Who’ll decide for you when you can’t decide for yourself?
It’s frightening to think that old age or an accident could rob you of the ability to make life-affecting decisions for yourself. Peter Sutherland of Andersons Solicitors in Nottingham explains how the new Mental Capacity Act enables people to plan ahead in case the unthinkable should happen.
With an increasingly ageing population it’s likely that more people than ever will be affected by some kind of mental or physical infirmity that prevents them being able to take control of their own lives. Yet research by the insurance company Standard Life shows that three out of four people have made no arrangements to enable someone to manage their affairs should failing mental health make it impossible for them to do so themselves.
This is in spite of the fact that it can be difficult and time-consuming to unfreeze the assets of a family member who suddenly becomes mentally incapacitated.
The Mental Capacity Act 2005, now coming into effect, tries to address the problem by improving and expanding the ways we can prepare for the future.
Until now the way to do this has been to sign an enduring power of attorney (EPA) which enables you to nominate someone to look after your financial affairs when you are unable to do so yourself. It must be signed when you are still healthy and able to understand its purpose but need not be used until it’s required should you become mentally incapacitated. At that point it is registered at the Public Guardianship Office.
However, from October onwards, enduring power of attorney will be replaced by the new lasting power of attorney. They sound similar but there are several key differences.
The current EPAs only cover such things as financial matters, property and business affairs. They are relatively inexpensive. Many people sign them at the same time as writing a will.
The new LPAs will be broader and come in two forms. The Property and Affairs LPA will fulfil a similar role to the old EPA by allowing you to appoint someone to manage your financial affairs. In addition, however, there will also be the Welfare LPA which will allow your appointed attorney to make decisions about your health care - even to the point of whether or not you should be given life-saving treatment.
Any such decisions to be made by your attorney will have to be made in your best interest and meet a checklist of criteria set out in the Act.
You can choose to make one or both types of LPA and you can appoint different attorneys to deal with financial matters and welfare concerns.
The new LPAs will need to contain a certificate filled in by an Independent Certificate provider such as a doctor or a solicitor. The certificate provider will be obliged to interview you first to make sure you understand what you are doing and that you are not being subjected to any undue pressure to appoint someone as your attorney.
Lasting powers of attorney will also have to be registered at the Court of Protection. This will make them more expensive than EPAs but it will also make them more secure and so possibly more attractive to many people. When similar changes to powers of attorney were introduced in Scotland in 2001, the take-up rose from 5,000 a year to more than 22,000.
The new system will be more wide-ranging and offer people more choices. However, the current system is less complicated and so may provide a less expensive option for people who only need to make simple arrangements for the future.
EPAs will no longer be available once LPAs take over in October but those already made will still stand. It means that for the next few months, people have a choice as to which arrangement they think would suit them best. Those who feel they only need to make basic arrangements covering financial matters may prefer to save money by arranging an EPA before they are phased out in October. Those who prefer to make more comprehensive arrangements, including their future welfare, may prefer to wait until the LPAs become available.
For further details contact Peter Sutherland 0115 988 6714 psutherland@andersonssolicitors.co.uk
Trusts are still a good way to keep the taxman at bay
A landmark ruling has left thousands of couples worried that their discretionary trusts are worthless and that a large chunk of their estate could now be swallowed up by inheritance tax. But Peter Sutherland of Andersons Solicitors in Nottingham, insists there are still ways to protect your hard-earned money despite this setback.
The recent ruling by the tax commissioners that a couple’s discretionary trust is invalid because the wife didn’t work and so didn’t contribute to the family wealth has been described as archaic and totally out of step with other areas of law and modern attitudes towards women.
The case involved Oxford University academic Dr Patrick Phizackerley and his wife Mary. Like half a million other couples they set up a trust to ensure that as much of their wealth as possible would pass on to their children instead of going to the taxman. The move is quite common because of the way the current system works.
The threshold at which inheritance tax is payable is currently £300,000. Tax is then payable at 40% on the remainder of the estate. A husband or wife can leave their estate to their surviving spouse without any inheritance tax liability. However, when the surviving spouse dies, the tax then becomes payable by their children or other beneficiaries of their will. The problem has become more acute in recent years as rising house prices mean that four out ten homes are now above the inheritance tax threshold.
The way for couples to reduce this burden is for both husband and wife to make full use of their allowances by setting up a nil-rate band discretionary trust. This enables them to effectively raise the tax threshold to £600,000.
The way it works is like this. When the couple make their wills, instead of leaving everything to each other, they each arrange for their share of their assets up to the threshold figure of £300,000 to pass into a trust for their heirs. The remaining spouse would then be able to continue living in the family home but would owe the trust the £300,000. It’s a kind of I.O.U. to their children.
When the remaining spouse dies, the trust calls in the loan which is deducted from the estate and then passes on to the couple’s heirs free of inheritance tax.
The system has worked well but has now been called into question by the tax commissioners’ ruling in the Phizackerley case. Mrs Phizackerley died in 2000 and left her share in the family home in a trust. Her husband was able to continue living in the house. However, when he died in 2002, the Revenue claimed the arrangement was invalid and the estate would be liable for inheritance tax after all.
The problem, according to the commissioners, was that Mrs Phizackerley had not worked during the marriage and so had not contributed towards the cost of the house and therefore the value that she had gifted to the trust.
The ruling seems out of step with the law’s attitude to women in other areas. For example, in divorce cases there is a general presumption that a couple’s assets should be divided equally even if one didn’t work during the marriage. The sense of injustice is made worse by the fact that had Mr Phizackerley been the first to die then the problem would not have arisen, the discretionary trust would have done its business and there would be no inheritance tax to pay.
The Phizackerley family say they don’t intend to appeal but most commentators believe there would be a good chance of a successful legal challenge. Whether or not that happens remains to be seen but in the meantime, couples should not be alarmed into thinking that such trusts are not worthwhile.
The difficulties encountered in this particular case would only affect a limited number of people, especially if the trusts are properly set up. When a potential problem does arise, there are still measures that could be taken. For example, on the first death, the surviving spouse could consider a Deed of Variation to pass some of their wealth on to their children or an alternative chosen beneficiary. This would reduce the value of their own estate and so reduce the amount of inheritance tax payable on their death.
Of course, the surviving spouse may need to put safeguards in place to make sure they are not disadvantaged by taking such measures.
The issues are complicated and it is important to get good professional advice. The important thing at this stage is to ensure people are not put off using discretionary trusts because they still have a major role to play in mitigating against inheritance tax.
For further details contact Peter Sutherland 0115 988 6714 psutherland@andersonssolicitors.co.uk
Clampdown on compensation canvassers
Shoppers in Nottingham can now take action against canvassers who stop them in the street and pester them about whether they’ve recently had an accident and want to claim compensation.
These claim managers make money by finding accident victims and then selling the case on to a solicitor for a referral fee. They’re often seen touting for business in shopping centres and even go cold calling from door to door. Now they face fines and up to two years in jail if they flout new regulations introduced as part of the Compensation Act.
The move has been welcomed by Faizal Essat of Andersons solicitors in Nottingham. “The high pressure tactics of some claims management firms have been disgraceful and should be stopped.
“These companies don’t do anything anyway except put you in touch with a solicitor who could be hundreds of miles away in another part of the country. It would be much simpler and cheaper if people simply contacted a local solicitor direct.”
Claims managers will no longer be able to approach people without being asked. Anyone who feels they’ve been subjected to undue pressure can complain to the government regulator who has the power to close down unscrupulous firms.
For further information please contact Faizal Essat on 0115 988 6707 or email: fessat@andersonssolicitors.co.uk
