Every three minutes in the UK, someone is diagnosed with dementia. However, family members are unable to access their finances or do anything about their home and care unless the court has granted them authority through a Power of Attorney (PoA) or a Lasting Power of Attorney (LPA).

As people get older, they may not always have the mental capacity to make their own decisions. This could be for many reasons, such as illnesses like dementia or life-threatening injuries. In these circumstances, setting up an LPA is often recommended to allow someone you trust to deal with your finances, property, health and welfare matters on your behalf. If you have not set up a PoA or an LPA, your family will have to go through the courts and apply to be a ‘deputy’, which takes time and costs money. The other factor to consider is that you are not able to set up a PoA or an LPA if you do not have the mental capacity to do so. Therefore, the earlier you nominate a trusted friend or relative, the better.

If you are acting on behalf of a relative, there are certain activities that you can and can’t do, one of which is you can’t borrow money. As well as explaining what PoA is, we will also consider secured and unsecured borrowing.

What is a power of attorney?

A Power of Attorney (PoA) – is generally used as a temporary arrangement while a Lasting Power of Attorney (LPA) – is an ongoing arrangement with no expiry date. The PoA is a legal document that you set up appointing someone you trust to make decisions for you if you do not have the mental capacity to make them yourself. Also known as an LPA, the sort of decisions they can make on your behalf concern your:

● Finances
● Property
● Healthcare
● Personal care and welfare.

The ‘attorney’ does not have to be a lawyer or a legal professional. Under the Mental Capacity Act, it could be your spouse, civil partner, common law partner, friend or a family member. You are also able to set up more than one person and specify that all decisions must be made jointly or ‘severally’, i.e. one or the other can make the decision on their own. It is also possible to have an LPA for finance and property, and a different LPA for your health and welfare, with different people appointed.

Sometimes, a PoA is only a temporary measure, i.e. if you have suffered a life-threatening injury and are in a coma, or they are permanent, for example, you have been diagnosed with Alzheimer’s or dementia.

For some people, having this in place means that your attorney may refuse certain medical treatments on your behalf if you are incapacitated, such as resuscitation, blood transfusions or other therapies. With some religions, medical activities, like blood transfusions are not allowed and having a PoA in place means that a person’s religious beliefs are not dishonoured.

What can be done with a power of attorney?

Whether it is a temporary arrangement or a longer term one, the person you choose to act on your behalf has the power to do a number of things, including:

● Collect your pension or benefit payments.
● Pay your bills, which can include switching utility providers or resolving tax issues.
● Manage your finances including money in your bank or building society accounts, and your insurances, such as life, buildings and contents.
● Maintain/repair your home.
● Buy and sell your investments.
● Buy and sell your home and/or other property but it must be at market value.
● Rent out your property, i.e. to pay for your care.
● Buy and give gifts to family and friends, such as birthdays, anniversaries and weddings.
● Purchase items you require.
● Claim out of pocket expenses.
● Decide where you live, including arranging a care home for you.
● Make decisions on medical care, including long-term treatment.
● Make decisions on your daily care/routine, such as eating, washing and dressing.
● Give or refuse life-sustaining treatment, including making decisions in your best interests.

However, you can make certain stipulations, such as extra instructions or the recording of meetings. For example, you may advise that your property can be sold or investments over £5,000 can only be done if a financial adviser is consulted.

What can’t be done with a power of attorney?

However, there are also things you can’t do with a power of attorney and these are:

● Make financial gifts to people, including family and friends, that are particularly large.
● Work with a fund manager to manage any discretionary funds.
● Pay yourself a salary (fee) unless this has been previously agreed and is authorised within the LPA or PoA.
● Combine finances, i.e. put their finances in with yours. You must always keep separate banks, building societies and insurance accounts.
● Use your position as attorney to your benefit or personal gain.
● Purchase an item/asset at below market rate without the authority from the Court of Protection.
● Conduct tax planning without authority from the Court of Protection.
● Make any decisions that will restrict their freedom.
● Make any decisions when they still have their mental capacity.
● Make any assumptions based on their appearance, behaviour, age or condition.

Secured and unsecured borrowing explained with power of attorney

It must be remembered that the PoA or LPA are legal documents which allow someone to act on your behalf should you become mentally incapacitated, temporarily or in the long term. Therefore, if the person that is no longer able to make their own decisions is in debt, the ‘attorney’ is not responsible for those debts.

If that person has a Debt Relief Order (DRO) or an Individual Voluntary Arrangement (IVA) in place, the PoA is not directly responsible for the debt. However, if they are handling that person’s affairs, they have a duty to ensure any regular payments are continued. As an attorney, there are certain financial activities you are not allowed to do, such as apply for credit, loans, credit cards, store cards or overdrafts, i.e. unsecured debt, or take out loans/mortgages and use the donor’s home/property/assets as collateral, in the donor’s name, but you can make payments towards existing debt/mortgage payments.

If you are considering setting up a power of attorney or a lasting (enduring) power of attorney, or are handling a deceased’s estate, and not sure what your next step should be, the first step is to seek professional advice. Our highly experienced professionals at Leading UK are on hand to help and advise you on the process.