In business and in our personal lives, setting up a power of attorney tends to be one of those tasks that people often mean to do - but never quite get around to sorting out. The general day-to-day challenges of managing a business always seem to take precedence.

Unfortunately, some people only think seriously about setting up a Lasting Power of Attorney (LPA) when they really need it - which can sometimes be too late. The alternative in such cases is an application to Court of Protection for an Order which is costly, time-consuming and often intrusive.

LPAs made the headlines earlier this year when a retired senior judge cast doubt on their effectiveness, citing examples of cases when they have been abused. Denzil Lush, who retired as the senior judge in the UK Court of Protection in 2016, warned that people should be aware of the risks involved in setting up LPAs. Yet the positives, in my view, far outweigh any possible negatives.

The LPA explained

In simple terms, an LPA is a legal document that enables one or more nominated people to make decisions on a person's behalf if they are no longer able to do so themselves. With people living longer, and illnesses such as dementia grabbing the headlines, I would argue that it's more important than ever for people to set up an LPA to protect their personal and business interests. This way, they can ensure that appropriate planning is all in place should something unexpected happen. This is particularly important in business when salaries need to be paid and documents need to be signed for the smooth running of operations.

There are around 2.5m powers of attorney currently registered in England and Wales, with a 19 per cent increase in the number of registrations from 2016 to 2017. There are two types of LPA:

  • Health and welfare - this can only be used when the donor is unable to make their own decisions.
  • Property and financial affairs - this can be used either when the donor is unable to make their own decisions, or with the donor's permission as soon as it's registered.

People can choose to make one type or both. Together, they allow one or more people you trust to manage your financial affairs and to make decisions around your wellbeing such as whether to agree to a new course of treatment if you're in a coma. Although generally used for personal purposes, an LPA is also particularly important for business owners. Without an LPA, should they suddenly be incapacitated, there could be significant problems for the business.

Setting up an LPA
To set up an LPA, the donor must be 18 or over and have the mental capacity to make their own decisions.

The crux of the matter is who they choose. The attorneys should be known to the donor and trusted by them. Alternatively, you could appoint a professional attorney to act on your behalf or with family members.

Why set up an LPA now?

An LPA cannot be set up once the donor loses mental capacity. Unfortunately life is very unpredictable and losing the ability to make decisions isn't always a gradual process - it can happen very suddenly, for example, in the case of accidents. So, I often advise clients to think about making an LPA sooner rather than later if it is already in their mind to do so.

Another problem is that people often assume that their spouse, civil partner or close family will have legal rights should anything happen to them, but this isn't the case. Without an LPA, if a person loses mental capacity, their assets are at risk of being frozen and the only way to regain access will be with an expensive and time-consuming Court process. Again, this can cause massive problems for business owners as they may not have anyone else with the legal authority to manage important financial affairs.

Is DIY the answer?

People are increasingly becoming aware of the need for an LPA and registrations are consistently rising. Some people choose to do it themselves by applying online. Although the process of applying for an LPA may appear relatively simple, as with any legal process there is a specific procedure that must be followed. Get this wrong, and there could be significant problems later on.

Despite Judge Lush's reservations, I remain firmly convinced of the importance of LPAs. I'd advise doing it now rather than waiting as it gives peace of mind. We all hope we'll never need to use an LPA, but it's an invaluable safeguard to protect yourself, your business and your assets should you ever be unable to do so yourself.

Andrew Hitchon is a partner at Bray & Bray specialising in wills, trusts and probate