Who will deal with your affairs if you lose mental capacity?
Who will deal with your affairs if you lose mental capacity?

Who will deal with your affairs if you lose mental capacity?

What is a Lasting Power of Attorney?

A Lasting Power of Attorney (LPA) is a legal document that allows someone (a Donor) to choose someone else (an Attorney(s)) to make decisions on their behalf.

If you do not have an LPA in place and you lose mental capacity, it will be necessary for someone to make an expensive and time consuming application to the court in order to act on your behalf.  This can take several months and it is not uncommon for it to take 12-18 months especially during the recent Covid19 impact on the Courts.

There are three types of Lasting Power of Attorney

– Personal LPA for Property and Financial Affairs

– Personal LPA for Health and Welfare

– Business LPA

The same document and process is followed for both a personal financial LPA and a business LPA. Each type of LPA can be tailored to meet an individual’s specific needs and requirements.

A person can have both a personal financial LPA and a business LPA, but should appoint attorneys that are suitable for each one separately.

A business attorney must be able to carry out the role of the donor in a business LPA, and donor should consider giving specific and detailed instructions on what powers a business attorney would hold.

LPA for property and financial affairs

This type of LPA allows your attorney to deal with your financial affairs, for example to pay your bills, sell your property or investments and operate your bank accounts. Unless you specify otherwise in your LPA, your attorney can use your LPA while you still have capacity to make financial decisions yourself.  If you allow your attorney to make decisions before you have lost mental capacity, it does not mean that they automatically take all financial decisions for you, it just means that they can take these decisions if you allow them to at the time.  This can be helpful if you are unwell or on holiday for an extended period of time.

LPA for health and welfare

This type of LPA allows your attorney to make decisions about matters such as your medical treatment, your diet, where you live and how you spend your time. Unlike the LPA for property and financial affairs, your attorney can only use it when you have lost the mental capacity to make decisions yourself.

Why have a business LPA?

It is important for any business owner to consider what would happen to their business and the day to day running of it if they were unable or unavailable to make decisions.  Without an LPA in place, who may (temporarily or permanently) assume control and indeed have the authority to do so is less clear and may leave a business exposed to risk.

A business LPA can be used if a business owner:

  • is abroad on holiday or for business
  • has had an accident that means they are no longer capable of acting
  • has an incapacitating medical condition that means they are no longer capable of acting

What happens without a business LPA?

If any of the above situations arise and a business owner does not have a business LPA in place, an application to the Court of Protection to appoint a deputy to act on their behalf may be needed.  There is no guarantee at this stage that the Court will appoint an individual who the business owner would have chosen. This process can also prove more costly and take time, exposing the business to greater risk.

Who is a business LPA is suitable for?

  • a sole trader as they are not a separate legal entity to their business
  • a person who is self-employed as they are not a separate legal entity to their business
  • a director of a company if a director’s incapacitation is not covered by the Articles of Association or Memorandum of Association
  • a partner within a partnership if a partner’s incapacitation is not covered by the articles of association or memorandum of association

Loss of mental capacity 

It is easy to think that the loss of mental capacity is something only the elderly need to worry about. In fact it has more far-reaching implications, especially for business owners.

If you are the sole signatory on your business bank account and you lost capacity and were ill for a long time your business could collapse.

Capacity can be lost in any number of ways. For example before or after routine surgery, a stroke or heart attack, as a result of medication or as a result of an accident such happened Michael Schumacher. 

Michael Schumacher suffered a devastating head injury in a skiing accident on the French Alps in December 2013.  He hit his head on a rock while skiing in Meribel and was air-lifted to a hospital in Grenoble.  After undergoing two surgeries, Schumacher was placed in a medically induced coma for six months to help reduce the swelling of his brain.  

Schumacher was moved to another hospital in Lausanne, Switzerland after coming out of his coma in 2014 and after 250 days was eventually allowed to return to his Lake Geneva home.

At just 45, in good health, Schumacher could surely not have imagined he would be in a position where he wasn’t able to make decisions for himself until decades later.

Business planning

Loss of mental capacity is unpredictable and like any other commercial unknowns it is something that ought to be planned for.

For those running a family business, typically with a small workforce and one or two people with all the knowledge and authority to act on behalf of the company, it is especially important to consider who would run the business day to day if something happened to you? How would you pay your suppliers and fulfil your contracts? Who would be able to access the business bank accounts? Would you be able to pay your staff?

As a bare minimum any business owner, director, partnership member or shareholder with voting rights should have a financial LPA in place.  Ideally they should have a business LPA.

It is important to note that Attorneys are appointed to make management decisions on behalf of the donor, not to take over their job. The exact scope of the attorney’s role will be specific to the donor’s business.

Can one LPA manage both my business and personal affairs 

Technically, this is a possibility. However, it may not be the best solution for your business.

You can have a separate LPA to look after your personal financial affairs. This is often recommended, as the people who would be capable of looking after your personal affairs may not necessarily have the required level of business acumen to look after your business, and you may not wish for someone who is suitable to look after your business to be involved in your personal affairs.

Business size

However big or small your business, it is essential that mental capacity is not forgotten when making contingency plans.  Your article of Association may need to be amended  

Registration of an LPA

An LPA must be registered with the Office of the Public Guardian (OPG) before it can be used. An unregistered LPA will not give the Attorney any legal powers to make a decision for the Donor. The Donor can register the LPA while they have capacity, or the Attorney can apply to register the LPA at any time.

Enduring Power of Attorney

Enduring Power of Attorney was replaced by Lasting Power of Attorney in October 2007.  If an individual made an Enduring Power of Attorney (EPA) before October 2007, it is still valid but only in relation to property and financial affairs.

Acting as an attorney

The government website gives guidance on the duties of an attorney and warns that you can be ordered to repay the donor’s money if you misuse it or make decisions to benefit yourself.

Further help and business planning

If you require further help with business planning and creating Lasting Powers of Attorney contact JMS Accounting to discuss your options.

Note:  Information in this article is based on the Law as we understand it at Nov 2021

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