Posted on: 09/06/2022 by: Kyle Phillips in: Planning, SMEs, Self-employment
In today’s blog we will be looking at what a lasting power of attorney (LPA) is and why it is important. A lot of people aren’t too savvy on the subject so today’s aim is to shed light on the process, how it works and why it is so essential, especially for business owners.
So, what is a lasting power of attorney? Well… a lasting power of attorney is a legal document in which you can allow someone, family or friends, to act on your behalf or make decisions for you if you are no longer able to yourself. This document is used in circumstances where someone turns ill and is unable to make decisions or handle their finances anymore.
A business LPA
An LPA takes on even greater importance for business owners and although you can have a single LPA to manage both your personal and business affairs it is usually a good idea to have a separate business LPA. This is because the person you nominate for your personal affairs may not have the necessary skills and experience to run a business and there may be a conflict of interest. A business LPA will safeguard the future of the business and your family’s livelihood.
Reasons for an LPA
There are a number of different reasons why someone might decide to give over power of attorney, these include; a temporary situation such as being ill in hospital and needing help completing tasks like paying your bills. Another reason is if you’ve been diagnosed with dementia and you lose your mental capacity and can’t make sound decisions anymore then a lasting power of attorney is needed. My experience of a lasting power of attorney was in the realm of dementia where a family member was no longer able to make appropriate financial decisions so another family member took over the responsibility.
Let’s dig deeper into what mental capacity actually is. Mental capacity means the ability to communicate or make decisions when they need to be made. If you have mental capacity that means you are able to understand the decision you are making and go through with it. Knowing why you need to make a decision, what the outcome would be, and when you need to make it are all needed to have mental capacity.
Of course, some people are able to make decisions for some things but not all of them. An example of this is: They can pay for a pair of shoes but they aren’t able to organise and pay their gas and electric bills. An alternative to this is also someone having the ability to make certain decisions but not all of them, and these decisions they can make on their own can change day-by-day.
Having to take more time to communicate doesn’t mean you lack mental capacity. For example, if you suffer from dementia you may still be able to make decisions for yourself. If someone is struggling to communicate a decision then an attempt to help and listen should always be made to try and overcome the difficulties at hand. It’s always better to try and help someone make their own decision rather than jumping straight onto applying for the lasting power of attorney.
Different types of power of attorney
There are three different types of power of attorney, these include; Lasting power of attorney (LPA) including a business LPA, ordinary power of attorney, and enduring power of attorney (EPA).
Ordinary power of attorney simply means that all decisions surrounding financial affairs are covered if needed and are valid while you still have mental capacity. This is also suitable for if you need help for a temporary period of time if you are stuck in hospital or are struggling to get out of the house, or if you would prefer someone to act on your behalf.
Lasting power of attorney would cover all decisions surrounding financial affairs or also your health and care. This is used if you lose your mental capacity and are no longer able to make your own decisions or if you don’t want to be yourself anymore. An LPA can be set up if you want to make sure you are covered for in the future.
In October 2007 enduring power of attorneys were replaced by LPAs. But, if you created an EPA before the 1st of October 2007 then it would still be valid and usable. An EPA covers decisions surrounding your finances and property affairs, an EPA would come into place if you were to lose your mental capacity.
If you need help with an LPA or any aspect of estate planning you can speak with one of our experts by clicking <HelpButton />
Business Butler is an on-demand talent platform that connects users with a panel of vetted business experts who specialise in a range of disciplines including marketing, law, finance and human resources. To find your ideal expert please click here.