As the last two years have shown us, we never know what is around the corner. Whether it’s an unexpected medical diagnosis, or an accident, events are impossible to predict and often cause complicated outcomes.
Last month you read about why, if you’re a business owner, you need to review your protection right now.
In addition, if you’re an entrepreneur, becoming unable to run your own enterprise – even for a short time – could have far-reaching consequences.
Losing the capacity to make financial decisions through illness or injury won’t just affect your personal wealth. You could lose decision-making capacity within your business, and even your close family do not have the automatic authority with company employees, your contacts, or your company bank.
So, it’s clear that you need to take steps to ensure that someone you trust to look after your business can be appointed if the unexpected happens.
Despite this, recent research published in FTAdviser shows that 4 in 5 over-55s don’t have the appropriate legal framework – a Lasting Power of Attorney (LPA) – in place.
Read on to find out why you should take this important step to protect your family and your business.
Appoint a trusted person to manage your affairs for you
An LPA is a legal document where you (the “donor”) give another person (the “attorney”) the right to make decisions on your behalf if you are unable to do so in future. Your attorney is required to always act in your best interests.
You must be aged 18 or over and have full mental capacity at the time you make the LPA. The document must then be registered with the Office of the Public Guardian.
You’ll typically appoint between one and four attorneys. You can also nominate “replacement” attorneys to take over if the original attorneys become unable, or unwilling, to continue to carry out their functions.
There are two main types of LPA:
- Financial – allows you to delegate financial and property decisions, such as managing bank accounts or selling property
- Health and care – authorises decisions about care and medical treatment if you lose capacity.
The issue of having authority to act on another’s behalf has made the headlines during the Covid-19 pandemic.
You may have heard the story of broadcaster Kate Garraway, who was unable to deal with her household finances when her husband Derek Draper fell into a coma and spent months in hospital as a result of Covid.
Speaking on Good Morning Britain, Kate said: “One of the practical problems – which a lot of people would’ve experienced if they’ve got the absence of someone in their life – like many things the car is entirely in Derek’s name, the insurance is in Derek’s name, a lot of our bank accounts […] because legally I haven’t got power of attorney.”
Many people assume that their spouse or business partners would automatically be able to manage finances in the event that they were incapacitated due to illness or an accident. However, this is often not the case.
This can be a particular issue if you are a business owner. For example, how would important decisions about the company be made if you were in hospital?
In this instance, a business LPA could be the answer.
A business LPA can ensure trusted individuals can make decisions if you can’t
A business LPA is a type of financial LPA. It is designed to deal specifically with your interests in a particular business.
Putting a business LPA in place enables a trusted attorney to take over your management functions, either to maintain the continuity of your firm or to enable an orderly exit.
Importantly, a business LPA is specific to your role within the company. So, if you have interests in multiple businesses, you’d typically make a separate LPA for each of those interests.
Your business LPA should:
- Appoint suitable attorneys. Your attorneys should understand your business and their remit and, be able and experienced to make decisions within that remit, and be trusted by you to act according to your wishes.
- Provide specific instructions that govern the extent of the attorneys’ powers and the way they should be exercised. These will be legally binding and set out the business decisions with which attorneys can deal, and the areas in which they do not have authority to act.
For example, your attorney might be authorised to ask existing employees to perform key tasks or to employ new people if there is a skills shortage.
Your attorney might also be responsible for complying with any professional regulatory requirements or be noted as a person with significant control on the Companies House records for the business.
Attorneys will often be another director or partner within your firm, or someone with the right qualifications or experience. For instance, if you are a partner in a firm of solicitors, then any business attorney you appoint may also need to be a qualified solicitor.
Make sure your business LPA integrates with company law
LPAs are governed by the Mental Capacity Act 2005, while companies are governed by the Companies Act 2006.
Unfortunately, these laws do not always coexist harmoniously. For example, the articles of association of your business might mandate the removal of directors who lack capacity.
So, it’s vital that you review your company or partnership’s governing documents at the time a business LPA is drafted.
It is a bespoke and complex document that needs a deep understanding of both your personal and commercial priorities as well as company, commercial, and employment law.
Using an LPA for temporary incapacity
It’s important to remember that an LPA is not necessarily a permanent arrangement.
There could very well be instances in which you might temporarily lose capacity – for example, if you were in an accident, or you did not have the physical ability to carry out management functions because you were undergoing aggressive medical treatment.
A business LPA can be ideal in this circumstance, as you can appoint trusted people to carry out key management functions in your absence.
We can help you to make sure your interests are protected
An LPA is a key element in a robust financial plan. We have wide experience of working with business owners and so we’re ideally placed to help you to review the arrangements you have in place.
To find out more, email email@example.com or call 020 7467 2700.
This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.