Contrary to popular belief, no individual has an automatic right to manage someone else’s finances, even if they are related to them, or are their spouse or civil partner.
So, what happens when you can’t manage your financial affairs due to ill health and nothing has been put in place? The truth is it’s an expensive, lengthy and time-consuming problem to resolve.
For many individuals, Wills and LPA’s ( lasting power of attorney ) along with many financial products, sit in the category of ‘I will do it tomorrow’ and often it takes a professional adviser to give the person the nudge required for them to take the necessary action.
State of health
Many health conditions prevent people from being able to manage their finances. The two most common are dementia and stroke, and the numbers are quite stark. Some 2% of people aged 65 to 69 have dementia, by age 85 to 89 it’s 20%. And, there are approximately 152,000 strokes in the UK every year.
A sensible approach should be that when any individual puts in place a financial product for themselves, they should also explore what would happen if they were unable to deal with their financial affairs themselves.
This is because if you are no longer able to manage your finances due to health reasons, no one else can do it for you without legal authority. This is also true if you have joint bank accounts.
Most people assume that if their partner suffered a stroke or developed dementia then they could carry on operating the account and would have access to things like their pension income which may go through that account.
However, guidance from the British Bankers’ Association means that banks will often freeze joint accounts if one of the account holders is mentally incapable unless a lasting power of attorney is in place or a Court of Protection order has been obtained. The reason given by the banks is that joint accounts can only operate if there is continuing agreement of both parties – plainly this can’t happen if one party is not capable of agreement.
The Court of Protection
So, without a lasting power of attorney the first thing that must happen is someone will need to apply to the Court of Protection for a ‘property and financial affairs deputy order’. This allows a deputy or preferably deputies to deal with your finances.
It is advisable for more than one person to apply, because if only one deputy is appointed, and they couldn’t act for any reason (for example, being on holiday, becoming bankrupt or death), then you would be back to square one.
Appointments are usually made ‘jointly and severally’, which means that any one deputy is able to act independently at any time.
The Court of Protection prefers family and friends to be deputies, however, if there are family disagreements or if your assets are complex, it may be best to appoint a solicitor or legal professional.
While the court forms are available on Gov.uk many people do ask solicitors or legal professionals for assistance as the process is complex. The court require information regarding your assets, income and liabilities, a medical certificate and a declaration by each deputy to confirm they are suitable and will undertake their duties properly. It’s worth noting that many NHS doctors will not complete the medical certificate, and those who do may charge up to £300.
Typically, it takes about a month to obtain the information and complete the forms.
Some £400 is payable to the court, and it takes a further month for the court to issue the formal application. Your proposed deputies need to notify various family members, including yourself, even though you may not understand. This gives everyone a chance to object to the appointment of a deputy. You plainly have no control over who might do so.
Assuming no objection, the court requires an insurance bond which pays out should a deputy illegally take your money. For £300,000 cover the annual premium is about £225. With the bond in place the court issues the property and financial affairs deputy order along with guidance for the deputies.
A separate bank account needs setting up to manage your financial affairs. And your deputies will send the order to all the institutions that you have dealings with.
The Office of the Public Guardian will charge a fee of £100 to consider what supervision level the new deputies should be allocated to. There is also an annual supervision fee of £320 year for assets of over £21,000 and £35 if less.
This whole process takes about six months and is considerably more expensive than having a lasting power of attorney in place before a need arises as the typical example in the table below shows.
The table also shows an indicative cost for a single individual, based on one year and five years, being an indicative life expectancy. It assumes legal advice is taken for both matters. It also assumes no on going legal support.
|Financial Lasting Power of Attorney||Fees||Attorney via Court of Protection||Fees|
|Year 1||Year 1|
|Solicitor (inc VAT)||£780||Solicitor (inc VAT)||£2,100|
|Court Application||£82||Court Application||£400|
|Year 1 total||£864||£3,345|
|Subsequent years||£0||Annual Supervision Level||£320|
|Annual Insurance Bond||£225|
|5 year total||£864||£5,525|