Review of the recent changes to Inheritance Tax and granting of Powers of Attorney
This Autumn has brought two major changes to the area of Wills and Probate.
The Couples Allowance
The first change is a welcome simplification of the Inheritance Tax regime that will apply to spouses and civil partners from the 9 October 2007. It will now be possible for couples to transfer their personal inheritance tax allowance (known as the “nil rate band”) to a surviving spouse or partner. At current nil rate band levels this change will remove estates worth between £300,000 and £600,000 from inheritance tax. The new provisions mean that it is no longer necessary to create a complex Trust scheme into a Will, thus saving clients hefty legal costs.
Mental Capacity and Lasting Powers of Attorney
The second major change relates to advising elderly clients on the sometimes sensitive issue of mental capacity. On the 1 October 2007, Lasting Powers of Attorney (LPA) were created by the Mental Capacity Act 2005. The Act has created a new framework for adults who want to prepare for a time when they may lack mental capacity in the future. The law prior to this had been in place since the mid-1980s and allowed individuals to create Enduring Powers of Attorney (EPA).
Under both regimes a person over 18 (the Donor) can appoint an attorney to make a range of financial decisions such as buying & selling property, operating a bank account, dealing with tax affairs and claiming benefits. What is different with the new LPA scheme is that a person can also choose to delegate decisions that affect their personal welfare including healthcare and medical treatment decisions. The personal welfare LPA could be a very powerful document because it might include decisions such as:
- Where a donor should live
- Day-to-day care including diet and dress
- Who the donor can have contact with
- Whether the donor should take part in social and leisure activities
Because of the wide-ranging decisions that could be made on behalf of a donor they should think very carefully about how much power they want their prospective attorney(s) to have.
Another difference between an LPA and EPA is the issue of when it becomes effective. An LPA must be registered with the Office of the Public Guardian before it can be used. This change was made in order to help combat possible misuse of the power. The risk that an attorney might abuse the powers they are given can never be totally eliminated but, with the supervision of the Office of the Public Guardian, it is less likely to happen.
Unfortunately, as with any improvement, the new scope and safeguards of an LPA comes at a price. This price will ultimately have to be paid for by the clients. Under the old EPA regime, the creation of a Power of Attorney was quick and easy (often the legal fees were less than £50). The new LPA will take more time to create (i.e. more money) and because it has to be registered there will also be Court fees to pay up front.