Arranging someone to formally manage your finances is a huge step, both for you and the person who is helping you. It means that at some point in time, they will be completely responsible for your finances and interests.
Most importantly, both the involved parties should be completely comfortable with this. Unless it is necessary, we suggest that you do not get involved in such a situation. Moreover, you also need to make sure that you are mentioning them in your legal Will.
If you haven’t drafted a Will yet, now is the time. Wondering how much does a will cost? Well, the cost of drafting a Will depends on the complexity of your estate and the type of service you are opting for.
However, if you need formal help in managing your finances, we believe there are few things that you need to know.
Is a formal arrangement really the best thing to do?
Before you decide on a formal arrangement to help you with your finances, we need you to understand what mental capacity means according to the law. In simple words, it defines what you can, cannot, should and should not do.
Mental capacity of a person is their ability to think, reason and make responsible decisions. If a person’s mental capacity is going to degrade over time, it is best for them to get a formal help in managing their finances, as this person will be responsible to make all the money related decisions for them.
The legal definition of mental capacity
By law, the mental capacity is required to be judged on the evidence. Assumptions cannot be made based on a person’s age, medical conditions or because someone else disagrees with the decisions they make.
If a person has lost their mental capacity, it can be proven by showing that they have a condition that affects their brain and as a result is affecting the decisions they are making. Reasons that affect an individual’s brain can be physical, medical or due to drugs and alcohol, and could be temporary or permanent.
There are certain things that cause confusion, drowsiness or unconsciousness in people. These include:
- Significant learning ability
- Brain damage due to accident or stroke
- Bipolar disorder
How can you tell if someone has mental capacity?
The answer to this question isn’t straightforward. Different people have different mental capacity.
For instance, some are very good at handling daily spending but cannot invest a lump sum.
Mental capacity in a person varies over time. A person with bipolar disorder might go through periods when they cannot make a decision, but have a full mental capacity rest of the time.
This means only one thing: the mental capacity of an individual should be judged carefully on a decision-by-decision basis. Even if a person who has permanently lost their mental capacity needs to be reviewed often (especially when making big financial decisions on their behalf).
The person helping you manage your finances in such as situation has two options:
- Support you on an informal basis whenever needed
- Prepare for the future by helping you put formal arrangements in place
If you have difficulty in managing your financial paperwork, then you might as well arrange for some informal help. You can hire someone to help you with your finances without them completely overtaking the authority of managing the finances. In the majority of cases, this method is not only better for them but is also better for you since it is the least stressful for both parties involved.
Preparing for the future
If you know for a fact that your mental capacity is going to degrade over time, the best option is to appoint a power of attorney. This means that you are still in control of your finances, but in case you lose your mental capacity, someone you want will be able to step in your shoes. But before you appoint someone to take over your finances, make sure you let them know and do it while you still have mental capacity.
No matter what approach you choose to go with, it is essential that you mention it in your legal Will. This helps in avoiding confusion and distress among family members and close friends.