Helpful Information

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A Lasting Power of Attorney (LPA) gives someone (the attorney) the authority to make decisions on behalf of another person (the donor) if they cannot make those decisions for themselves, even after the donor has lost his or her mental capacity. There are two types of LPA – one for Property and Financial Affairs (P&FA) and one for Personal Health and Welfare (H&W). Whilst the LPAs deal with different areas of the donor’s life, the principles governing the attorney’s actions are the same. If there is more than one attorney, then the LPA will set out whether those attorneys are to act jointly (ie all must act together at all times), jointly and severally (ie they may act either together or independently) or jointly for some decisions and jointly and severally for others (and the distinction between those decisions must be set out in the LPA).

LPAs were set up by the Mental Capacity Act 2005 (MCA) which also created a Code of Practice for attorneys. 

The Code can be downloaded or viewed at www.gov.uk/opg/mca-code.  

The overriding principle for attorneys is that they must act in the donor’s best interests. The LPA itself lists five main principles in Section 8 which every attorney must read before he or she signs and accepts the sometimes onerous task of looking after another’s financial or welfare affairs for an unknown length of time.  

Those five principles are as follows:-

1 The attorney must assume that the donor can make his or her own decisions unless it is established that the donor can’t (usually but not exclusively when healthcare professionals become involved).

2 The attorney must help the donor with all practical steps to make as many of their own decisions as they can, so for instance, it may help to write issues down or choose the donor’s best time of day for a discussion. 

3 An unwise decision by the donor does not make them mentally incapable. A flutter on the bookies for the Grand National may be unwise but is not critical but an addiction to the Tote may be!

4 Once the donor cannot make decisions for themselves, the attorney must take decisions in the donor’s best interests.  This will include talking to the donor and also consulting other people and advisors who are close to the donor.

5 Any decision made by the attorney should aim for the least restrictive choice for the donor’s rights and freedoms so whilst a residential home may seem the time and money-saving choice, perhaps changes to the donor’s home and the arrangement of assistance within the home may be in the donor’s best interests.

Lasting Power of Attorney for Health and Personal Welfare.

An LPA (H&W) can ONLY be used once it has been registered AND the donor has lost mental capacity.  The attorney will be aware of any preferences and instructions expressed by the donor and contained in the LPA but should also check with family and possibly the donor’s surgery to find out if an advance directive or living will exists or whether an advance statement or care plan has been prepared. If the donor has completed Option A in the LPA, he or she will also have given the attorney the authority to consent to life-sustaining treatment.  If the donor chooses Option B, then the medical staff will make decisions as to treatment based on their view of the donor’s best interests.  The sort of decisions that an attorney for an LPA (H&W) makes will include:-

 Giving or refusing consent to health care, including medical treatment

Deciding if the donor can stay in their own home and getting help and support from social services or, if and when that becomes unsustainable, finding a good care home and moving the donor into residential/nursing care

Making decisions about such personal matters as the donor’s diet, dress, daily routine and visitors

Lasting Power of Attorney for Property and Financial Affairs.

The donor may specify in the LPA if the attorney can act even while he or she retains mental capacity. The attorney has to have the donor’s consent in those circumstances and seek direction, if possible, but this can be useful, for instance in cases of ill-health or prolonged physical disability. In any event, if the donor loses their mental capacity, the attorney will have to manage the donor’s property and affairs and make those decisions that the donor cannot make.  This may include:-

 Paying bills and liaising with utilities and care providers

 Operating bank and building society accounts

 Making investment decisions

 Selling the donor’s home or other property.

The attorney must keep the donor’s property and money entirely separate from his or her own and keep accounts, receipts and records of financial transactions made on the donor’s behalf.  The Office of the Public Guardian (OPG) may ask the attorney to produce these accounts at any time.

There are strict limits on the right of an attorney to make gifts on the donor’s behalf.  Whilst it is quite acceptable to make gifts from the donor’s funds for birthday and Christmas presents to those people for whom the donor themselves provided, the gifts must be reasonable in the context of the donor’s previous practice and current financial resources.  It is not acceptable to expand the list of people receiving gifts or increase the amount paid.  Furthermore, the attorney cannot make gifts, for example, for Inheritance Tax planning or to pay grandchildren’s school fees (regardless of what has happened in the past) without making an application to the Court of Protection for permission to do so.

An attorney cannot make or amend the donor’s Will.

Both Lasting Powers of Attorney.

Before the attorney can start to use the LPA, they will be asked to prove their authority usually by producing the LPA or a copy to such institutions as banks, care homes, utility companies, local authorities, medical services etc.  They should not send the original document to such an institution. The attorney can produce the original for examination or provide a certified copy for the institution to keep. There may be other steps to take, for instance, by proving their own identity or completing a mandate before consent to act is given.

The attorney will only be paid for his or her services if the LPA itself includes express authorisation for the payment of fees in the Instructions section.  If this is not included, the attorney may only recover out-of-pocket expenses from the donor’s funds.  This will include covering the cost of the attorney’s phone calls, travel and postage on the donor’s business.

There are other duties that have to be observed by an attorney in respect of either or both types of LPA:-

Ensure that there is no conflict of interest between their affairs and those of the donor.

Not to make any unauthorised profit from dealing with the donor’s affairs.

Keeping the donor’s affairs confidential.

Whilst the attorney cannot delegate his or her authority to anyone else, they can take professional advice and indeed should do so if the LPA contains the appropriate authority in the Instructions section in relation to the management of an investment portfolio.

Act with honesty and sympathy.

Apply the same care and skill that the attorney would apply to the management of his or her own affairs.  (Professional attorneys are subject to a higher degree of care and skill).

Follow any specific instructions given in the LPA, for instance, preparing and submitting accounts to a particular person or ensuring that diet or religious principles are observed in the donor’s care.

Be aware of the guidance given by the donor in the Preferences section of the LPA.

If anyone suspects that the attorney is not acting correctly or is exploiting or abusing the donor, then that person may report the attorney to the OPG who will look into the complaint. The OPG has a team of visitors who investigate such allegations and look into the attorney’s conduct and can ask to see the attorney’s records and in serious cases, report the matter to the Court of Protection to deal with.  A co-attorney should raise any concerns that they might have with the other attorney but if matters cannot be resolved, then those concerns should be referred to the OPG.

If the attorney decides to stop acting for any reason or wishes to retire, then he or she must complete the appropriate notice and send it to the donor and the OPG and any other co-attorneys.  

Finally, the attorney’s authority ceases if the LPA is cancelled (providing the donor has retained mental capacity) or if the donor dies.  If there is a joint appointment of attorneys, then the appointment of the surviving attorneys will cease unless a replacement attorney is appointed.

Today we live in a world where are we rely upon the Internet. Increasingly it is the main storage area for our financial and personal lives and yet the process of inheriting these assets is not straightforward. In the UK there is no legislation that deals with digital assets or issues of access and transferability of digital assets. There isn’t even any European law or directive that deals with the transferability of digital assets upon death. There is legislation in the USA and Canada at state level and also in France.  And yet there is a wide range of the consequences of death for an account holder amongst different digital institutions (from Facebook that enables families to memorialise an account to iCloud where the account will be terminated and all content deleted).

What is a digital asset?

A digital asset is any asset that is accessed or held online. It is not a tangible item but it may have monetary or sentimental value and is accessed through your computer. This definition includes a wide range of items from social media (Facebook and Twitter), content holders (iTunes, eBooks and music) online gaming sites, blogs, virtual currency (bit coins) or cloud storage (Drop Box). There is a vast range of assets from the personal entries on a Facebook account to valuable assets such as a YouTube vlog or books stored online. 

Problems for an executor

From the point of view of a trustee or executor, digital assets pose an awkward problem. There may be no paper trace of such an asset if these are held on-line.  Increasingly traditional asset holders such as banks, credit card and company registrars are moving to an online presence where there is little or no physical evidence of the account. You may no longer have paper bank statements, credit card statements, share certificates or evidence of a share trading account.  and access may only be obtained through a password. We all know how difficult it is to keep track of our passwords (perhaps more so in the context of the advice to change passwords regularly).  Furthermore, does the deceased own the digital asset or is it merely licensed? Apple and Amazon make clear in their terms and conditions that an account is licensed not owned and the contents are non-transferable. Many digital asset holders have terms and conditions that mean disclosing your password to a third party is in breach of security.  The assets may also be located in different jurisdictions with different laws applying to the release or transfer of data.  For instance, in the United States, the law prohibits the release of data without the consent of the original user so a court order may be required to give the executor or attorney access to the deceased’s account. You can see from the above that the identification of such assets can cause serious problems for an executor and attorney or deputy and it may be a slow and costly process to administer such assets.

Do executors have to access digital assets?

If an asset has a monetary value, then the executor has a duty to locate and realise the asset as part of his or her normal duties to manage the estate properly.  There may be adverse consequences if this is not done, for example, business emails to and from a sole trader, dormant accounts being charged a levy or deleted or the transfer of an income stream from a monetised YouTube channel.  Social media accounts may not have any monetary value but their sentimental value may matter more to the bereaved family and friends. There is always the danger that if not accessed within a specific time, the account may be deleted.

What about sharing passwords?

It may seem the most obvious and simple solution to leave a list of passwords with your other assets but this requires discipline to stay updated and of course, it may also be in direct breach of the terms and conditions of your online account.  The most obvious example is the prohibition on sharing your password or PIN with a third party for banking and credit card account.  Furthermore, it may be against specific laws in certain jurisdictions. It is therefore difficult for a professional advisor to suggest a deliberate breach of contract. 

What can you do to assist your executors?

There are some practical steps that can be taken to deal with the devolution of digital assets:-

It is helpful to keep a personal assets log in any event but in the era of online assets, it has become much more important.  Note down your assets and print out pages that relate to key digital assets to assist with their identification. Sometimes it is helpful as a protective measure to print out sheets especially if the only communication is digital, for instance with the DVLA or HMRC or for share ownership.

Think about practical solutions like sharing your photographs.

Keep your Letter of Wishes up to date with instructions to your executors as to your wishes in relation to your digital assets, for instance to close your Twitter account.

It may be helpful to include a specific gift in your Will or appoint a digital executor to manage these assets. Google and Facebook, for example, allow the appointment of a legacy or trusted contact to access the deceased user’s accounts.

If you have children under the age of 18, you will probably want to appoint a guardian to look after them in the event that you die before they reach adulthood.  It is extraordinarily difficult to think about the impact that your death would have on your children growing up without parents to love and care for them. Thankfully, it is very rare for both parents to die whilst a child remains a minor. In more than 25 years practising in the field of Wills and Probate, I only came across this situation on one occasion. 

What is the role of the guardian?

A guardian’s role is to take over responsibility for your children in the event that you die before they reach the age of 18. A guardian will be in place of a parent and so will be responsible not only for the day to day care of your children but also for deciding how your children are brought up, looked after (including medical treatment) and educated.

Sometimes a guardian will be appointed as a trustee for your children as well and so would be responsible for taking care of your children’s finances until they become an adult. If you do decide to appoint your guardian as a trustee, it is advisable to appoint an independent trustee as well to guard against any conflict of interest.

Guardians are appointed in your Will 

Before appointing a guardian, you should consider whether the proposed person is able to provide a suitable environment in which to care for your children. You must ensure that the proposed guardian is willing to take on the role and make sure they understand your wishes in the event that they bring up your children.  The process of appointing a guardian and the rights conferred (“parental responsibility”) is governed by the Children Act 1989. You can only name a guardian if you have parental responsibility.  A child’s mother always has parental responsibility.  A father will have parental responsibility if he’s married to the mother when the child is born, or is named on the birth certificate.  In most cases, guardianship only takes effect after the death of both parents.  A guardian themselves can appoint further guardians in their Will but you may wish to select substitute guardians in the event your preferred guardian dies before your children are adults.

If a guardian is not appointed in your Will and you die before your children reach the age of 18, the court will appoint guardians for them.  It could take several months for the court to appoint a guardian and in the intervening period, if there are no existing arrangements or there is a dispute as to who will look after the children, they may be taken into care. A court appointed guardian will not necessarily be the person you would have preferred to look after your children.

It was reported in 2014 that 24,000 children per year suffer the death of a parent in Britain. By postponing the appointment of a guardian, parents are unwittingly putting their children at risk of court battles, family disputes and potentially even foster care.   Whilst appointing a guardian is very important, it can be difficult to choose the right person.  You may upset other people in family but you need to choose people who understand how the children have been raised and what desires and values you have for your children as they grow up. The family courts will appoint the named guardian in most circumstances but if you do not name a guardian, the situation will be decided in one of three ways.

If no guardian comes forward your children could be placed in the protection of social services.

If several potential guardians come forward, a custody battle could result in the court granting guardianship to the person that the judge deems most appropriate as directed by the evidence in front of them.

If a single guardian is appointed by Will, then they do not have to apply to the courts for formal custody.

In the first two circumstances, it is the family courts and not the parents who ultimately control custody of the children. If several potential guardians contest custody, the courts are likely to consider several factors including the potential guardians’ relationship with the children and trying to keep siblings together.  Without a Will, blood relations are more likely to be appointed instead of other applicants.  In spite of this, do not assume that your family members will be automatically appointed by the courts. A blood relationship is only one of several factors that go into the decision-making process.  It is however very difficult for a judge to consider intangible attributes that you will likely consider as important such as life style, values in child rearing, integrity and ambition.  Your Will allows you to express a preference for guardian whether or not they are your relatives and to create a trust that can be used to cover some of the costs that a guardian may face after taking custody but you should also consider if your chosen guardians have the means to sustain a large family.

What sort of factors should a parent look for in a guardian?

Think of their own family, financial or life circumstances. Their own life plans may mean that they are not suitable - for instance a plan to travel the world.  Distance, values and minimising transition should all play a part in your decision.  You may wish to keep the child close to his or her existing school and friends.  The proposed guardian’s own parenting style or religious faith may play a part.  Does the child have an existing relationship with the guardian?  What about the age of the prospective guardian?  Grandparents may seem the obvious choice but they may be too elderly. 

Although the named guardian has an advantage over other potential guardians, they are not legally bound to take custody of your child so you must talk with them before finalising your choice.  You may choose separate guardians for your children which would be an unusual choice but may be wise in certain circumstances, such as a particularly large age gap.

You can leave a letter of explanation for the child’s guardian with your Will which enables you to elaborate on your decision and it could be a valuable consideration for the family courts. You do not know when your Will is going to come into effect.  The guardianship appointment reflects your first choice at the time of writing the Will but circumstances change.  For instance, you may have grown away from a close relationship with friends when your children were small or the proposed guardian may now be struggling with mental health issues. The naming of a guardian in a Will will assist the judge to make an appointment but it is not a binding appointment.  However, all things being equal, the person named in your Will would be appointed by the judge in the event of a dispute.

The Ministry of Justice (MoJ) has formally announced that Wills witnessed via video i.e. Zoom, Facetime or Skype are to be made legal..

The amendment to the legislation is expected to come into force in September 2020 and will amend the 1837 Wills Act to include video witnessing so where the current requirement is for Wills to be signed in the presence of two witnesses, their presence can now either be physical or virtual. It is important to note that in line with current law, the requirement of two witnesses will still be necessary to protect people against undue influence and fraud.

The amended legislation will also apply to codicils which have the same signing and witnessing requirements as a Will.

Justice Secretary Robert Buckland said: “We know that the pandemic has made this process more difficult, which is why we are changing law to ensure that wills witnessed via video technology are legally recognised.

“Our measures will give peace of mind to many that their last wishes can still be recorded during this challenging time, while continuing to protect the elderly and vulnerable.”

This change to the law allowing wills to be validly witnessed by video link has a retrospective effect so it will apply to any wills executed in England and Wales after 31 January 2020, (which was the date of the first confirmed coronavirus case in the UK), providing the quality of the sound and video is sufficient to see and hear what is happening all the time. It is important to note it will not apply in cases where a Grant of Probate has already been issued for the deceased or where the application is already in the process of being administered.

However, it is important to note that although Wills can be witnessed virtually, they still need to be signed as electronic signatures are still not permitted. The witnesses also cannot be beneficiaries as has been the case previously.

Witnessing of the Wills must also be in real-time and not pre-recorded. Where possible, the signing and witnessing should be recorded and the recording stored safely which will assist the Courts in the event the will is later challenged.

So how will this actually work in practice? The Government has set out some useful guidance in stages which is as follows:-

Stage 1:

·  All parties are to be present in the same call and see one another – will writer, testator and both witnesses.

·  The will writer should seek express permission from the parties that they are happy for the witnessing and signing to be recorded.

·  The will writer should hold up the front page of the Will to the camera and then turn to the signing page and hold this up for all parties to see.

·  The testator, while signing can say the following – “I first name, surname, wish to make a will of my own free will and sign it here before these witnesses, who are witnessing me doing this remotely.”

·  The witnesses must see the testator sign the Will and it is advisable they confirm they saw the testator sign.

Stage 2:

·  The witnesses should confirm that they can see, hear (unless they have a hearing impairment), acknowledge and understand their role in witnessing the Will. The witnesses can be physically present with one another i.e. from the same household or via video link.

Stage 3:

·  The Will should be taken to both witnesses for them to sign. The guidance states this should be ideally within 24 hours of the testator signing the Will. It needs to be the same document as counterparts will not be accepted.

Stage 4:

·  The testator and will writer must be able to see the witnesses sign the Will.

·  The witnesses should hold up the Will to the will writer and then sign it. The will writer and testator must see them sign the Will and not just their heads for example.

·  Another option is for the witness to hold up the Will where it has been signed and confirm it is their signature.

·  It is advised for this process to be recorded also.

Stage 5:

·  In cases where both witnesses are not physically present with one another, stage 4 will need to be repeated and on both occasions both the will writer and testator must see the Will being signed. Although it is not a legal retirement for both witnesses to sign in the presence of one another, it is good practice.

Where Wills are witnessed via video link, consideration must be given as to the attestation clause. Guidance on the form of attestation clause to use will be given closer to the time as there is currently no recommended wording for it.

Despite this landmark change, the Government still advises that where possible, witnessing of wills should still be carried out in the physical presence of two witnesses where it is safe to do so and video witnessing should only be used as a last resort.  There are a couple of existing options available; namely, to witness through a window or outside so the guidance is to still use these methods where possible.

This change is expected to remain in place until 31 January 2022 or as long as deemed necessary after which the Government has advised the signing requirements will go back to how it has been i.e. physical presence of witnesses. The new rules have scope to be extended or shortened as required.

Although children and grandchildren are both your direct descendants, any gifts that you make to them may be treated in quite different ways from a tax point of view.  There are good reasons for you to make gifts to your child or grandchild.  These may range from the payment of debts that they may incur (student debt) to helping them acquire a deposit for the purchase of a property (did you know that the bank of Mum and Dad is the 10th largest lender in the UK?) to giving away assets to reduce the size of your own estate and mitigate your exposure to Inheritance Tax (IHT).  The reason for your gift and the age and situation of the recipient will impact on how the gift is given.

The most straightforward route is to make an outright gift to the child or grandchild.  From your point of view, if the gift exceeds the annual gift allowance, then you will have to survive the gift by seven years before the funds are no longer counted as part of your estate for IHT purposes.  This is effective if the child is an adult and the funds are needed for a current reason but what if the child or grandchild is still a minor and the funds are being set aside for future purposes? You may want to save for their future financial commitments in advance and hold the funds in your own name while dedicating them to the children or grandchildren (or even having them in reserve for yourself should you need those funds for an emergency purpose).  This type of gift does not help your own IHT liability as the funds remain within your estate.  Alternatively, you may open a bank account in the child’s name while acting as the nominee or signatory (although be aware that some accounts are available to the child from the age of 16).  You could put the funds into investments but the options for children to hold these in their own name are limited and so any income or gains will be taxed in your hands.

Some outright gifts are exempt from IHT or they are not treated as dispositions for IHT.  You will be aware of these options:-

1  As a parent, you can make payments towards your child’s maintenance or education provided he or she is under 18 or in full-time education and they are not treated as dispositions for IHT.  However, this option does not apply to grandparents and depending on the size of the gift, you would have to survive the gift by 7 years for it to drop out of your IHT liability.

2  The allowance “Normal expenditure out of income” is available to both parents and grandparents.  If you make a regular gift to your (grand)child and it does not have an adverse effect on your standard of living, then any amount can be given and is immediately exempt (but parents beware of the parental settlement rules for income tax)

3  There is an annual exemption of £3,000 that can be paid to the (grand)child

4  You can make any number of small gifts of £250 per year (but not to those receiving all or part of the £3,000).

5  When your child or grandchild marries, then you can give up to £5,000 (per parent) or £2,500 (per grandparent) free of IHT. 

What about the use of a trust to hold the funds on behalf of a child?  A bare trust is the simplest form of a trust and may prevent a child accessing the money too early.  A sum of money or other assets are given to trustees to look after them for a particular child. It leaves control of the funds with the trustees who manage the them on behalf of the child but the funds belong to the named child.  He or she must declare any income or gains in their own tax return and will be subject to tax but with the benefit of their own personal allowances (unless the parental settlement rules apply – see below).  Capital gains are assessed upon the child but may be managed by the trustees by, for instance, selling assets each year up to the value of the Capital Gains Tax (CGT) allowance and with the proceeds of sale then being reinvested (although not in the same shares within 30 days of the initial sale) so as to limit any future CGT gain when the assets are sold and the sale proceeds are given to the child.  If the assets are given direct to the child, then the child will receive them at the original value of the gift and CGT would be assessed on the increase in value on any subsequent disposal.  Although the beneficiary does not have to receive the trust funds at 18, he or she must be notified of any income or gains within the trust so that they can complete their own tax return and they may require the transfer of the funds to their direct control.

There are alternatives to a bare trust such as a discretionary trust which enables you to  name a class of persons as beneficiaries (such as “my children and grandchildren”) although this is not advisable for you to set up if your children are still minors as the disposition will be caught by anti-avoidance legislation.  The trustees retain control of the trust funds for as long as they see fit, giving out income or capital to the beneficiaries or accumulating the funds.  However, the tax consequences are quite different.  The initial transfer of funds is an immediately chargeable disposition which will mean a tax charge at the rate of 20% on any amount over £325,000.  Once set up and depending on the value of the assets in the trust, there may be 10 year anniversary and exit tax charges on capital.  The income tax rate (with only one half of the personal allowance) will be 45% on any income and 38.1% on dividends.  Capital Gains Tax (CGT) is charged at 20% or 28% on residential property and the trust has only one half of the annual personal exemption for gains.  There is also a flexible trust which provides that a named individual(s) must receive the income from the trust but the trustees retain discretion as to when and to whom they can distribute capital. The trustees pay income tax at the basic rate or can mandate the income to the beneficiary who must declare receipts in their own tax return.  The trust will be treated the same as for a discretionary trust for IHT and CGT.

Parental Settlement Rules

It has long been the case under UK law that arrangements that cause the parent’s income to be paid to their child (or step-child) in order to profit from the child’s own tax allowances have been caught by anti-avoidance legislation. As a consequence, if such an arrangement produces an income for the minor child in excess of £100 per year, then the whole of the income is taxed as part of the parent’s income.  The rules are drafted extremely widely and may catch indirect gifts so income may be inadvertently drawn in to this fiscal net.  The child has to be absolutely entitled to the income so, if for example, you open a deposit account for the child, even by way of a bare trust, then these rules will apply.  If a discretionary trust is set up but the child has no right to income, then the rules will only apply if income is actually paid to or for the benefit of the child.

There are other options to consider in relation to gifts for children or grandchildren such as a Junior ISA.  You can contribute to the Junior ISA as either a parent or a grandparent subject to the annual subscription limit.  The monies are not subject to income tax or CGT and so the parental settlement rules do not apply.  Furthermore, if the contributions are made from the exempt gifts set out above, they will not be assessable for IHT in your own estate.

You can also pay into a pension for your child or grandchild.  Although they will not be able to access these funds until they reach the age of 55, it may release other funds of their own if they are hard-pressed young adults.