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The Importance of A Lasting Power of Attorney

Power of attorney changes to upend inheritance tax plans - 'issues with HMRC' could arise

Connor Coombe-Whitlock. From the Sunday Express.

Inheritance tax costs can be managed by effective use of estate planning, which can range from the creation of wills to having LPAs in place. On the latter, the Government recently confirmed it was looking to modernise the entire LPA system.

On July 20, the Ministry of Justice and Office of the Public Guardian announced they were planning to make the LPA service "safer, simpler and fit for the future."

They noted the number of registered LPAs has increased drastically in recent years to more than five million, but the process of making one retains many paper-based features that are over 30 years old.

In response to this reality, a 12-week consultation was launched to examine the entire process of creating and registering an LPA - with a view to boosting the Office of the Public Guardian's (OPG) powers to prevent fraud and abuse while introducing a mainly digital service.

This, the Government explained, will examine how technology can be used to reform the process of witnessing, improve access and speed up the service.

The consultation will propose widening the OPG's legal powers to check identities and stop or delay any registrations that raise concern.

It will also look at making the process for objecting to the registration of an LPA simpler to help stop potentially abusive LPAs.

The proposed changes are set to "fundamentally alter and update a process that has been in place for decades." While the service will become predominantly digital, alternatives such as paper will remain for those unable to use the internet.

Alex Chalk, the Justice Minister, commented on the plans: "A lasting power of attorney provides comfort and security to millions of people as they plan for old age. These changes will make the service quicker to use, easy to access and even more secure from fraud.

The Government explained an LPA is a legal document which allows people to appoint someone else (an attorney) to make decisions about their welfare, money or property.

They are often used by older people to choose someone they know and trust to make decisions for them were they to lose capacity in the future and Nick Goodwin, a Public Guardian for England and Wales, commented on the importance of them: "More people are taking the vital step to plan for the future by applying for lasting powers of attorney, and we want to make sure that it is as safe and simple as possible to do so.

"This consultation puts forward proposals which will allow us to make the service fit for the modern world - one that can be accessed online, and which grants OPG the power to conduct thorough checks to protect against fraud while making it easier for people to raise concerns."

Specifically, the consultation will look at:

  • How witnessing works, and whether remote witnessing or other safeguards are desirable.

  • How to reduce the chance of an LPA being rejected due to avoidable errors.

  • Whether the OPG's remit should be expanded to have the legal authority to carry out further checks such as identification verification.

  • How people can object to an LPA and the process itself, as well as when is the right time for an objection to be made.

  • Whether a new urgent service is needed to ensure those who need an LPA granted quickly can get one.

  • How solicitors access the service and the best way to facilitate this.

Rachael Griffin, a tax and financial planning expert at Quilter, reflected on the announcement and urged families to act on it.

Ms Griffin said: "The attorney of an LPA always has to act for the benefit of the donor and that would not include IHT planning.

"However, if an individual has lost capacity and IHT planning is required, court of protection permission may need to be sought.

"If possible it is better to put IHT planning in place sooner rather than later and planning for an LPA often prompts someone to get their affairs in order earlier."

Kim Jarvis, a technical manager at Canada Life, also issued a warning on how LPA problems could lead to issues with HMRC.

Ms Jarvis said: "By appointing an attorney you are allowing someone else to make decisions about your welfare, money or property, however you should be mindful that an attorney has limited powers of gifting.

"Whilst legislation allows for an attorney to make small gifts (for birthdays and customary occasions), many attorneys will want to make more substantial gifts.

"If the attorney wants to make a gift larger than permitted under the mental capacity act or the power of attorney, it is necessary to obtain the sanction of the Court of Protection. If the sanction of the Court of Protection is not obtained, then HMRC will not accept the gift as being valid for inheritance tax purposes."

"An attorney can make gifts to cover the annual exemption of £3,000 and the annual small gifts exemption of £250 per person up to a maximum of 10 people - when:

  • The donor has a life expectancy of less than five years,

  • Their estate is worth more than the £325,000 nil rate band,

  • The gifts are affordable, taking into account the donor's care costs, and will not adversely affect their standard of care and quality of life and

  • There is no evidence that the donor would be opposed to the gifts being made.

"The situation where a gift of this nature would be appropriate is if the donor was wealthy and it was desirable to make some transfers in an attempt to save IHT. The Court of Protection can sanction such a gift as long as it is not going to prejudice the payment of care home fees for the donor. Like the donor, attorneys need to seek advice before undertaking any estate planning."

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