Power of Attorney

A Power of Attorney is a legal document that allows you to give someone else the legal authority to act on your behalf. There are several different types of Power of Attorney. A Lasting Power of Attorney (LPA) (previously called an ‘Enduring Power of Attorney’) allows your attorneys to make decisions for you when you no longer wish to, or when you lack the mental capacity to do so.

When making an LPA, you are permitting someone to act on your behalf when you are no longer mentally capable of making decisions on your behalf.

There are two different types of LPA:

– health and welfare
– property and financial affairs

Making decisions
A property and financial affairs LPA allows your attorneys to make decisions regarding your finances. This could include decisions about paying bills, operating your bank accounts or even selling your home.

A health and welfare LPA allows your attorneys to make decisions for things such as medical treatment, accepting or refusing types of health care and whether or not you continue to live in your own home. You can also give your attorneys the power to make decisions about life-sustaining treatment for you. Your attorneys can be the same as those appointed under the property and financial affairs LPA.

Financial affairs
If you decide not to make an LPA and subsequently lack the mental capacity to understand the nature and effect of the document, you may no longer be able to create an LPA. In those circumstances, if you are no longer mentally capable of dealing with your financial affairs, someone will have to make an application to the Court of Protection to be appointed as what is called your ‘Deputy’. This process applies even if the person incapacitated is your spouse or registered civil partner.

To avoid the Court making decisions on your behalf, it is beneficial to create an LPA because it allows you to decide in advance:

– the decisions you want to be made on your behalf if you lose the capacity to make them yourself
– the people you want to make these decisions
– how you want the people to make these decisions

Accumulating wealth for your children or grandchildren

Anyone with children knows there will be lots of demands on the household finances, but when it comes to long-term saving, perhaps for university or a first home, even a small sum can give your child a financial head start in life over a long period of time. With this in mind, the Association of Investment Companies (AIC) has taken a look at long-term investment company performance, and what to consider when investing for children.

Long-term investment company performance
Investment companies are not just for the wealthy few, but can suit a variety of budgets: contributions start from around £50 per month. An investment of £50 each month in the average investment company has grown to a considerable £28,584 over the last 18 years.

A lump sum investment of £4,080, the full Junior ISA limit for the tax year 2015/2016, in the average investment company eighteen years ago would today have grown to £18,135. If an investment of £4,080 had been made each year for the past eighteen years, this sum would have grown to an impressive £195,384.

How does it all work?
Young children can’t hold shares in their own name, so a scheme can be set up on their behalf. Investment company shares can be held in a designated account, where shares are held in the name of the parent/guardian/benefactor but it is stated on the application form that shares are held on behalf of a child (by adding the child’s name or initials to the form). An advantage of choosing this way to save for a child is that the shares are under the control of the adult until they decide to transfer them to the child.

In a bare trust, shares are held for the benefit of the child and therefore the parent or guardian has no entitlement to the income or proceeds. No income tax or capital gains tax will need to be paid if investments are made via a Junior Individual Savings Account (ISA) wrapper, with an allowance of up to £4,080 annually in the 2015/2016 tax year. The investments belong to the child but cannot be accessed until they reach eighteen, at which point, in the case of Junior ISAs, the account will be converted to an adult ISA.

What are the tax implications of investing for children with investment companies?
If an investment company is held by an adult via a designated account, then the shares will be deemed as belonging to the adult and will be taxed according to the adult’s income and capital gains tax liabilities. If investment company shares are put into a bare trust, then they are held for the benefit of the child, who will have their own income and capital gains tax annual allowances to reduce any tax liability.

However, if any investments made on behalf of a child by a parent generate an income of £100 or more a year, then the income will be deemed to belong to the parent/guardian who created the trust and income tax may be payable. This does not apply to contributions to a Junior ISA, or if the money was given by another relation to the child, or a friend.

Do you understand the Inheritance Tax implications?
If you decide to make a gift to your children you should make sure you understand the Inheritance Tax implications. You should consider taking professional financial advice if you are not sure about how to invest, what type of investments might be suitable and the tax consequences.

Investment companies are popular for saving for children, because there is a plenty of time to benefit from the long-term potential of the stock market whilst riding out some of the market highs and lows along the way. By investing in a range of companies on your behalf, investment companies offer professional fund management and spread your investment risk. ν

Source data:
Performance data is share price total return to 30 April 2015, and mid-market share price on a total return basis. No expenses taken into account. Source: AIC using Morningstar. The Association of Investment Companies (AIC).

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.
IT DOES NOT CONSTITUTE INVESTMENT ADVICE OR PERSONAL RECOMMENDATION AND IS NOT AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT ACTIVITITY. YOU SHOULD SEEK PROFESSIONAL FINANCIAL AND, IF APPROPRIATE, LEGAL ADVSICE AS TO THE SUITABILITY OF ANY INVESTMENT DECISION.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Essentials and indulgences

UK parents spend around £35,000 on their children by the time they reach their fifth birthday, according to research released by Aviva. This adds up to a total of more than £28 billion[1] spent on the nation’s 4 million under-fives each year.

Varying expenses 
The study of more than 2,000 parents with children aged 0-5, discovered that parents typically spend £7,026 a year – or £586 a month – on essentials and indulgences for their youngsters. This includes the cost of everything from basics such as nappies and milk formula, to extras such as toys and baby ballet classes.

The cost of raising children to age five also differs widely across the country, with parents in London paying more than double the amount paid by parents in Wales and the North West.

Those in the capital say that they pay an average of £894 per month – or £10,731 per year. This is in comparison to a more modest £408 a month (or £4,901 annually) in Wales.

Under considerable pressure 
The research also revealed that parents feel under considerable pressure to spend on their youngsters. One in five (18%) say they feel compelled to spend in order to keep up with other parents. This is perhaps fuelled by the fact that more than a third (36%) of parents questioned say they know other parents who boast about how much they spend on their children. However only a modest one in seven (14%) admit to giving in to their children’s demands and buying things they don’t really need.

Making financial plans 
There is good news in that many of these parents with youngsters under six have made financial plans for their children’s futures, with more than half (52%) having opened a savings account in their children’s names, while 37% have opened a Junior Individual Savings Account (ISA) or a Child Trust Fund. A forward-thinking 8% have started saving for a house deposit for their children and the same have started a university fund for them.

Source data:
[1] Research carried out by ICM, surveying 2,002 parents with children aged 0-5 in November 2014. Figure compiled by multiplying the number of children aged under five in the UK, according to ONS mid 2013 data (4,013,861) by the average annual cost spent by parents on under fives annually (£7,026).
[2] Costs are based on mean averages across all respondents, although some parents will pay considerably more for certain expenses (such as childcare) while others will pay less.