Arranging to formally manage someone’s money for them is a big step – both for you and the person you’re helping. It means that at some point, now or in the future, you could have complete responsibility for their finances and their interests.
It’s only the right thing to do if you’re both completely comfortable with it, or if it’s really necessary.
- Is a formal arrangement really the best thing to do?
- If the person you want to help has mental capacity
- If the person you want to help has lost mental capacity
Is a formal arrangement really the best thing to do?
Before you can decide if making a formal arrangement is the best thing to do, you need to understand what the law means by mental capacity.
It will define what you can, can’t, should and shouldn’t do.
Mental capacity is the ability to think, reason and make decisions.
If someone’s mental capacity is going to decline (or it’s declined already) you’re right to think about formal, long-term arrangements that let you manage their money for them.
The legal definition of mental capacity
Legally, mental capacity has to be judged on the evidence.
You can’t make assumptions based on someone’s:
- Medical condition, or
- Because you disagree with the decisions they make.
Someone has lost mental capacity if it can be shown that:
- They have a condition that affects their brain, and
- As a result, they can’t make a specific decision at a particular time, even when they get the right support
Conditions that affect someone’s brain can be physical or medical, or the result of drugs or alcohol and can be permanent or temporary.
They’re things that cause confusion, drowsiness or unconsciousness, such as:
- A significant learning disability
- Dementia - like Alzheimer’s disease
- Brain damage due to, say, a stroke or accident
- Some forms of mental illness, such as bipolar disorder
How can you tell if someone has mental capacity?
It’s not a straightforward question. People can have mental capacity for some things, but not others.
For example, if they can handle day-to-day spending but couldn’t invest a lump sum.
And mental capacity can come and go. Someone with bipolar disorder might go through periods when they can’t make decisions, but have full mental capacity the rest of the time.
Don’t wait to set up a power of attorney – it can only be done when the person can still make their own decisions.
This means mental capacity has to be judged carefully on a decision-by-decision basis.
Even if someone seems to have permanently lost mental capacity, they should be reviewed often – for example, whenever a major decision needs to be made.
If the person you want to help has mental capacity
If the person you want to help still has mental capacity, you’ve got two options:
- Support them on an informal basis when they need it
- Prepare for the future by helping them put formal arrangements in place for when they need them
Supporting people informally
If someone has mental capacity but finds it hard to deal with paperwork or to keep on top of things, they might welcome some informal help with their finances.
You can do a lot to help people with their money without taking complete control – and in many cases, it’s better for them (and less stressful for you) if you don’t.
Preparing for the future
If you think the person’s mental capacity is going to decline, it’s a very good idea to encourage them to make a power of attorney which won’t stop working if they lose mental capacity.
It means they’re still in control, but if they do lose mental capacity someone else will be able to step in.
If they decide to do it, get things set up as soon as possible when they still have mental capacity.
If the person you want to help has lost mental capacity
If the person you want to help has already lost mental capacity, you’ll need to apply to a court to get the permission to manage their money for them.
If someone’s income only comprises of state pension and/or welfare benefits and no power of attorney exists then rather than apply to the Court of Protection to become a deputy and application can be made to the department of Work and Pensions to become an appointee.
This enables you to receive and disburse their income on their behalf.
This route can also be used for local authority benefits like housing or council tax benefit.
This article is provided by the Money Advice Service.