Trainee Advocate Aiza Khan, of M&P Legal, reviews powers of attorney and explains why they can be so important and what will change when the Island’s Capacity Act 2023 is enacted.
Why is a Power of Attorney important?
The ability for an individual to manage their affairs is a fairly regular occurrence. Tasks such as paying the bills, managing bank accounts, and repairing or selling property are relatively straight-forward things to do, even if cumbersome at times.
But what were to happen if you lose the ability to take care of these things? Individuals that end up experiencing the onset of dementia, suffering from a sudden head injury or stroke, or debilitating health issues will often face difficulties in handling their own affairs. They may no longer have the ability to make decisions that would ultimately impact their life, or they may struggle to communicate such decisions to other people.
More pressingly, the law does not enable other people to ‘step into the shoes’ of the individual once this happens, regardless of what their relationship with each other is. This can create havoc in multiple ways for the individual who has lost capacity, including not being able to pay for housing or caring costs, being locked out of their own bank accounts or not receiving medical assistance that requires consent.
As a form of protection against situations like this, it is worth considering making a Power of Attorney. Such a legal document is particularly important in the Isle of Man given the island has the sixth oldest population in the world with an estimated 22.5% of the age distribution in the ‘Over 65’ year old category.[1] A Power of Attorney would safeguard an ageing population including elderly parents and relatives, as well as their loved ones, from experiencing very challenging circumstances.
What is a Power of Attorney?
A Power of Attorney is a legal document where an individual (called a ‘donor’) appoints another person or multiple people (called an ‘attorney’ or ‘attorneys’) to legally make decisions for them or decisions on their behalf.
There are three types of powers of attorney:
1 – Ordinary Power of Attorney;
2- Enduring Power of Attorney; and
3 – Lasting Power of Attorney.
What is an Ordinary Power of Attorney?
An Ordinary Power of Attorney (OPA) enables one or more people to make financial decisions for or on behalf of the donor.
These are usually drafted if a donor requires another person/people to make decisions for the donor for a temporary period of time. Examples of this include if the donor is going to the hospital and needs certain decisions to be made during this time, if the donor is buying or selling property and would like another person to oversee the process on their behalf, or if the donor finds themselves physically unable to attend locations such as their bank to carry out their affairs and chooses another person to do so for them.
Note that an OPA loses its validity in the event that the individual loses the mental capacity to manage their own affairs.
What is an Enduring Power of Attorney?
An Enduring Power of Attorney (EPA) enables an attorney(s) to make decisions on behalf of a donor regarding the donor’s property and financial affairs. If necessary, an EPA can be drafted such that an attorney is limited in what decisions they can make on behalf of the donor. An EPA also provides an attorney limited powers to make gifts for themselves and/or other people using the donor’s property, subject to it being of ‘reasonable amounts’ in proportion to the value of the donor’s property.
Such a document requires the donor to finalise it before they lose mental capacity, and the EPA takes effect as soon as it has been signed.
The difference between this and an OPA is that an EPA continues to remain valid even after the donor has lost mental capacity.
After executing an EPA, if the donor subsequently loses mental capacity the EPA is registered with the Isle of Man High Court of Justice for the attorney(s) to continue being able to use their power to manage the donor’s affairs. Until the EPA is registered, the donor can revoke the EPA at any time.
Note that in the Isle of Man, EPAs are due to be replaced by Lasting Powers of Attorney as legislated in the Capacity Act 2023.
What is the Capacity Act 2023?
The Capacity Act 2023 is a piece of legislation introduced in the Isle of Man that aims to safeguard the rights, dignity and wellbeing of individuals who have lost capacity to make decisions for themselves. Although the Act received Royal Assent in April 2023, it will not take effect until an order is made to put the Act into force.
This Act introduces Lasting Powers of Attorney (LPA) to the Isle of Man which is due to replace EPAs. This will bring Manx law in line with that of England & Wales where LPAs were introduced in 2007.
What is a Lasting Power of Attorney?
A Lasting Power of Attorney (LPA), similar to an EPA, is a document that enables an attorney(s) to make decisions on behalf of a donor who has lost mental capacity.
Unlike an EPA, an LPA provides more flexibility insofar as attorneys have the authority to make decisions regarding the donor’s health and welfare as well as their financial matters.
In addition, unlike an EPA, an LPA will need to be registered as soon as it has been signed rather than when a donor actually loses mental capacity.
Restrictions
Although an LPA provides an attorney with a lot of authority over a donor’s decisions, the Capacity Act 2023 also includes restrictions upon attorneys when exercising their powers.
An attorney does not have the authority to do an act which is “intended to restrain the donor”, unless three conditions have been met.[2] To “restrain” a donor means to use, or threaten to use, force to do an act which the donor resists, or to restrict the donor’s liberty of movement.
The three conditions that must be met in order to be able to restrain a donor in such a manner are that:
1 – The donor lacks, or the attorney reasonably believes that the donor lacks, capacity in relation to the matter in question;
2 – The attorney reasonably believes that it is necessary to do the act in order to prevent harm to the donor; and
3 – The act is a proportionate response to the likelihood of the donor suffering harm (whether the harm is physical, psychological, financial or other harm), and the seriousness of the harm.
I already have an Enduring Power of Attorney in place – will the new Act affect it?
If you already have an EPA, this will still be valid and enforceable once the Act is in force.[3] This means you do not need to replace your existing EPA with an LPA, even after the Act has been put in place.
However, your EPA will not provide your attorney(s) with any power to make decisions related to your health, such as medical treatment. If you seek this, an advance directive also known as a ‘living will’ can be drafted where you can indicate you would like your attorney(s) to have such powers, although note they are not legally binding in the Isle of Man. If you have any particular medical needs that need looking after in the event that you lose mental capacity, it may therefore be worth making an LPA to replace your EPA once the Act is in force.
Who can I choose as my attorney in an LPA?
If you would like your attorney to only make decisions related to your health and welfare, they must be:
-A named individual;
-18 years old or above; and
-Have mental capacity.
If you would like your attorney to only make decisions related to your property and financial affairs, they must be:
-A named individual who has reached the age of 18; or
-A trust corporation.
An individual who is bankrupt cannot be an attorney for a donor’s property and financial affairs.
Note: this article does not contain legal advice; estate planning is a complex matter and specific advice should be sought on each circumstance. Contact our head of private client Amelia Quinn for further information ajq@mplegal.im
[1] Isle of Man Population Report 2023.
[2] Section 14, Capacity Act 2023.
[3] Schedule 3, para 2, Capacity Act 2023.
