Humans are known to have a negative bias hardwired into their approach to life. Even if 90% of a conversation is positive, we will tend to focus on the negative 10% much more. And while it is a bias that we can learn to manage – or at least be aware of, as with all behavioural biases – many of us don’t, so its impact disproportionately affects our lives.
This negativity also becomes apparent in the way we seek out or avoid information – as my colleague Rebecca outlined in the January issue of our client magazine, Opportunity (see page 10). This leads some to avoid contemplating anything that might negatively impact them in life, even though they realise that this may result in further complications, and scientists are still not really able to pinpoint why this is the case.
The earlier the better
About 50% of people do actively seek out information. For these people, as well as those realising that bucking a bias may be a good thing, it’s worth noting that starting sooner rather than later really does set you up for better outcomes. This applies to dementia, as the team at Alzheimer’s Research UK articulated in a conversation, and when planning your future finances.
The earlier you start any planning with regard to your wealth, incorporating all the various scenarios that may come to pass, whether positive and negative, the better prepared you would be for whatever life throws at you. But it’s particularly important when discussing dementia (or any mental incapacity) given any decisions you make should be made when you are 100% mentally competent.
At a basic level, you should have an up-to-date will in place that sets out how your estate will be distributed. But by completing (or updating) one as part of a comprehensive wealth plan, you would understand your finances now and what could form your estate in the future. This helps you to mitigate inheritance tax, but it will also help reassure you, and your loved ones, that you are on top of your affairs.
But there’s a further important step, in addition to a will, which is to have completed and registered lasting powers of attorney – i.e. LPAs.
While we outlined these in January, it’s worth reiterating what lasting powers of attorney (LPAs) are. Basically, an LPA is a legal document which allows you to give people you trust the authority to manage your affairs, particularly if you lack the capacity to make certain decisions for yourself in the future.
There are two types of LPA: one is for property and financial affairs. This allows for someone (your attorney(s)) to make decisions on your behalf (as the ‘donor’) on money, tax, bills, property, pensions and investments.
The second is for health and welfare matters, which allows for decisions on things like medical care and where the donor lives. Again, as we noted before, this LPA only kicks in once you are deemed to be incapable of managing your own affairs, while the property and financial one can start as soon as you specify.
If you own a business, you may also put in place a separate LPA specifically for your business.
Fortunately, the legislation on property and financial affairs LPAs has recently changed in England & Wales, with work done to prevent fraudulent documents being registered and efforts made for the filings to be done electronically. More recently, although the formal guidance on the Office of the Public Guardian’s website still requires updating, changes have also been approved with regard to the management of investments, by the attorneys on behalf of donors, which include the ability to appoint or change discretionary investment managers.
Prior to this, specific wording had to have been incorporated into an LPA if the attorney wished to use, or change, an investment manager. This specific wording was often missed, not least given many didn’t know a specific clause was required, so it’s a welcome change as it will make it easier for families to ensure any monies they are in charge of can be managed by the best-value, best-performing portfolio providers, and without having to set up a new LPA or apply to the Court of Protection.
Again, the earlier LPAs are put in to place the better. And contrary to popular opinion, this is not just something to think about only when you are old, or indeed for old people, and instead should be put in place for everyone.
If it’s too late, the person (or people) you want to act on your behalf will have to apply to the Court of Protection for a deputyship instead, which could take a number of months to put into place, often during a potentially stressful period, and may lead to less preferable outcomes.
Remember an LPA is not simply about fully taking over somebody’s affairs. It’s better to think of it as working with the person you love, not least as there are some simple steps that can be accomplished earlier on making life easier for the donor immediately. These include making sure important bills are not forgotten by switching them to direct debit, through to ordering large print documents.
In summary, we believe setting up an LPA is a simple process. But it’s also one that should be seen as delivering a lot of benefits, which for us include:
- It is a great way to protect your assets and make sure you are and will be looked after
- You are in charge of your own destiny by planning in advance and setting out the decisions you want others to make on your behalf
- You get to choose who looks after your situation – i.e. someone you can trust to act in your best interests
- It’s more efficient (and less expensive) to put an LPA in place when you are in charge of every aspect of life than waiting and being forced to make an application to the Court of Protection.
- It will reduce the level of stress for you, and your loved ones, providing reassurance about the future.
So please get in touch should you want to talk through the wealth planning process. Whether you have an existing legal adviser or would like to be introduced to one, we can help here too. And, regardless of your future state of mind, whether you suffer from dementia or not, there will a robust plan in place for you, and for your finances, to achieve a more optimal course of action.
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Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how wealth planning can help them achieve their financial goals and objectives, or call +44 (0)1624 645000 to speak to our client services team.
We do not offer legal advice. We would always recommend you seek professional legal advice in relation to your will and lasting powers of attorney. We are, however, happy to work with your legal team, or to provide an introduction to a suitable lawyer should you wish.
Any examples of investments and structures used are for illustrative purposes only. The inclusion does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.