Being a landlord was never easy and over the recent past has become even more complex – but, that said, it’s not without its rewards.
As a result, and understandably, many people have decided to use property to fund all or part of their retirement; not without reason given the solid yields and capital appreciation experienced over the last decade.
However, even if your clients use an agent to manage their portfolio and don’t need to review their finances regularly, they will nonetheless need to engage with their properties and finances from time to time – whether it’s just instructing a plumber or agreeing a new lease for tenants.
Herein lies the issue – and it really is very simple (but, as many readers will appreciate, the ‘obvious’ is often overlooked). Retirement only stops when you die. However, and equally obvious, is that as your clients get older they are more likely to suffer a physical or mental disability that could impact on their ability to manage their own affairs.
For example, after the age of 65, the risk of developing Alzheimer’s doubles roughly every five years. And, it is estimated that Dementia affects one in 14 people over the age of 65 and one in six over the age of 80.
Equally, some serious physical illnesses, while not necessarily impacting on their mental faculties, such as Cancer, strokes, MS or Motor Neurone Disease to name but a few, might mean that your client may be unable to look after his / her affairs, as no one wants to manage a change of lender while connected to a ventilator.
However, each year, many landlords find themselves in a position where they are no longer able to manage their affairs and no one else can immediately step in and do it for them.
This is why we are calling for all advisers engaging with landlords, especially approaching or in retirement, to ensure that they have a Lasting Power of Attorney (LPA) in place.
We would encourage everyone of retirement age to have an LPA in place, but for anyone who is a landlord it should be considered essential.
A LPA is a legal document that lets someone (the donor) appoint one or more people (known as ‘attorneys’) to help them make decisions, or make decisions on their behalf, should they have an accident, illness or lack mental capacity.
There are two types of LPA, one for managing a person’s health and welfare, and one for managing a person’s property and financial affairs.
It is possible for your clients to arrange a LPA themselves and it only costs £110; however, for complex arrangements such as managing property portfolios, we would recommend that a solicitor provides the advice – and not because we have a vested interest, it’s because there are a number of issues that people often get wrong.
Common issues with the incorrect completion of a Lasting Power of Attorney include incorrect use of specific terminology such as the use of ‘must’ or ‘shall’ as a definitive statement, this can present real challenges when dealing with official bodies, such as lenders or public agencies; similarly, use of ambiguous phraseology that is open to debate where one or more attorneys are appointed.
Incorrect or conflicting appointments of attorneys that could prevent the effective or total ongoing management of a person’s financial affairs or decisions relating to their health and welfare; and, failure to take account of the likely future preparedness of attorneys whether it’s their own health, desire or ability to manage what can often be challenging emotional or financial decisions.
This last point is often a real issue with people putting in place an LPA for financial reasons as prudent landlords often view an LPA like an insurance policy – something that sits there and hopefully will never be used.
They often put an LPA in place when they are relatively young and, as such, appoint their equally young friends, family members – who are often professionals. However, often the LPA is needed when both the donor and attorney are often in failing health, therein lies the obvious issue.
As property often represents significant financial assets, the specific issues that landlords need to consider when looking at an LPA, is whether short term or long term considerations are included. Short term is easy as it constitutes the effective management of the status quo.
Long term might mean restructuring assets to take into account IHT or CGT planning depending on how the properties are owned; especially given the recent budget announcement that many landlords will look to own properties within a business structure.