Personal finance expert Martin Lewis has urged all households and families to prioritise one crucial financial document above everything else to prevent “frankly a nightmare”. During his ITV programme, the money-saving guru was questioned about the most essential thing to organise.
A viewer asked: “Martin, if you had to prioritize, which would you sort first: Will/ Power of Attorney, or pensions/tax/inheritance? And why?”.
Mr Lewis responded: “That is a tough one. So first of all, let’s say we’ll take inheritance for a second, only about 6% to 8% of the population their estates pay inheritance tax. It’s something far more people worry about than actually affects them. If you’re married and you’re leaving your property to one of your descendants, then if you do it right, you can leave up to £1 million with no inheritance tax.
“If you’re not married, it’s £500,000, so that might not even be an issue for you in the first place. It isn’t for many people. Do some more reading on that.”
He stressed that whilst all documents are significant, one stands out as particularly vital in avoiding a catastrophic scenario. He recommended setting aside a full day to tackle as many as possible, adding: “I would say all of them are important. And what I would say to any of you thinking about-if you haven’t gone through your bills or any of these things-take a day off work.
“Many people when I do a money makeover save over a grand a year. Now, a grand a year-we do 250 working days during the year. So 250 times a grand is £250,000. To earn £250,000 after tax you’d have to earn £450,000 before tax. If you earn more than £450,000, don’t take a day off work. For everyone else, it may be worth taking a day off work to sort out your finances.”
When pressed to identify one priority above all others, he stated: “Honestly, Power of Attorney. For a very important reason. Power of Attorney says if I were to lose my faculties, then I will nominate other people who can look after my finances and my health and wellbeing for me. I’ve had a Power of Attorney for 15 years even though I’ve got no foreseeability of losing my faculties.”
He continued: “If you don’t have a Power of Attorney in place, and you were to have an accident tomorrow so you couldn’t look after yourself with your faculties gone, or a severe stroke, and you’re a young person-because people think it’s only for old people, it’s not-then it is frankly a nightmare to go through the process of someone else trying to take over your finances. Meanwhile, they may not be able to pay your mortgage for you, or pay for any treatments for you, or pay for anything you need.
“If you die, intestate rules mean it will probably go to those people you love. Your pension, you’ll hopefully work out. Sorting out tax, it’s important. But your Power of Attorney is the one that tomorrow, if you haven’t got one, God forbid, you could really need. So that’s the one I’d do first.”
A lasting power of attorney (LPA) is a legal document enabling you, the ‘donor’, to designate one or more people, known as ‘attorneys’, to help you make decisions or to make decisions for you.
This document aims to give families more control over what occurs if someone suffers an accident or illness and cannot make their own decisions – they might ‘lack mental capacity’. The government announced last November that the price rose to £92.
Mr Lewis commented: “Wills are really important, but in my view, a power of attorney is even more so, which is why it’s worrying that far fewer people have them. Best is to have both. But when you’re dead, you’re dead, it’s just a question of where your assets go.”
There are 2 types of Lasting Power of Attorney:
- health and welfare
- property and financial affairs
Health and welfare lasting power of attorney
Use this LPA to give an attorney the power to make decisions about things like:
- your daily routine, for example washing, dressing, eating
- medical care
- moving into a care home
- life-sustaining treatment
Property and financial affairs lasting power of attorney
Use this LPA to give an attorney the power to make decisions about money and property for you, for example:
- managing a bank or building society account
- paying bills
- collecting benefits or a pension
- selling your home
For more information on Power of Attorney, visit the government website here.
Kirsty Limacher, legal consultant at the Association of Lifetime Lawyers, said: “An LPA is one of the most important safeguards you can put in place to protect yourself and your loved ones, so we don’t want this increase in fees to put anyone off making an application.
“If you’re worried about the cost, it’s important to know that help is available. Those in receipt of certain means-tested benefits may be eligible for a full fee exemption, and people on a low income can apply for a reduction.
“No one should feel they have to go without this vital legal protection because of financial concerns.”
