Don’t leave it too late to put in place lasting powers of attorney

Grange Legal are encouraging people to consider making Lasting Power of Attorneys (“LPAs”) before it’s too late.

An LPA is a legal document that allows the donor (the person giving away the power) to appoint a person or people, known as attorneys, to act during the donor’s lifetime to help make decisions or, in the case of a lack of mental capacity.

What are the two types of LPA?

A property and finance LPA – this allows the attorneys to manage property, bank accounts, savings, and investments.

A health and welfare LPA – this allows the attorneys to decide on medical care, living arrangements and even diet, dress, or daily routine. The health and care LPA can also encompass life sustaining treatment decisions which can include a serious operation such as a heart bypass or organ transplant, cancer treatment and whether artificial hydration and nutrition is to be withdrawn.

Both types of LPA must be registered with the Office of the Public (“OPG”) before they can be used. It is important to note that even with a registered LPA or LPAs that the donor remains in complete control of their affairs unless or until they lack mental capacity.

With the OPG currently taking up to 14 weeks to process LPA registrations, Grange Legal is advising clients to put plans in place way before they think they might need them to ensure their affairs are looked after during their lifetime if they lack mental capacity or require additional help.

Grange Legal are advised by clients having put in place LPAs that they feel in control of their future, having appointed people they believe will always act in their ‘best interests’ and have obtained peace of mind from putting LPAs in place.

What if I don’t have LPAs in place and I lose mental capacity?

Regrettably, Grange Legal are contacted far too frequently by adult children and/or friends on behalf of their parent(s) enquiring as to the possibility of putting in place LPAs. Sadly, the delayed timing has resulted in many cases where the donor was already lacking mental capacity meaning they were unable to put in place LPAs.

If you do not create Lasting Powers of Attorney whilst you have capacity, a loved one can apply to the Court of Protection to determine who can act on your behalf and appoint them as your ‘deputy’. This process is costly, lengthy, does not always give the desired result because the Court will ultimately decide who will act on your behalf.

At Grange Legal, we recommend that everyone over the age of 18 should set up both types of LPA regardless of health and circumstances because we do not have a crystal ball and we do not know what is around the corner. Often clients think about a gradual deterioration in health rather than a rapid decline or accident resulting in a sudden loss of capacity.

Grange Legal believe that having acted for multiple clients in the creation of the LPAs that;

“Nobody wants to have to make these decisions before we are faced with them, but it is so much worse for the family or those wanting to help if we do not talk and plan in advance.”

Grange Legal will guide clients through the LPA making process to ensure both they and their loved ones have peace of mind moving forwards. We are proud to operate under a fixed and transparent pricing structure known as the “Grange Legal Price Promise”. 

If you require assistance preparing your Will or wider estate planning needs such as Lasting Powers of Attorney, please do not hesitate to get in touch for a free an introductory call.

Helping children onto the property ladder – ‘The bank of mum and dad’

According to new figures from Savills, the bank of mum and dad funded over £9 billion worth of property purchases in 2023 which is dramatically shifting the landscape on lifetime financial support for the next generation.

The latest research by the property experts found that 164,000 first time buyers had family assistance and the £9.4bn home purchases made represents a twofold increase since 2019.

This latest research suggests that a sharp rise in the cost of renting is one of the factors creating an impetus for pursuing home ownership sooner rather than later. This plus the fact that better mortgage deals tend to be dependent on lower loan to value ratios means that parents are increasingly contemplating contributing to their offspring’s first property purchase.

But the bank of mum and dad creates a dilemma for parents in terms of whether to invest with or gift or loan to their children. And this dilemma is heightened at the moment by a degree of uncertainty and concern about what the impending budget may bring in terms of changes to capital gains tax and the inheritance tax rules.

The implications of using the bank of mum and dad can be very different depending on how the parents’ financial contribution is provided and whether it is intended as a gift, a loan, or an investment.

Mortgage providers also have different approaches when it comes to these circumstances. The default position historically, was for mortgage lenders to insist that any financial contribution from a 3rd party, such as a parent, was signed off as being an outright gift. This keeps things simple for the mortgage lender as there is no one else other than the buyer with an interest in the property.

Grange Legal have seen a sharp increase in enquiries from parents wishing to adopt such a strategy.

Making a gift is an opportunity to start a seven-year clock running on removing the value of the gift from their estate for inheritance tax purposes. This comes with the added satisfaction of knowing the gift is being made for a worthwhile cause that should benefit their child for years to come by giving them a foothold on the property ladder. On the other hand, they may or may not have paused to consider that the sum gifted is completely exposed to the child’s choices and to claims by third parties – for example, in the event of a relationship breakdown or if their offspring moves in with a partner or marries. 

For families who want to keep it simple and make a gift it’s good for them to know that there are steps that their offspring can take to protect what their parents have generously given by ensuring they have made a cohabitation or pre- or post-nuptial agreement with any spouse or partner to agree that family gifts are ringfenced.

Parents are increasingly encouraging or even insisting upon this ahead of gifting!

However, if parents decide to go down the loan route, an appropriate form of loan agreement is a must and clear evidence of the loan is important to ensure the sum loaned is protected from third party claims. The loan can even be secured against the property by way of a second charge (the mortgage lender’s charge will take priority). It is typical to document family loans as interest free and repayable on demand, this keeps the status of the loan simple from a tax perspective. 

The downside of the parent’s contribution being by way of loan is that the debt due to the parents remains an asset of their estate for inheritance tax purposes. Parents might consider waiving the loan sometime later, perhaps when their offspring are older and more settled in life. Any such partial or total waiver needs to be done by way of a deed.

Alternatively, another avenue parents may wish to explore is investing in the property with their child. They may feel this still gives them some element of control as well as the possibility of some return on their contribution. There are, however, certain tax ‘downsides’ including a stamp duty surcharge that will apply to the purchase price assuming the parents already own a property. There will also be capital gains tax on any rise in value of the parents’ share if they give it away or if the property is sold in their lifetime assuming they won’t be living in the property themselves.

Grange Legal have acted for many families considering making financial support available for their offspring using trust planning. This option involves parents setting up and gifting into a discretionary trust for the potential benefit of their adult children and future generations. Although the parents must be excluded from receiving any benefit from the trust assets themselves, they can act as the trustees to decide when and how best to apply the trust funds for the benefit of their children.

The gift into trust will start a 7-year clock running to remove the value given from the parents’ estate if they survive the gift by that period. The parents will be able to exercise their discretion as trustees to make a loan of funds from the trust towards their offspring’s property purchase. The loan is owed back to the trust and therefore not wholly exposed to third party claims in the event of their child’s relationship with a spouse or partner breaking down. The trust can also take a charge over the property as security for the loan. The trustees might decide to waive the loan at some point in the future. Or the loan could remain in place long term for the eventual benefit of successive members of the family bloodline.

Here at Grange Legal we are firm believers that “The key message to take away is that parents having the benefit of specialist advice is key to them being able to understand the various options and implications, so that they can make an informed choice about what is right for them and ensure the relevant paperwork is in good order.”

Grange Legal will guide clients through their options to ensure both they and their loved ones have peace of mind moving forwards. We are proud to operate under a fixed and transparent pricing structure known as the “Grange Legal Price Promise”. 

If you require assistance preparing your Will or wider estate planning needs such as Lasting Powers of Attorney, please do not hesitate to get in touch for a free an introductory call.