Month: November 2019

Stay on the right side of the law with Lasting Power of Attorney

Whilst Lasting Powers of Attorney can be the ideal way to safeguard the financial affairs of someone who has unfortunately lost the capacity to do it for themselves (the donor), it does come with some important and onerous responsibilities. 

If you are not fully aware of these, then there is a danger that you could end up with a court judgment against you. In fact, in 2018/2019 court judgements against people acting outside their permitted powers more than doubled on the previous year.

It’s a complex area of law. However following a recent ruling by the Court of Protection (COP), which was referred to them by the Office of the Public Guardian (OPG), new guidance is now available. In order to save you the job of sifting through the Court’s judgement and summary, I’ve highlighted the main points in this blog.

The majority of cases under review contained compulsory instructions given to the person with the power of attorney (an attorney) on how they should act. The court rules that the use of compulsory instructions was incompatible with the notion of having to ‘act in the best interest’ of the donor and that an attorney should not be bound by such instructions.

In terms of an attorney using the donor’s money for the benefit of others, without the need of gaining approval from the COP, the judge also made the following important comments:

How to make gifts 

The Mental Capacity Act 2005 clearlysets out what gifts an attorney is able to make. With restrictions in place to protect the donor’s assets from being ‘gifted away’.

As an attorney, you are able to make gifts on birthdays, Christmas or to charities the donor may have previously been a supporter of; with the value of that gift been seen to be reasonable and not detrimental to the donor’s future financial needs.

Obviously this hinders any estate planning that hopes to use large gifts as a mechanism for reducing the value of the estate.

It is possible to make gifts outside of these restrictions by applying to the COP. However this will add costs and delays, with no guarantee of a successful outcome.

If the donor is still capable of making the gifts themselves, then this should be supported. Although, if the donor has any intentions of making substantial gifts this is best done prior to incapacity becoming an issue.

Can an attorney provide for others?

If a payment is deemed to meet the needs of someone the donor was obliged to provide for, such as a spouse or any dependents, then this has always been viewed differently to that of a gift.

However, the recent ruling by the COP has extended this. The Judge commented upon the requirement to act in the ‘best interests’ of the donor, so felt that an attorney shouldn’t just be limited to ‘needs’, but should also take into consideration the donor’s ‘past and present wishes and feelings, beliefs and values’. Which broadly means that an attorney can do whatever he or she believes that the donor may have reasonably done themselves; but you may need to provide some evidence of this. 

Providing evidence of intention

The best evidence of intent comes from a donor’s past behaviour. Or, better still, an expression of intent included within the power of attorney document. 

When making decisions an attorney need only take evidence into account, they are not bound by it. As an attorney’s main consideration should always be the best interest of the donor and not the interest of the recipient.

Be aware that justifying an action on the basis of saving Inheritance Tax (IHT) is unlikely to be deemed to be in the donor’s best interest. There needs to be other factors and motives, although the size of the donor’s estate and associated costs of lifestyle and care can also influence decisions.

As a general rule, and to avoid misinterpretation, any money transferred to an individual that falls outside the definition of a gift under the Mental Capacity Act 2005, will be deemed to be a transfer of value for IHT, unless it’s covered by an exemption.

Scottish independence!

If you are in Scotland, then the legal position is a little different.

An attorney is able to make gifts, including those for estate planning purposes, just as long as the donor has specifically included this within their power of attorney document.

To sum things up

The ruling by the COP provides greater opportunity for an attorney to provide for the needs of family members, without being confined to only providing gifts on birthdays or Christmas. However, these provisions need to be made in conjunction with a clear expression of wishes by the donor along with a belief, by the attorney, that these actions are in the best interests of the donor.

Any uncertainty should result in an application to the COP for further clarity and permission. 

As always, if you have any questions regarding Lasting Powers of Attorney, or if you need to put an LPA in place, then please contact us at Bridgewater Financial Services, where we will be delighted to guide you through the complex process.

Don’t sleep through the changes in your pension statement

Wake-up packs and how NOT to lose sleep over them

“Pensions Statement” is possibly the right word for those of us who have thought about these things. Wake-up pack feels a little more like a hysterical last minute plea!

However, whatever your thoughts on the name, as of Friday 1 November 2019, The Financial Conduct Authority (FCA) has determined that every pension customer should receive a Wake-up pack, from the age of 50 onwards. The pack will be provided by the pension provider and will contain a one-page summary of the pension details and should be updated every five years until the pension is eventually cashed in.

The one-page summary will include:

• The value of your private pension
• Your assumed retirement date
• The contributions made that year by you and your employer
• General information on retirement planning

All Wake-up packs will also carry a risk warning that is tailored for the individual that the packs is being sent out to. So as you will imagine, the risk warning to a 50 year old will be different to that of someone who is 75 years plus. These warnings will be tailored according to the information that the pension provider holds on the client receiving the pack.

Although providers will have free rein to include whatever risk warnings they want, most will cover the risks of pension scams, contributions and investment risk as well as an explanation of tax issues.

What’s the big idea?

The motivations and idea behind this new wake-up pack is to encourage you to consider your approaching pension and to give you the time to put more money aside to cover your retirement, if it seems necessary.

The wake-up pack will also contain information regarding the Government’s Pension Wise Service. Along with a summary of the possible advantages of shopping around when purchasing a pension in the first place, as well as the best practice to follow when exploring this. Assuming you haven’t already covered all of this off with your Financial Adviser.

Packs will start to arrive:
• Within two months of you reaching your 50thBirthday
• Four to ten weeks before reaching the age of 55 years
• After 55 they will arrive every five years until your pension is cashed in

Additional triggers for the packs are:
• When you ask for a retirement quotation (if it’s more than six months before you intend to retire)
• When you are considering, or have stopped, an income withdrawal arrangement
• When you decide to take further benefits from your pension.
• When you request to access your benefits for the first time

Although packs do not need to be sent out, if you have already received one in the last year. Which is good news for the trees, as all wake-up packs must highlight that guidance is available from Pension Wise and, apart from the one sent at aged 50, will also have to be accompanied by a brochure from the Money Advice Service.

So has your financial adviser been asleep then?

You would assume that all these issues and more would have been taken care of by your financial adviser – and in most cases, you’d be right (depending upon who your adviser is).

So don’t worry, as these new requirements are mainly aimed at helping non-advised clients make better decisions for themselves. If however there is anything in your wake-up pack that you have any questions about, then don’t hesitate to contact your adviser and ask.

As always, if you have any questions regarding your current or future pension strategies, then please contact us at Bridgewater Financial Services where we will be delighted to help.