As parents age, their children often find they need to take an increasing role in looking after them. Unpalatable as it seems, it’s important to think about the legal difficulties that can arise where one member of the family has assumed responsibility.
If questions are asked some time later, it may not be enough to say “but that is what mum/dad wanted”. We also explain the restrictions on when an attorney (the person who holds the Enduring Power of Attorney) can benefit from the decisions they make. We touch on the issues where a parent later needs to go into care.
Often elderly people do not want to live alone. Buying a unit in a retirement village, or some other form of sheltered accommodation, may be a good option. Others may find buying a unit is not financially possible or desirable. Some prefer to stay with one of the family. In that case, an increasing burden may be thrown on the family member who is providing care. These arrangements should be recorded carefully and it’s important to get legal advice.
Often the son or daughter who is providing care may also hold an Enduring Power of Attorney (EPA). In 2016, the Court of Appeal heard the Vernon case. This concerned an elderly man who went to live with his son and daughter-in-law. In less than two years, almost all of his money had been paid out for the benefit of the son and his family. The son said this was done with his father’s approval, but the court wasn’t convinced. The court believed he had misused his position as carer – and as attorney under the EPA – for his own benefit. The son was required to pay back the money he had received and to meet some of the court costs.
In some cases, the parent may lend money to their son or daughter to help fund adding an extra room where the parent will be able to live. In other cases, a parent may pay for a relocatable unit or granny flat. Unless there is some other arrangement, the extra room or building will legally be the property of the son or daughter and their spouse/partner as owners of the land. If this is not intended, then a written agreement should be signed. There are a number of things to think about. What is to happen when the arrangement comes to an end? Is the money to be treated as a gift or a loan? When should any loan be repaid and is interest to be paid?
Parents may also need to think about whether it’s fair to help one son or daughter by paying for an extension to their home without giving something similar to others in the family.
What is to happen if, after a few months, the arrangement with Grandma is not working out? Can mum get her money back and move somewhere else? Will the son or daughter be able to pay her back if the money has all been spent on extensions to their home in order to accommodate mum?
More importantly, the son or daughter needs to be able to show that the arrangement is fair and that the parent is not being taken advantage of. To avoid these risks, it is advisable for the parent to have independent legal advice and for the arrangements to be clearly documented.
Long-term residential care
If a parent later needs to go into care, there may be a further difficulty. Government subsidies for long-term care are subject to asset testing. Money previously given away can be clawed back and treated as if mum or dad still had the money. There are exemptions, and you can hold on to some funds, but those rules change from time to time.
If mum has given her son money to pay for a granny flat or extension to his house, so she can live with him, this may be treated as ‘deprivation of assets’ and a residential care subsidy refused. If the money was a loan, not a gift, then the son would be expected to pay it back so that the money can be used to meet the cost of care.
EPA attorneys who benefit from their own decisions
Family members who act as an attorney under an EPA also need to understand that they are not entitled to benefit personally. Section 107 of the Protection of Personal and Property Rights Act 1988 says that an attorney can only benefit personally if:
- The EPA specifically allows this
- The court authorises the attorney to receive a benefit
- The attorney is recovering out-of-pocket expenses
- The attorney is the spouse or partner and is dealing with their jointly owned property
- The attorney makes a loan or investment which a trustee would be able to make when looking after trust money, or
- The attorney is a professional, such as a lawyer or accountant, and charges the usual professional fees for such professional work.
The wording of the EPA can override any of these last four exceptions.
If you have one of your parents coming to live with you, it would be wise to check what their EPA does and doesn’t allow. As well it would be prudent to ensure that any financial arrangements are well thought through.