Quirky clauses and loopholes to look out for in your Power of Attorney and will

A will and Power of Attorney are powerful legal documents that ensure your wishes are followed during your lifetime and beyond. A will kicks in after death, and a Power of Attorney sets out who you’d like to make decisions for you if you are no longer able to make them for yourself.

It’s best practice to review them every five years, updating them according to any changes in your life or circumstances. This five-yearly check is also a great opportunity to make sure all the documents are watertight and free of any quirky clauses or legal loopholes that could mean your wishes aren’t carried out as you’d like.

Michael Culver has helped hundreds of people complete their wills and Power of Attorney. He is Chair of SFE, the membership body for solicitors specialising in supporting older and vulnerable people, and a Partner at Bolt Burdon Solicitors.

Make sure your EPA is signed

Enduring Powers of Attorney (EPA) were a forerunner to Lasting Powers of Attorney (LPA). EPAs were phased out after 1st October 2007 but if you made an EPA before that date, it will still be valid. SFE Solicitors see a lot of EPAs that are either unsigned, signed after October 2007, or signed without being in the presence of a witness – all of which would make them invalid meaning a new LPA would need to be prepared. It is worth checking this now and arranging an LPA if it turns out the EPA is not valid.

Survivorship clause

When someone’s assets pass to a spouse or civil partner who survives for only a short time, it can result in a bigger inheritance tax (IHT) bill, as well as doubling the admin load. A survivorship clause in a Will prevents this; however, the clause should be used with care. If a beneficiary outlives the given period (which can be anywhere between 28 days and 6 months) it can really complicate the IHT situation and even increase the amount to be paid. There are ways to reclaim this but its complex and thus costly.

Non-exempt beneficiaries

Beneficiaries exempt from paying IHT include spouses or civil partners, registered UK charities and qualifying political parties and national institutions. Non-exempt beneficiaries are anyone or anything that doesn’t fit into these categories. If your Will contains a mix of the two, it’s important to decide whether distribution of your estate takes place before or after IHT is paid.

Dividing before is the simplest option, and the one that results in less IHT to be paid; however, exempt beneficiaries end up getting a higher share of the estate. Dividing after, results in more overall IHT payable but the estate is distributed more evenly between exempt and non-exempt beneficiaries.

Wording to allow freer financial investment

There is specific wording that is worth including in your LPA to allow your Attorney (the person or people you give decision-making power to) to invest your money with fund managers who have discretion to make investments. Giving fund managers discretion often means better returns on your investment so could be something you want to do. There is no clear guidance as to whether this is strictly necessary but it might be wise to include to prevent any problems down the line.

No replacement attorneys

An LPA set up without a replacement Attorney could cause difficulties as the Attorney would need to be replaced if the original died, refused to act, became unwell or bankrupt. Without a replacement Attorney, a Court of Protection application would be the default option which could be costly and time-consuming.

Safeguards and protections

It’s worth checking if your LPA has safeguards built in.  These could include requirements for attorneys to produce accounts to a third party each year — or a limit on certain decisions like blanket bans on the selling of property or family heirlooms or restrictions on gifts and loans.

Jointly or severally?

LPAs can be set up in multiple ways: jointly (where all attorneys must make all decisions together), jointly and severally (where the attorneys can act independently but must keep each other informed) or a combination of the two (where the agreement can require joint decisions on certain aspects or severally on others).

For convenience, most people elect for the jointly and severally option. But it’s worth thinking about if the attorneys do not get along, they live a distance away from one another or are likely to disagree on big decisions. It might be worth opting for a hybrid option and limiting the ‘jointly’ part for major assets or decisions.

SFE members are specialists in preparing LPAs. The service offered is so much more than filling in forms for you, our members give you detailed advice on why and how to complete the form and the practical difficulties that can arise and how to safeguard against such issues.

 

 

 

 

Michael Culver

Chair of SFE & Partner at Bolt Burdon Solicitors