Comparisons Between an Enduring Power of Attorney and a Lasting Power of Attorney

Enduring Power of Attorney (“EPA”)
Lasting Power of Attorney (“LPA”)
(Mental Capacity Act 2005)

Clients may be aware that the present regime for giving a (longer term) Power of Attorney to a third party was established under the 1985 legislation providing for Enduring Powers of Attorney. In simple terms, these types of Attorney deeds can exist until the death of the donor subject to requirements as to registration (see below). The Enduring Power of Attorney differed from what is termed a general Power of Attorney, under the 1971 Act, which is usually in existence for a shorter duration and for a specific purpose – the absence of the donor, for example, overseas for a temporary period. A general Power of Attorney is automatically revoked by the onset of mental incapacity.

EPAs have proved to be remarkably popular primarily because of the relative simplicity of operation and the flexibility provided:

· The Donor chooses who he/she would wish to deal with (the Donor’s) financial matters;

· The Donor can choose either single or joint attorneys;

· The Donor can limit the extent of the Attorney’s authority (eg, for specific matters only);

· The Donor can revoke the EPA at any time while still mentally capable;

· The Donor is able to dictate when the Power of Attorney is to become effective (ie, immediately or at a future date as long as the Donor is still mentally capable).

Anyone over 18 years, who is not bankrupt, may act as an Attorney. The standard of care is that the Attorney must use the same skill and care as he/she would use to manage his/her own affairs and finances. A higher standard of care would be expected of a professional attorney who receives remuneration for acting.

Fiduciary position

The Donee of a Power of Attorney is a fiduciary and must not profit from his or her position. Donees must avoid any conflict between their responsibilities towards the Donor and their own interest. Their prime duty is to act in the Donor’s best interest.

Mental incapacity

Should mental incapacity of the Donor arise, the Attorney is under an immediate obligation to register the document with the Public Guardianship Office (“PGO”). Certain prescribed relatives of the Donor should be notified (of the intention to register) and an application fee of £120 paid to the PGO.

Receivership

What happens if an individual does not make an EPA and the individual becomes mentally incapable of managing his/her financial affairs?

Either a relative, or a professional person, will have to be appointed to apply to the Public Guardianship Office to be appointed as the Donor’s receiver. This is a costly and time consuming procedure.

What are the differences between the existing Enduring Powers of Attorney (EPA) and the new Lasting Power of Attorney (LPA)?

Following the enactment of the Mental Capacity Act 2005, which is due to become law on 1 October 2007, no new EPAs can be established (although existing EPAs will remain legally valid and in force).

The new form of Attorney will be known as a Lasting Power of Attorney and provides the following “key criteria”:

Unlike an EPA the LPA can extend to personal welfare matters as well as property and financial affairs;
An LPA dealing with property and financial matters can be used both before and after the Donor loses capacity;
However, a welfare LPA, which relates to health care decisions, can only be used once the Donor has lost capacity;

Registration

To be valid and operative both forms of LPA must be set out in the prescribed form and have to be registered with the Public Guardianship Office (PGO) which will have a wider remit and role than its predecessor. Under the new regime, there is no duty to serve notice on the relatives of the Donor unless specified in the LPA document.

Registration fee

Under the existing regime, if an EPA has to be registered with the PGO the existing fee is £120. This will be raised to £125 after October 2007.

However, the fee for an LPA registration will be £150. The registration fee for an LPA is higher because more administrative time is incurred and an LPA must be registered with the OPG prior to use. Clients may recall that with an EPA there is no requirement to register the document with the Court of Protection until the onset of mental incapacity. Clearly the new regulations (which will be in force from October 2007) are more inflexible in operation, particularly the need to register with the OPG prior to the Attorney document being brought into use.

Recommendation

As existing EPA documents will remain valid (whether registered or unregistered) and in the absence of any requirement to formally register with the PGO (unless mental incapacity of a Donor is judged to be prevalent) we recommend that EPAs are established prior to 1 October 2007.

By so doing, this will alleviate any need for compulsory registration, unlike the situation with an LPA, where there is a formal requirement to register this document prior to use.

An EPA can be established between spouses and civil partners (with the latter assuming that the civil partnership has been registered in accordance with the requirements of the Civil Partnership Act 2004).

Cost for the provision of an Enduring Power of Attorney document

Lockharts will charge £150 for a standard Attorney document prior to October 2007. Our costs are subject to VAT.

We emphasis this is for the provision of a “standard” EPA; if clients require special advice tailored to their own individual circumstances, then this would be chargeable as part of our normal costs for private client work – viz £195 per hour (chargeable in 6 minute units) subject to VAT.

For further information, please contact:

Andrew Murdoch

Associate Solicitor
Lockharts Solicitors
Tavistock House South
Tavistock Square
London
WC1H 9LS
Email: am@lockharts.co.uk
Telephone: 020 7383 7111

VAT Liability and Partnership Deeds

From 1 May 2007 partnerships have to register for VAT if they exceed or are likely to exceed the VAT registration threshold, which is currently £67,000, in respect of certain classes of services. Recent information from HMCE appears to indicate that where a VAT liability arises in respect of such services, it should be made clear whether the VAT liability falls on either the partnership or the individual partner providing the services. If this is not clarified in the Partnership Deed it appears that HMCE will deem the liability to fall on the partnership. This may result in the practice reaching the level where registration for VAT payments is necessary, which would not otherwise have been the case.

It is of course a matter for the practice as a whole as to how liabilities should fall but Ros Parkin – rap@lockharts.co.uk will be happy to advise on changes that may be necessary to practice Parntership Deeds.

Partnership Issues

While it is the wish of every partnership that things run smoothly, there will always be occasions when circumstances pose problems for your business, its partners and its employees. Whether you are an existing partnership, or contemplating the formation of a new firm, it is essential that you take appropriate advice as these circumstances dictate.

Whether a problem arises out of a dispute over the nature or interpretation of your partnership agreement, your employee's rights and obligations, a matter relating to professional discipline, or a combination of several issues, it is crucial that you deal with it effectively and efficiently.

Lockharts have considerable experience and expertise in acting for partnerships and are able to offer legal advice in the following key areas.

Partnership law

Drafting of partnership agreements for partnerships or LLPs,
Fixed price partnership agreement assessment,
Advising on the meaning and enforceability of clauses in existing Deeds,
Developments in the law such as the extension of the applicability of the Age Discrimination legislation to partnerships.

Partnership Disputes

Negotiations and settlements when Partners retire voluntarily or compulsory,
Advice on internal partnership disputes, dissolutions and expulsion of partners,
Acting on behalf of partnerships and individual partners in ADR, mediation, arbitration and Court proceedings,
Advising on the enforceability of restrictive covenants, including acting to obtain injunction applications.

Employment law

Drafting of employment contracts, staff handbooks and employment policies,
Advice on unfair dismissal, disciplinary and grievance procedures, redundancy, discrimination and business transfers (TUPE),
Advice on dispute resolution and compromise Agreements,
Representation and advice on claims before the employment tribunal,
More information.

Disciplinary and Fitness to Practise Issues

Legal assistance to practitioners who are being or may be investigated or charged with a disciplinary offence by their professional or regulatory body,
Preliminary advice for practitioners who have been contacted by their regulatory body,
Representation for practitioners who are being investigated or subject to disciplinary hearings before a panel or Tribunal,
Combined experience of working almost exclusively with professional practitioners with expertise in partnership law, regulatory law and litigation,
Membership of the Association of Regulatory and Disciplinary Solicitors.

Property law

Commercial business sales and acquisitions,
Leases and premises development,
Re-mortgaging and co-ownership,
More information.

Intellectual property

Advice on trade marks,
Registrations at home and abroad,
Passing-off and infringement,
Assigning and licensing trademarks,
Advice on internet domain names,
More information.

Whether or not your partnership issue appears to come under any of the above, please do contact our Head of Partnership Rosalind Parkin who will be happy to discuss your concerns with you.

Partnership Issues

Changes in Capital Gains Tax (CGT)

Chancellor of the Exchequer Alistair Darling announced in the pre-Budget report that the rules on capital gains tax (CGT) will change from 6 April 2008. The current system of taper relief allows investors to pay just 10% on investments held for two years. In place of the taper relief, Mr Darling is introducing a new flat rate of 18%. He has intended to raise additional taxation to target private equity investors, who have been described as ‘paying less tax then their cleaners’. The details of how this is to be done were not precisely spelled out.

The net effect will be to set back the growth of the economy over coming years, by discouraging longer term investment and risk-taking. This will hit all businesses in the UK and reduce the tendency for entrepreneurs to start new businesses. The previous arrangements encouraged entrepreneurs to take higher risk and the tax system rewarded them accordingly. The changes lead to expectations that many business owners will sell up in the period up to 5 April 2008, as people make sales to avoid much larger tax bills.

This compares with the CGT position on disposal of personal assets. The current effective rate is 24%. With the flat rate of 18%, general investors in shares and those with buy-to-let or second properties will find their position improved. No holding period will be required to benefit from this new rate.

Despite the new flat rate in CGT, Mr Darling said that the UK would remain “one of the most competitive single rates of any major economy”.

Enduring Power of Attorney Updates

Enduring Power of Attorney

Although we intend in the future to send clients regular informative updates drawing attention to developments in the law which may affect their practices, I felt that I should write to you now about a development which could well affect all the doctors and the senior management in your practice.

This is a basic change in the law relating to an Enduring Power of Attorney which will come into effect on 1 October 2007. (An Enduring Power of Attorney (“EPA”) is a legal document which authorises another individual to act on your behalf in looking after your financial affairs. An illness or accident (or simply advancing years) could determine this need; currently an EPA is the only way in which you can appoint someone to act on your behalf for the longer term).

The changes envisaged are:

· The existing regime for establishing an EPA will terminate on 1 October 2007. After that date only a Lasting Power of Attorney (“LPA”) may be established with a more onerous registration and charging structure.

· Crucially, existing EPAs remain valid after 1 October 2007; it is imperative therefore that clients give urgent attention to taking out an EPA in this “window period” prior to 1 October 2007.

The prime decision that clients have to make is to whom the EPAs should be granted. In a spouse or civil partner situation, usually EPAs are taken out mutually by each spouse or civil partner. Where parents are retired, with surviving child or children – one child can be nominated; joint attorneys can also be nominated but preferably on a joint and several basis to protect again one (joint) attorney predeceasing the donor.

I realise that many people within the practice, including the partners, may never have considered the necessity to plan in this way, but I am sure that everyone is well aware, especially when working in the medical profession, of the major problems that can arise for families if a family member becomes unable to look after their own financial affairs.

For a more extensive explanation regarding the Enduring Power of Attorney which is available until 30 September 2007, as opposed to a Lasting Power of Attorney, which will be the only (longer term) Power of Attorney available after that date please see the accompanying document.

Andrew Murdoch is our specialist solicitor in this area and would be pleased to talk about this if anyone who is interested rings or emails him.