Equity Release and Lasting Power of Attorney

Lasting Power of Attorney can offer you peace of mind when considering equity release

Longer life spans, rising costs of living and increasingly expensive care costs have undoubtedly contributed to the growing popularity of flexible financial products during retirement. Many people face the prospect of insufficient retirement funds to meet their needs, so consider releasing equity from their home to supplement income.

What is a Lasting Power of Attorney?

Unfortunately, it’s possible there may come a time when you may not have mental or physical capacity to make decisions for yourself. However, you can appoint someone you trust to take decision on your behalf should the need arise, for example to release equity from your home. For this reason, it’s important to make your wishes clear in a legal document, called Lasting Power of Attorney.

A Lasting Power of Attorney (LPA) is a legal document that lets you nominate one or more people (your attorneys) you trust to make decisions on your behalf, should you become incapable of doing so in the future. There are two types of LPA:

LPA for Property and Financial Affairs - gives the attorney the power to handle the property and financial affairs, which can be used at any time

LPA for Health and Welfare - covering health and care decisions which can only be used if people lose mental capacity

Why set up a Lasting Power of Attorney?

Health problems or injuries mostly happen without warning, so it’s sensible to prepare ahead for all eventualities. It’s never too early to get your affairs in order. You will have a peace of mind that comes from knowing your affairs will be managed quickly and efficiently by the people of your choice listed in the LPA. Here are some of the reasons to put an LPA in place:

You can decide who should make the choices for you if a need arises

You can appoint someone you trust, including a solicitor, to look after your financial affairs

It is more cost-effective to set it up in advance before you lose mental capacity

An LPA can offer added peace of mind for families who’s relative has an equity release plan

Your loved ones will still be able to draw down cash reserves from your equity release plan on your behalf

You can decide what decisions can be made on your behalf

When to take out an LPA?

It’s important to highlight that you are only allowed to set up an LPA whilst you still have the mental capacity to do so. Unfortunately, as we get older, we are more likely to suffer from ill-health or a lack of mental capacity and by the time you need an LPA it could be too late to put one in place.

Giving someone Lasting Power of Attorney over your affairs before you become unable to do so saves your loved ones from a potentially lengthy and expensive process with the Court of Protection, allowing them to take care of things if something happens to you. The Court process may take months and can be costly, with the potential of your finances being frozen and financial decisions delayed.

Why Lasting Power of Attorney is particularly important for a drawdown lifetime mortgage

It is not a legal requirement to set up an LPA when releasing equity, but it is recommended by the Equity Release Council that people entering into a drawdown lifetime mortgage plan should have an LPA in place. Here, we explore why:

LPA in place

If there is an LPA for Property and Financial Affairs in place this gives your named attorney authority to arrange an Equity Release drawdown on your behalf.

No LPA in place

If there isn’t an LPA for Property and Financial Affairs in place, and you haven't taken all of the maximum facility in your lifetime mortgage drawdown, should you lose mental capacity and a drawdown was required then an application would need to be made to the Court of Protection. As mentioned above, this can involve considerable expense and uncertainty and access to any drawdown facility will be suspended whilst waiting on the Court.

An example would be that you and your partner take out £20,000 in the first instance and ring-fence the same amount that you won’t be paying interest against to draw down on later. However, for you and your partner to draw against that ring-fenced amount, both of you must have mental capacity and be able to sign the papers. Therefore, having an LPA in place is essential to ensure ongoing access to further funds from a drawdown plan (via the signature of an authorised attorney). If you have not set up an LPA, the Court will need to appoint a deputy for you, adding additional stress to an already distressing time.

Considering equity release?

Equity release is a big decision and financial commitment related to your home. There’s a lot to consider, that’s the reason lifetime mortgages are only available through an adviser so you can get expert advice.

OneFamily Advice are a team of impartial, whole-of-market and qualified advisers who’ll help you to decide if it’s the right option for you. Our team can answer all your questions, guide you through the lifetime mortgage process and help you make the right decision for your circumstances.

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Could equity release work for you?

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