The Dummy's Guide To Making A Lasting Power of Attorney
What is an LPA?
A Lasting Power of Attorney (“LPA”) is a legal instrument which allows a person who is at least 21 years of age (the “Donor”) to voluntarily appoint one or more persons (the “Donee(s)”) to make decisions and act on his/her behalf should he/she lose mental capacity one day.
Types of decisions that a Donee can make
A Donee can be appointed to make decisions for the Donor under two general categories, namely “Personal Welfare” and “Property and Affairs”. It is only when a Donor loses mental capacity that the Donee(s) will have the power, in general, to make decisions.
Personal Welfare decisions include:
(a) where the Donor should live e.g. at home or in a nursing home;
(b) whom the Donor should live with e.g. with the Donee or alone;
(c) what medical treatments the Donor should undergo e.g. western medicine paired with complementary Traditional Chinese Medicine (TCM) or western medicine only, or elective surgical procedures; and
(d) whom the Donor should meet with and what social activities he/she should engage in (if possible) e.g. chair yoga sessions for the elderly or ballroom dancing.
Property and Affairs decisions include:
(a) dealing with the Donor’s property (i.e buying, selling, renting and/or mortgaging);
(b) opening, closing and operating the Donor’s bank accounts;
(c) handling the Donor’s tax matters; and
(d) purchasing a vehicle or other equipment which the Donor may need.
By law, the Donee is prohibited from entering into certain decisions on behalf of the Donor. For example, the Donee cannot make decisions such as forcing a Donor to get married, changing the Donor’s religion or changing the particulars of the Donor’s CPF nomination.
LPA and POA are different legal instruments
LPAs are often confused with a Power of Attorney (“POA”). However, they are not the same legal instrument.
A POA is a legal instrument whereby a person (the “Grantor”) grants powers in favour of another person (the “Attorney-in-fact”) to act within the powers granted by the Grantor and to act on his behalf while the Grantor retains mental capacity. Once a Grantor loses his mental capacity, the POA will be deemed invalid.
On the other hand, an LPA will become effective only when a Donor loses his mental capacity.
Consider this scenario:
Mr Chan is a successful businessman who travels for business and is not always in Singapore. He has granted a POA in favour of his wife, Mrs Chan, in respect of the various commercial properties that he owns in Singapore. Over the years, Mrs Chan has helped him in the rental, sale and mortgage of these properties, and she liaises with the banks, mortgage brokers, and real estate agents on his behalf.
Unfortunately, Mr Chan suffered a stroke and has been in a coma for many weeks. Mrs Chan receives a call that a buyer has made an offer to purchase one of the commercial properties at a price far above valuation. She is keen but can no longer sell that property on Mr Chan’s behalf as Mr Chan no longer has mental capacity and therefore the POA is no longer valid.
If Mr Chan had issued an LPA and appointed Mrs Chan to deal with his commercial properties under his LPA, such LPA would come into effect now, and Mrs Chan can sell that property.
Types of LPAs
Currently, there are two forms of LPAs prescribed by the Singapore Government that one can use as a basis to prepare his / her LPA.
Form 1 LPA
This is commonly referred to as the Standard Version. The powers given to the Donee(s) are wide-ranging, and there are limited restrictions on the Donee’s powers. 98% of LPAs that are registered in Singapore are based on Form 1 LPA, which arguably grant very wide powers to donees.
Form 1 LPAs allow up to two Donees to be appointed and provide for the Donor to choose, in the instance two Donees are appointed, whether the Donees should make decisions jointly and/or severally. If a Donor wished for more checks and balances on a donee, then it would choose for Donees to act jointly (and not severally).
Anecdotal evidence suggests, however, that most LPAs provide for Donees to act on a joint and several basis, meaning that a Donee may make a decision on behalf of the donor or deal with the donor’s assets without consulting the other Donee. For example, in the event that the Donor loses mental capacity, a Donee needs only produce a medical report certifying the donor’s mental incapacity in order to access the Donor’s funds.
It can therefore be said that a Form 1 LPA grants free rein over the donor’s cash, property, and investments (akin to a ‘blank check’), and statistics from the U.S. and U.K.1 point to LPA misuse as one of the commonest forms or means of financial abuse of the elderly.
Therefore, elderly persons at greater risk of financial abuse, including those who live alone, are affluent, have heirs who are not savvy in managing wealth or are prone to any form of addiction, or who have poor familial relationships, should strongly consider utilising Form 2 LPAs.
Form 2 LPA
In general, this is a more customised LPA, which can be used if a Donor has more requirements to be included in his LPA (e.g. if he wishes to give specific powers to his Donee).
Form 2 LPA also allows a Donor to set various restrictions in the Donee’s powers that are not available under a Form 1 LPA. This is an additional safeguard to ensure that the Donee does not abuse the powers given to him/her, and that the moneys are meant to be used for the Donor’s best interest.
(a) specifying that the moneys in a particular bank account (and not all bank accounts belonging to the Donor) can only be withdrawn for a particular purpose, such as, for the payment of the Donor’s medical bills; and
(b) specifying that the Donor does not wish to be placed in a nursing home, and that a sum of money is ear-marked for private nursing care in the Donor’s home.
Form 2 LPAs are also more suitable for business owners who may wish to appoint a Donee to specifically deal with company related affairs, but have no powers to deal with the Donor’s personal financial affairs.
Returning to the earlier factual scenario concerning the Chan Family:
Mr Chan is also one of the directors and shareholders of an SME company in the food & beverage industry. The company has been badly affected by COVID-19, and the board of directors are deciding whether the company should close some of its branches, and if so, which branches.
At the directors’ meeting, the directors are aware that Mr Chan has registered a Form 1 LPA and appointed Mrs Chan as his donee in respect of both personal welfare and property affairs decisions. Thus, Mrs Chan has the power to make decisions on behalf of Mr Chan as a director or shareholder of the company. As Mrs Chan is not familiar with the affairs of the company, she is unable to participate meaningfully in the discussions with the other directors.
A Form 2 LPA would have allowed Mr Chan to identify more than 2 Donees, and to allocate specific powers to these Donees which are not restricted by the standard form template in a Form 1 LPA. Instead of appointing Mrs Chan, Mr Chan could have appointed a peer in the same industry as that company (who could be more capable in making business decisions for that company) to have the limited power of making specific decisions on his behalf as a director and shareholder of the company.
Having recently acted for a client in an acrimonious mental capacity dispute, we cannot emphasise the importance of planning ahead, and setting in place safeguards to ensure that in the event that we lose mental capacity, our assets and welfare will be protected by the people we trust, and decisions are executed in our best interests and in accordance with our wishes.
Should you be keen to make an LPA and to identify the safeguards that should be implemented in your LPA, we are happy to discuss and help you with a bespoke LPA that is tailored to your specific circumstances.
Jacqueline Chua, Managing Director
+65 6970 0518
Loo Liang Zhi, Associate
+65 6970 0528
1Amanda A. Thilges, ‘Abuse of a Power of Attorney: Who Is More Likely to Be Punished, the Elder or the Abuser?’, 16 J. AM. AcAD. Matrimonial Law , 579, 579 (2000) and Exploitation of Seniors: Hearing Before the S. Special Comm. on Aging, 109th Cong. (2006).