The importance of having a lasting power of attorney (LPA) when it comes to equity release

Why are lasting power of attorneys (LPAs) important to equity release? Melissa Hughes, Head of Wills & Probate at GWlegal, explains the relationship between an LPA and equity release.

What is a lasting power of attorney (LPA)?

A lasting power of attorney (LPA) is a legal document which allows someone (the donor) to appoint one or more people they trust (the attorney(s)) to make decisions on their behalf when they no longer have the ‘capacity’ to do so themself.

An LPA is not just for older people in poor health to consider, everyone should have one. Contrary to popular belief, your next-of-kin does not automatically get this responsibility to become your attorney, which is why it is so important to set it up in advance.

There are two types of LPA that can be set up:

LPA for your property and financial affairs – your attorney would have the power to make decisions on your behalf about money and property, including paying your bills, managing your bank accounts or investments, selling your home or taking further drawdowns on your equity release mortgage.
LPA for your health and welfare – your attorney would have the power to deal with your doctors, nurses and social services in respect of your health, medical treatment and personal welfare.

To set up one or both types of LPA. You must be:

over 18
have full mental capacity
pay a fee to register the LPA, unless you are exempt

When does someone lack mental capacity?

The Mental Capacity Act 2005 provides that “a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain. It does not matter whether the impairment or disturbance is permanent or temporary.”

This means that a person lacks capacity if they are unable to make a decision for themselves in relation to a given matter if, with appropriate assistance as necessary, the person is unable to understand the information relevant to the decision, to retain that information, to use or weigh that information as part of the process of making the decision or to communicate his decision by whatever means.

What is a court appointed deputy?

Once you have lost mental capacity, it is too late to set up an LPA. The Court of Protection would have to appoint someone to act as a deputy on your behalf.

If your loved ones want to apply to be your deputy, it will be time consuming and there will be legal costs involved to have your application heard. The application may then even be refused, with the council being appointed instead. It is also a very long process often leaving people in limbo, with finances being frozen and financial decisions delayed.

Do you need a lasting power of attorney (LPA) when taking out equity release?

It is not a legal requirement to set up a n LPA when taking out equity release, but it has been recommended by the Equity Release Council that people entering into a drawdown lifetime mortgage should have an LPA in place.

There is a recognised myth that equity release cases involving an LPA are more difficult and take longer to complete than other cases. However, there is no reason why a case involving an LPA should take longer than any ordinary case.

The borrower must have lost their mental capacity for their attorney(s) to act. If they are just physically frail or don’t like dealing with paperwork, the lenders solicitors will insist that the borrower signs, rather than their attorney(s).

If there is an LPA in place for property and financial affairs, your attorney(s) will have authority, if you lose capacity, to arrange further drawdowns on your behalf.

If you don’t have an LPA for property and financial affairs in place, and you haven’t taken the maximum mortgage drawdown but have now lost capacity to do this yourself, an application would have to be made to the Court of Protection as detailed above, which can involve considerable expense, uncertainty, and access to any further drawdown would be suspended until the Court have made such a decision.

For example, you and your spouse decide to take out £50,000 and leave another £50,000 in a drawdown facility to draw down later. However, for you and your spouse to make any further drawdowns, both of you must have mental capacity and be able to sign the papers. If one of you loses capacity and the other is not appointed through an LPA as your attorney, you would not be able to get a further drawdown without your spouse or family members applying to the Court of Protection to be your deputy.

Ultimately, having an LPA for property and Financial Affairs in place is essential to ensure ongoing access to further funds from a drawdown plan.

Should you use a solicitor to set up a lasting power of attorney (LPA)?

It is not a legal requirement to use a solicitor to set up an LPA, but it may be beneficial to use one for several reasons:

You are unsure of the process – The right solicitor will be dealing with the preparation and administration of LPAs on a day to day basis. They have all the right systems and required knowledge.
Your affairs are complex and may need specialist advice – Again, the right solicitor will have the required knowledge to ensure that you receive the best advice tailored to you.
A solicitor can act as ‘Certificate Provider’ – You will need a ‘Certificate Provider’ to sign your LPA to confirm you are of sound mind. You cannot use a relative as your ‘Certificate Provider’.
To ensure that no mistakes are made – If you draft the LPA yourself and make a mistake, you may be charged by the Office of the Public Guardian for minor corrections or worse, forced to start the process again and have to pay the registration fees again. This will also delay your application by several weeks. Data issued by the Freedom of Information suggests that almost 130,000 LPAs have been rejected between 2018-2023 due to mistakes.

Melissa Hughes GWlegal

About the author

Melissa Hughes is a Solicitor and Head of Wills & Probate at GWlegal, @GWlegal. With over 10 years’ experience in the legal industry, Melissa specialises in all aspects of Private Client matters, including the preparation of Wills, Probate, Estate Management and Lasting Power of Attorney.

Find out more

Make, register or end a lasting power of attorney (GOV.UK)

Mental Capacity Act 2005 (Legislation)

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Publication date

20 March 2024

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.