A lasting power of attorney (LPA) is a legal document that lets you (the donor) appoint one or more people (known as attorneys) to help you make decisions or to make decisions on your behalf.
The LPA gives you more control over what happens to you if you have an accident or an illness and can’t make your own decisions (you ‘lack mental capacity’).
For example, through the LPA you can give an attorney the power to make decisions about money and property for you, such as managing a bank or building society account, paying bills, collecting benefits or a pension, and selling your home. They can also be given power to make health and welfare decisions on your behalf when you are unable to do so yourself.
An LPA is a relatively simple document to set up and it costs £82 to register with the Office of the Public Guardian. But, whilst having someone in place to manage your affairs when you are unable to is an essential part of financial planning, Henry Brennan of Charles Stanley* warns that an LPA can limit inheritance tax (IHT) planning.
“While an attorney can give presents on ‘customary occasions’, including weddings and birthdays, and are permitted to continue making donations to charities if they have been previously supported, they don’t however have the authority to make significant gifts on behalf of the person who appointed them. Since this is often an effective method of reducing the size of an estate in order to minimise IHT, this can represent a problem,” Henry says.
He does however say that, whilst an attorney cannot be seen to be ‘giving away’ a donor’s money without costly court involvement, there are ways of reducing future potential IHT liability. It is however important that estate planning starts early if this is to be effective.
“This highlights the importance of long-term financial planning,” Henry says, adding: “It is also worth noting that setting up other gifts such as school fees for grandchildren or interest-free loans to family members are not permitted under the current LPA rules. Attorneys are additionally unable to make changes to the donor’s will so the best option is to speak to a qualified financial planner as early as possible in order to manage future financial expectations.”
Inheritance Tax can have disastrous consequences for families and lead to a very substantial part of a person’s estate being paid to the Revenue. Worst of all, IHT could create financial problems and anxiety for your family at what is undoubtedly already a very difficult time.
With specialist advice, forethought and sensible tax planning IHT can be mitigated. Our Beavis Morgan tax experts are available to guide you and advise on the available strategies.
* Source: City AM