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Power of Attorney and IHT

Power of Attorney and IHT

Category: Life insurance

Updated: 04/04/2011
First Published: 05/10/2007

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The rules surrounding Power of Attorney have been changed as of October 1st, which has wider concerns when it comes to Inheritance Tax (IHT). Prior to the date, it was the Enduring Power of Attorney (EPA) which enabled relatives or trusted friends to take charge of your financial affairs should you no longer be able to. Under the Mental Capacity Act, this has now been changed to the Lasting Power of Attorney (LPA).

What is the new LPA?

The LPA is more complex and more expensive than the EPA, but offers donors greater protection.

  • Costing around £400, the LPA will control more tightly the time at which you grant the power of attorney, and the time at which the power comes into force.
  • It is hoped that this will offer greater protection to donors, as more documents will need to be signed than the EPA.
  • A certificate provider – a doctor, a lawyer or another professional who has known you for at least two years will have to verify that you have not been 'unduly influenced'. This will prevent family members stealing from you should you not be of sound mind.
  • Help the Aged believes it will address some of the shortcomings of EPAs and help to protect vulnerable people

There are two types of LPA:

  • The property and affairs LPA

You choose who you want to manage your finances should you not be able to.

  • The personal welfare LPA

Your chosen attorney will choose a care home and consent or refuse medical treatment.

The LPA and Inheritance Tax

The LPA has wider concerns for Inheritance Tax (IHT

  • Donors will now need to have completed an LPA form whilst they still had the mental capacity to appoint an attorney to make financial decisions on their behalf.
  • If the attorney named has agreed to act, then the donor has to register it with the Office of the Public Guardian before the attorney can act.
  • Before a bank or building society can let the attorney manage the account of the donor, they must have proof of the name and address of the account holder (if not already known) and the person who has legal responsibility.
  • Restrictions can be placed on the way a donor's account is managed – two attorneys may be needed to sell a property, but either could manage a bank account.
  • Attorneys can still make the level of gifts the donor made beforehand, but if this was suddenly raised to £5,000 questions may be raised.

What to do next:

  • Read our guide on IHT here

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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