of grief.
With a Lasting Power of Attorney, any discrepancies or concerns can be investigated by the OPG as soon as they are raised. The OPG can then carry out a thorough, objective investigation into these concerns, clearing up any uncertainty for your family.
4. Joint Accounts Transfer to the Surviving Account Holder
If you open a joint account with a family member or friend so that they can access your personal finances, it's important to bear in mind what the implications of this will be when you die.
On the death of one account holder, any joint accounts (and their contents) will automatically pass into the name of the surviving account holder. This means that if you put your life savings into a joint account with a friend or family member, so that they can pay your bills and buy your groceries, for example, they will automatically become the rightful owner of your life savings on your death.
This means that the contents of any joint accounts will not be included as part of your Estate and will not be distributed in line with the terms of your Will (if you have one) or the Rules of Intestacy (if you don't).
Make a Lasting Power of Attorney
A staggering 79% of those that we surveyed told us that they haven't put a Lasting Power of Attorney in place. Setting up a Lasting Power of Attorney for your Property and Financial Affairs is quicker and easier than you might think.
From just £225 (+VAT) our lawyers can discuss your wishes and explain your options, then prepare your Lasting Power of Attorney for you. Also, if you want to activate the Lasting Power of Attorney, we will do this on your behalf at no additional cost, however please note the Office of the Public Guardian may charge their own separate registration fee of £82. This means you can have peace of mind that your finances will be protected and that your loved ones will be able step in to take control for you, without acting outside of the law.