The one financial document many ignore, and how it can change your life

As we age, it is natural that we occasionally dwell on the unthinkable.

While it is not helpful to constantly ask the “what if?” question, it is sometimes important to imagine what might happen if an illness or injury were to change your life, either temporarily or permanently. Especially if you are the main breadwinner for your family, your financial role in your family’s wellbeing cannot be understated.

So, although it is not pleasant to think about, ask yourself: “If I became incapacitated through an illness or injury, would my family’s income be enough to sustain them? And if not, what essential aspects of my finances might they need to access?”

If you are beginning to realise you are not equipped for such a situation, there is something you can do. A Lasting Power of Attorney (LPA) document can help protect your family’s financial circumstances in the event of your incapacitation.

Yet sadly, according to a Canada Life study, 78% of UK adults do not have an LPA, including 77% of over-55s.

Read on to find out more about how an LPA can help you, how to get one, and what a Financial Planner can do to support you.

A financial LPA gives a nominated attorney access to your finances if you’re incapacitated

When you register an LPA, you nominate an “attorney” – this can be your spouse or civil partner, parent, adult child, sibling, trusted friend, or professional – who is able to make decisions on your behalf if you no longer have capacity.

This includes if you are diagnosed with a degenerative cognitive disorder such as Alzheimer’s, or lose capacity through being injured in an accident.

There are two types of LPA you can register:

• Health and welfare
• Property and financial affairs.

With a health and welfare LPA, your attorney can make decisions regarding your health, including where you might live, the kind of care you might receive, or even whether to continue life support.

A property and financial affairs LPA has multiple functions, but the principle remains the same. Your attorney can:

• Access bank accounts and pensions that belong to you
• Act on your behalf when paying bills, including mortgage repayments
• Make insurance claims on policies in your name
• Buy and sell assets using your finances.

Evidently, choosing an attorney you trust fully is an important part of the process, and may feel daunting at first. But without a financial LPA in place, your loved ones could be locked out of essential financial documents they need if you’re incapacitated – even if they are your registered next of kin.

You must register an LPA before an illness or injury, not after

Worryingly, research from Lloyds Bank found 29% of adults surveyed thought an LPA was registered once a person becomes ill, not before.

When in fact, once you become incapacitated, it’s too late to put an LPA in place. As we all know, life is full of surprises, so you may not always have time to prepare for an illness or injury that comes your way. Whilst you may be less likely to think about this essential protective document when you’re fit and healthy, that is exactly the time to put it in place.

If you lose capacity without an LPA in place, a “deputy” is put in place by the Court of Protection – and your loved ones will need to apply for this role. This can be both an expensive and lengthy process, so putting an LPA in place now, not later, could be life-changing for your family down the line.

You can visit the government website to get started on making or registering either a health or financial LPA. You can also amend existing LPAs, such as if you get divorced and want to nominate a new attorney, on the same web page.

If you have questions about the process, or the document itself, a Financial Planner can help put your mind at ease.

A Financial Planner can help your loved ones get to grips with their financial situation if the unthinkable happens

Ultimately, it is everyone’s hope that we never have to use the LPAs we put in place. Yet the future is uncertain, and if you or a loved one do become incapacitated, it can be both practically and emotionally stressful – even with the right documentation to hand.

That’s where having an ongoing relationship with a trusted Financial Planner can be wholly beneficial. Your Financial Planner can:

• Review a loved one’s financial documents with their attorney
• Give advice on buying and selling assets on someone’s behalf
• Talk an attorney through the estate planning process, including life insurance claims and paying an Inheritance Tax (IHT) bill
• Help shoulder the weight of responsibility attorneys take on.

If you are concerned that your finances aren’t adequately protected from the unthinkable, you’re not alone. Now might be a great time to book a review of all your financial circumstances, so you can feel confident that your loved ones and your wealth can be taken care of in future.

Get in touch

For a discussion about registering an LPA, or any other protection, contact us today. Email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

All information is correct at the time of writing and is subject to change in the future.