How to keep an elderly relative’s finances safe
According to data compiled by the Social Security Administration, a man reaching age 65 today can expect to live on average until age 84 and a woman until age 86.
Not only are people now living longer in retirement they are also living longer in ill health, more commonly suffering with mental health issues. Despite an increase in treatments and public awareness of mental health illnesses the prevalence of issues is still climbing.
Many families will be fully aware of the stresses and strains a family member suffering with mental illness can put on everyone. Trying to understand what is happening to a person that you love and more importantly trying to find the best ways to protect them can be difficult and complicated. Most families will concentrate on keeping their loved ones safe physically but not all families think about keeping their finances safe as well.
Lasting power of attorney (LPA) can be a very important tool to making sure your relative, especially those who are in retirement and don’t have an abundance of disposable income, are going to be comfortable and financially stable for the rest of their lives.
An LPA is a legal document that lets a ‘donor’, someone who is perceived to lack the mental capacity to make decisions at the time they need to be made, appoint one or more people who are known as ‘attorneys’ to help them make decisions or to make decisions on their behalf.
There are two types of LPA, health and welfare and property and financial affairs. You can choose whether to make just one type of LPA or both. It costs £110 to register an LPA unless you get a reduction or exemption. For example, if the donor’s income before tax is less than £12,000 a year you will only have to pay half the fee.
A property and financial affairs LPA gives an attorney the power to make decisions about money and property for the donor, for example: managing a bank or building society account, paying bills, collecting benefits or a pension and selling their home. This is particularly important with regards to a pension, as individuals no longer need to purchase an annuity and can have a very large amount of money invested. One wrong decision could see this amount diminish significantly. We have had a case recently where a gentleman had a LPA in place but kept calling our administrators instructing them to buy one particular stock; he was lucky as he was protected due to his foresight as he developed dementia.
It can be a difficult decision for a family to make. To take control of a loved one’s finances can feel like you are taking a huge amount of their independence away from them. What some people find difficult to understand is the huge benefits it can have putting this in place before it’s too late.
Three reasons why a LPA should be considered are:
- Safety and security: Ensuring the things in life your relative has worked hard for, whether that be a family home, a business or a pension are protected, with the assets and funds being placed in the best possible environment for potential growth.
- Peace of mind: By taking control of a relative’s financial decisions, especially those who are of an older generation and may not be aware of regulatory changes and industry developments, you are enabling them to live the rest of their lives in peace without having to make complicated decisions they don’t have the mental capacity to do.
- Cost: If a relative doesn’t make an LPA and loses the ability to make one, in the case of a decision being made when they are not of sound mind causing financial loss, you will have to make an application to the Court of Protection to be appointed as a Deputy. Fees for this start with a £400 commencement fee payable to the Court plus a certificate of medical evidence which can be between £75-£200. There are also further fees that will need to be considered especially if there are complications such as objections from other family members. Making a LPA is therefore the best option in terms of cost.
If you are considering registering for a LPA or need help deciding if you should make one, contact the Office of the Public Guardian.
Elaine Turtle is director at DP Pensions