Financial Planning for Mental Capacity: LPAs, the Court of Protection, and Protecting Wealth in Later Life

Planning for the possibility of mental incapacity is an uncomfortable topic, but it is one of the most important aspects of financial and estate planning for anyone — and especially for high-net-worth individuals with complex financial affairs. A stroke, dementia, or a serious accident can remove the ability to manage one's own affairs at any age, and without the appropriate legal structures in place, even the simplest financial decisions can become legally and practically impossible for family members to make.

The good news is that the legal framework in England and Wales provides clear, flexible tools for managing incapacity — provided they are put in place while the individual still has full capacity. Once capacity is lost, the options narrow significantly and become considerably more expensive and cumbersome.

The Mental Capacity Act 2005

The Mental Capacity Act 2005 (MCA) provides the legal framework in England and Wales for decisions made by and for people who lack capacity. (Scotland has its own separate legislation — the Adults with Incapacity (Scotland) Act 2000 — and Northern Ireland has different provisions.)

The MCA is built on five key principles:

1. A person must be assumed to have capacity unless it is established that they lack it.
2. A person is not to be treated as unable to make a decision merely because they make an unwise decision.
3. A person must be given all practicable help to make a decision before being treated as unable to do so.
4. Acts or decisions made on behalf of a person who lacks capacity must be done in their best interests.
5. The act or decision must be the least restrictive of the person's rights and freedom.

The Two-Stage Capacity Test

Capacity under the MCA is decision-specific and time-specific. A person may lack capacity for one decision (e.g. managing a complex investment portfolio) but retain capacity for another (e.g. choosing where to have lunch). Capacity may also fluctuate over time.

The test for whether a person lacks capacity has two stages:

Stage 1 — Diagnostic: Is there an impairment or disturbance in the functioning of the mind or brain? This could be a permanent condition (dementia, brain injury) or a temporary one (intoxication, a medical episode).

Stage 2 — Functional: As a result of that impairment, is the person unable to make a specific decision? A person is unable to make a decision if they cannot:

• Understand the information relevant to the decision
• Retain that information long enough to make the decision
• Weigh up the information as part of the process of making the decision
• Communicate their decision (by any means)

The MCA does not define a minimum cognitive threshold — even someone with significant impairment may retain capacity for simple financial decisions, while someone with a specific cognitive deficit may lack capacity for a complex financial decision.

Lasting Powers of Attorney

A Lasting Power of Attorney (LPA) is a legal document in which a person (the donor) grants one or more individuals (the attorneys) the authority to make decisions on their behalf. There are two types of LPA:

• Property and Financial Affairs LPA: allows the attorney to manage bank accounts, investments, property, bills, and financial decisions on behalf of the donor
• Health and Welfare LPA: allows the attorney to make decisions about medical treatment, care arrangements, and daily living — applicable only when the donor lacks capacity

For financial planning purposes, the Property and Financial Affairs LPA is most relevant. It can be used in two ways:

• With the donor's consent, while they still have capacity (useful for convenience — allowing an attorney to manage routine affairs while the donor is abroad, for instance)
• When the donor has lost capacity — at which point the attorney can act fully in the donor's stead

Registration

An LPA must be registered with the Office of the Public Guardian (OPG) before it can be used. The registration process takes approximately 8–20 weeks and involves:

1. Completing the LPA forms (which include certificate provider declarations confirming the donor's capacity at the time of signing)
2. Notification of specified persons (relatives who may object)
3. Submission to the OPG with the registration fee (currently £92 per LPA from 17 November 2025, though fee levels may change)

An LPA cannot be made once capacity is lost. This is the most critical point. If a person loses capacity before registering an LPA, the only option is the Court of Protection — a far more costly and inflexible route.

Registration while fully capable is the key action. Even if the LPA is never needed, the cost and administrative effort of registration is trivially small compared to the benefits if it ever is required.

Choosing Attorneys

The choice of attorney is one of the most important decisions in the LPA process:

• Attorneys must be aged 18 or over and must not be bankrupt (for a Property and Financial Affairs LPA)
• Multiple attorneys can be appointed to act jointly (all must agree) or jointly and severally (each can act independently) — jointly and severally is generally more practical
• A replacement attorney can be named to take over if the primary attorney cannot act
• Attorneys are legally obliged to act in the donor's best interests, following the principles of the MCA

For high-net-worth individuals, the choice of attorney for a financial LPA is especially consequential. Consider:

• The attorney's own financial sophistication and trustworthiness
• Whether a professional attorney (solicitor or trust corporation) should be appointed alongside or instead of a family member — particularly where there are complex investments, offshore assets, or family conflicts
• Whether the attorney should have authority over offshore assets (which requires review of the relevant jurisdiction's laws — not all countries recognise English LPAs)

LPA and Investment Management

An attorney acting under a Property and Financial Affairs LPA has a duty to manage the donor's assets in a manner consistent with the donor's best interests. For an investment portfolio, this means:

• Acting in accordance with any documented investment policy statement or risk appetite expressed by the donor before capacity was lost
• Seeking professional investment advice where necessary
• Not making speculative investments that carry excessive risk relative to the donor's documented preferences
• Keeping detailed records of decisions made and the basis for them

Financial advisers working with attorneys must comply with the FCA's Guidance for Firms on the Fair Treatment of Vulnerable Customers (FG22/5), which includes obligations to identify and appropriately support customers who lack capacity.

What Happens Without an LPA

If a person loses mental capacity without having registered an LPA, their financial affairs can effectively be frozen. Banks, financial institutions, and HMRC will not accept instructions from family members who have not been granted legal authority, regardless of how close the relationship is.

The only recourse is to apply to the Court of Protection for the appointment of a deputy.

Court of Protection Deputyship

The Court of Protection is a specialist court that makes decisions about the financial and personal welfare of people who lack capacity. It can appoint a deputy — typically a family member or a professional — to manage the person's affairs.

Compared to an LPA, deputyship is:

• Expensive: the application costs several thousand pounds and requires legal support
• Slow: applications typically take several months to process, during which access to assets may be restricted
• Administratively burdensome: deputies must file annual reports with the OPG, maintain detailed records, and obtain the Court's approval for many significant decisions
• Less flexible: the Court may impose conditions on how the deputy exercises their authority that would not apply to an attorney under an LPA

Where an individual with complex financial affairs (multiple investment accounts, property, offshore assets, business interests) loses capacity without an LPA, the resulting disruption to their financial affairs can be severe and costly. In the most extreme cases, urgent investment decisions or property transactions may be unable to proceed, with significant financial consequences.

Financial Planning While Capacity Exists

The MCA framework reinforces the importance of making key financial decisions while fully capable. Specifically:

1. Register LPAs immediately. Both a Property and Financial Affairs LPA and a Health and Welfare LPA should be registered now — even if there is no current concern about capacity. The cost is modest; the benefit is enormous.

2. Update your Will. A Will cannot be made after loss of testamentary capacity. If your Will is out of date — not reflecting current family circumstances, assets, or estate planning objectives — update it now.

3. Review and update pension nominations. Pension trustees have discretion over death benefits. Outdated nominations (for example, naming an ex-spouse) can produce unintended outcomes.

4. Document investment risk appetite and preferences. If you ever become unable to communicate your investment preferences, a documented statement of your approach to investing — signed while you have capacity — gives your attorney and investment adviser clear guidance and reduces the risk of mismanagement.

5. Consolidate accounts and simplify where possible. A complex web of accounts across multiple institutions and jurisdictions is significantly harder to administer under an LPA or deputyship. Rationalising holdings reduces the administrative burden on future attorneys.

6. IHT planning. IHT planning — particularly gifting, trust creation, and other strategies — cannot be undertaken on behalf of someone who lacks capacity (except in very limited circumstances with Court of Protection authorisation). All significant IHT planning should be completed before any cognitive decline begins.

Capacity and Vulnerability: The Regulatory Dimension

The FCA's Consumer Duty (in force since July 2023) and its earlier Guidance on Vulnerable Customers (FG22/5) place obligations on financial services firms to identify customers who may be vulnerable — including those with diminishing capacity — and to adapt their services accordingly.

For individuals with early-stage cognitive decline, or their family members, it is important to communicate clearly with financial advisers and banks about the situation. Regulated firms have obligations to support vulnerable customers, and early communication can prevent later difficulties.

International Dimensions

For internationally mobile individuals with assets in multiple jurisdictions, an English LPA may not be automatically recognised overseas. Different countries have different rules:

• Some jurisdictions (e.g. Scotland) require their own form of power of attorney
• Many civil law countries (France, Spain, Germany) have their own enduring power of attorney equivalents — a UK LPA may need to be legalised or supplemented
• Offshore financial institutions may require their own forms or specific documentation

Where a client has significant assets in multiple countries, a specialist cross-border estate planning lawyer should review whether domestic LPAs are sufficient or whether additional documents are needed for each jurisdiction.

How Global Investments Can Help

Capacity planning is an integral part of comprehensive wealth management, particularly for clients in later life or those with complex financial affairs. Global Investments works with clients and their families to:

• Identify gaps in capacity planning documents and introduce specialist solicitors for LPA drafting and registration
• Document investment preferences and risk appetite in a way that supports future attorney decision-making
• Support attorneys who have taken over management of a client's affairs, providing continuity of investment management and financial planning
• Coordinate with overseas advisers where cross-border capacity planning documents are needed
• Review financial arrangements for efficiency and simplicity, reducing administrative complexity for future deputies or attorneys

This guide reflects the law in England and Wales as of June 2026. Scottish and Northern Irish rules differ. Always seek qualified legal advice tailored to your specific circumstances and jurisdiction. Tax treatment depends on individual circumstances and may change in future.

Contact Global Investments to discuss capacity planning as part of your long-term financial and estate plan.