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When It’s Too Late To Choose: The Cost Of Not Having A Lasting Power Of Attorney

Planning for the future is a vital part of ensuring personal affairs are managed effectively if capacity is lost.

A Lasting Power of Attorney (LPA) is a legal document that allows an individual (the donor) to appoint a trusted individual (or individuals) to make decisions on their behalf should they become unable to do so.

Failing to put in place an LPA can lead to complex, time-consuming, and costly consequences.

Types of LPA

There are two types of LPA in England and Wales:

Property and Financial Affairs LPA

This covers decisions such as managing bank accounts, paying bills, and selling property.

Health and Welfare LPA

This relates to care needs, medical treatment, and life-sustaining decisions.

Both must be made whilst the donor has mental capacity and registered with the Office of the Public Guardian to be valid.

What does it mean to lose capacity?

Mental capacity refers to the ability to make a specific decision at the time the decision needs to be made. This includes understanding information relevant to decision making, retaining it long enough to weigh up options, and communicating a choice.

Capacity can be lost gradually, such as through dementia, or suddenly, due to a stroke or serious injury. Importantly, capacity can fluctuate, and it may be that an individual might lack capacity at a particular point in time but regain it later.

As well as time-specific, capacity is also decision-specific, and a person may lack the capacity to make one kind of decision, but retain capacity to make others.

Without the necessary capacity, you may be unable to manage your financial affairs, make decisions about your health and welfare, or even handle day-to-day matters.

Critically, once capacity is lost, it is too late to put an LPA in place.

What happens if you lose capacity without an LPA?

If you lose mental capacity and do not have an LPA in place, no one automatically has the legal authority to manage your property or finances, and only the healthcare professionals treating you will be able to make health or welfare decisions on your behalf, acting in what they believe to be your best interest. In this situation the Court of Protection must be involved, and someone (often a loved one) must apply for a deputyship order to act on your behalf. This process can be:

Lengthy

The application process typically takes 6-12 months, and potentially longer if contested or delayed. During this time, no one can legally manage your finances or make decisions, which can affect bill payments, care arrangements, or property sales.

Costly

Costs include application fees, legal fees, medical assessment costs, and ongoing annual fees for example. A deputyship is much more time consuming and costly compared to making an LPA.

Restrictive

A deputy’s powers, once granted, are limited, and they are subject to ongoing court oversight.

Stressful

Applying to the Court of Protection for a deputyship order is a process that can be slow, expensive, and emotionally taxing, especially if there is a disagreement over who should apply or how decisions should be made. The lack of clarity and legal authority can cause confusion, disputes among family members, and emotional distress at an already difficult time.

Why set up an LPA?

An LPA is a legal document that allows you to appoint one or more trusted individuals (your attorneys) to make decisions on your behalf if you lose capacity. Key benefits include:

Control

You choose who acts for you and you can set out clear instructions or preferences.

Speed and simplicity

Attorneys can either act immediately once the LPA is registered (Property and Financial Affairs LPA only), or once you’ve lost capacity.

Peace of mind

Having a valid LPA in place can avoid the cost, delay, and complexity of court proceedings.

Respect for your wishes

LPAs can be tailored to your wishes and ensures that future decisions made by your Attorneys reflect your values and preferences.

A vital safeguard for everyone

An LPA is a vital part of lifetime planning, just like a Will. Without it, your finances, health, and welfare decisions could fall into the hands of the Court rather than trusted individuals of your choosing.

To discuss your requirements and find out how we can help you, please get in touch.

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Yesterday’s Losses, Tomorrow’s Gains

The 2024/25 tax year has just come to a close, which means the window is now open to submit that year’s tax returns.

If you have been investing in cryptoassets, you need to think carefully about whether you have a tax liability, and whether you need to submit a tax return. Now would be a good time to review our previous guidance on cryptoasset taxation.

Hopefully you have some big gains to report. However, sometimes you win, and sometimes you lose. Not every year is necessarily going to be a success: sometimes you may find that your losses in a tax year outweigh your gains.

While no-one enjoys losses, there is one silver lining, as you can carry them forward to future years. This means that when (hopefully) you make gains in the future, you will be able to offset these losses, and so reduce your Capital Gains Tax bill.

However, there is a catch, as you can only make use of losses that you have reported to HMRC within four years of the end of the tax year in which they arose. If you fail to tell HMRC about them within this period, then they are simply wasted.

You can of course report losses within a tax return, but if you are not required to submit a tax return for the relevant tax year, you can still simply write to HMRC to claim the losses. They will then be available to carry forward indefinitely until you have capital gains to offset them against.

For example, after a bad year of cryptoasset investments you might find yourself with net losses of £100,000. Then, in a future year, you might end up with net gains of £200,000. Provided you remembered to claim the losses in time, you can offset the loss, which (at a top Capital Gains Tax rate of 24%) will save you £24,000 in tax.

It’s not just your actual losses that can be claimed. If you have tokens that have become worthless, or if you have lost one of your keys, you may be able to put in a negligible value claim, which generates a loss as though you had sold the token for a nil value.

The cryptoasset experts in the Private Wealth & Tax team at Quastels can help with these issues. They are able to calculate your income and gains (or losses) and can assist in reporting this to HMRC. They can also provide advice on tax and estate planning with cryptoassets, as well as advising on the law regarding digital assets and digital estate planning generally.

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Youth Is No Exception: The Importance Of Wills

The unexpected and tragic passing of Liam Payne in October 2024 has brought to light the critical importance of estate planning and wills. 

The former One Direction star died without leaving a valid will, leaving his £24.3 million estate to be managed under UK intestacy laws. This situation raises the potential complications and unintended consequences that can arise when individuals, regardless of their wealth, status or age, fail to put in place proper arrangements.

The Consequences of Dying Intestate

In the UK, when someone dies without a will, their estate is distributed according to the rules of intestacy. These rules prioritise spouses, civil partners, and direct descendants, but they do not account for cohabiting partners, stepchildren, or close friends. In Payne’s case, his entire estate is set to be inherited by his eight-year-old son, Bear. However, as a minor, Bear cannot manage the estate himself, leading to the appointment of his mother, Cheryl Tweedy, and a music lawyer as administrators to oversee the estate until Bear reaches the age of 18.

This arrangement, while legally sound, may not reflect Payne’s personal wishes. Without a will, there’s no formal record of how he intended his assets to be distributed, potentially leading to family disputes or legal challenges. In addition, the absence of a will means that specific bequests to friends, charities, or other individuals cannot be honoured, regardless of any verbal intentions or informal agreements.

Inheritance Tax Implications

One of the significant drawbacks of dying intestate is the potential for increased Inheritance Tax (IHT) liabilities. In the UK, estates exceeding the nil-rate band of £325,000 are subject to a 40% IHT on the amount above this threshold. While there are allowances, such as the residence nil-rate band, which can increase the threshold to £500,000 when passing the family home to direct descendants, these benefits may not be fully utilised without proper estate planning.

A well-drafted will can incorporate strategies to mitigate IHT.  For instance, leaving at least 10% of the estate to charity can reduce the IHT rate on the remaining estate from 40% to 36%. Without a will, these opportunities for tax efficiency are often missed, potentially reducing the value of the inheritance passed on to beneficiaries.

The Importance of a Will in Succession Planning

Beyond tax considerations, a will is a fundamental tool for succession planning. It allows individuals to:

• Appoint Executors: Designate trusted individuals to manage the estate, ensuring that assets are distributed according to the deceased’s wishes.
• Assign Guardians: Specify who will care for minor children, providing clarity and security for their future. 
• Detail Specific Bequests: Allocate particular assets or sums of money to friends, relatives, or charities, ensuring that personal relationships and philanthropic intentions are honoured.
• Establish Trusts: Create trusts to manage assets for beneficiaries who may not be ready or able to handle large inheritances, such as minors or individuals with disabilities.

In Payne’s situation, the lack of a will means that these critical decisions are left to the courts and administrators, which may not align with his personal preferences.

The Risks of Inheriting Too Young 

Whilst Bear is still a minor, his inheritance will be held on a statutory trust until he turns 18. At that age, Bear would gain full and unrestricted control over the entire estate, regardless of his financial maturity or readiness. This creates a considerable risk that the wealth could be mismanaged, lost, or attract unwanted influence. 

Proper estate planning could have mitigated these risks through the creation of a discretionary trust, allowing appointed trustees to manage and distribute funds according to Bear’s needs and maturity level over time, rather than handing over multi-millions at a legally but not necessarily developmentally appropriate age. This approach not only protects the estate but also supports the long-term well-being of the beneficiary. 

Potential Claims Under the 1975 Act

One further complication in cases of intestacy, especially among the wealthy and high-profile, is the increased likelihood of litigation. Under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act), certain individuals can bring a claim against the estate if they believe that the distribution under intestacy (or even under a valid Will) does not make “reasonable financial provision” for them.

Eligible claimants include spouses, former spouses who have not remarried, cohabitees who lived with the deceased for at least two years, children, and individuals being maintained, wholly or partly, by the deceased immediately before their death. 

If Payne had individuals financially dependent on him who are not adequately provided for under intestacy, they may have grounds to bring a claim. 

While the 1975 Act can offer a safety net in certain circumstances, litigation is expensive, time-consuming, and emotionally fraught. It also places a public spotlight on the deceased’s personal affairs – something most would wish to avoid. A valid, well-drafted Will is the simplest way to reduce the risk of such disputes and ensure clarity for all involved.

Key Takeaways

Liam Payne’s intestacy serves as a poignant reminder of the importance of proactive estate planning. Regardless of age or wealth, creating a will ensures that your assets are distributed according to your wishes, minimises potential tax liabilities, and provides clarity and security for your loved ones. 

While the topic of wills and estate planning may seem premature, especially for young individuals, taking the time to address these matters is a responsible and caring act that can prevent unnecessary complications and provide peace of mind for both you and your family.

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