The Law Society and the British Banking Association along with a number of other key institutions have previously issued guidance to be considered where a customer may lack mental capacity. The guidance states that in the event that a bank or building society or any other financial institution have doubts about the mental capacity of a customer, they should take steps to safeguard that customer’s accounts. From experience, we are aware that this includes freezing that customer’s accounts apart from allowing essential transactions in some circumstances. This even applies to joint accounts held with the customer’s husband or wife. This can be a huge inconvenience and can result in financial problems for families, with people finding themselves unable to access their own money at what is already an incredibly stressful time for them.
Whilst we may not always agree with decisions taken by financial institutions, our advice is to prepare for this event by ensuring that powers of attorney are put in place. Many clients think that if someone close to them has a third party mandate with the bank and can currently access their money for them, then there is no need for a power of attorney. Although these arrangements are effective where administrative convenience is required, they are no substitute for a power of attorney. Third party mandates only work when the customer has capacity and can provide instructions to the person that they have trusted. If the customer loses capacity and is therefore unable to provide instructions, any third party mandate falls away. The same applies to appointeeships in respect of government benefits. It is also important to understand that an appointee can only manage state benefits and has no authority to manage other funds.
The only way to be sure that someone you trust will have access to your money and will be able to make financial decisions on your behalf if you lose capacity is by putting in place a lasting power of attorney for property and financial affairs. In the event that a person loses capacity and does not have a power of attorney it may then be necessary for a Court of Protection application to be made for a Deputyship Order. Anyone one can apply for this order and it may not necessarily be the person you would have chosen to manage your affairs. The Court of Protection route is more expensive, more time consuming and much less flexible.