Updated 03 September 2020
If you live in Scotland, arranging to manage the financial affairs of a loved one can be both difficult and costly. This is an area in which specialist help is a must – and here’s why.
One of the greatest challenges of growing older may come when a loved one’s mental capacity begins to deteriorate, such as through one of the various forms of dementia. Sometimes there are sufficient warning signs for you to put a Power of Attorney (POA) in place, so you can step in when they can no longer manage their own affairs. However, all too often, a loved one’s mental capacity declines so rapidly that they lose the ability to manage their finances before any POA is in place. What happens then?
In England and Wales you can apply to become someone’s deputy if they can no longer manage their own affairs. In Scotland a similar arrangement applies, but with one vital difference – the Scottish financial guardianship order usually requires the involvement of an independent financial adviser (IFA).
Obtaining a guardianship order is a long, drawn out and costly process. The task typically falls to a relative, a spouse or in some cases a professional adviser (usually a lawyer), who must make the application to the Office of the Public Guardian (OPG).
Step one – the application
You can do this yourself or through a solicitor. Your application has to be accompanied by two medical certificates of incapacity and one suitability report.
While you are waiting on the order to be granted you have no power to access the adult’s accounts or funds.
Step two – once the order is granted
Once you have the guardianship order, you can use this to access bank accounts and find out information you need, such as details of investments. You then have to submit a further three items:
1) An inventory. This is a snapshot of the adult’s wealth at the date the order was granted – a little like a ‘balance sheet’ of their assets and liabilities. It has to be submitted on an OPG form and be accompanied by necessary proofs such as bank statements. You have around three months from the date of appointment to submit this.
2) A management plan. Again this has to be submitted using an OPG form. It is a plan as to how you are going to use the adult’s money. You have to demonstrate their likely expenditure over the coming year and show that your intentions are in the adult’s best interests. You have to show a tax planning strategy, outline any gifts you propose to make on behalf of the adult and also show how you, the guardian, will ensure you meet the adult’s needs.
3) A report from an IFA. If the adult has ‘moveable assets’ over £25,000 you need to seek independent advice to prove that your management plan is in the adult’s best interests.
Step three – the first year
You have to ‘ring-fence’ the adult’s money. If they held joint accounts (even if they are joint with a spouse and that spouse is their guardian) then the funds should be separated. At the end of the first year (and subsequent years) you have to submit an annual account. This has to show all income and expenditure, purchases and disposals of assets, what contact you have had with the adult, and other relevant information.
Step four – the end of the guardianship order
At the end of your time as appointed guardian, you have to submit a final account. It is similar to the annual account.
Becoming a loved one’s financial guardian can be a daunting experience. Here are the most important things to remember:
1) Where possible, try and act in a way in which you believe the adult would have acted if they still had capacity.
2) If the fees look steep, don’t be afraid to shop around. It’s all too easy to be persuaded into higher fees if these are being paid from the adult’s money rather than your own, but affordable advice is available in this area. Also ensure that your IFA has experience of dealing with the OPG.
3) The case officer assigned to you at the OPG is a real person, so if you need help or clarification just get in touch with them.
4) If you really don’t think you can cope with the paperwork, ask a solicitor to act as guardian – but check first that they are experienced in this area.
Last but not least, remember that financial guardianship in Scotland is a specialist area, and certainly not one in which all IFAs are suitably qualified. If you need to apply for a guardianship order, make sure the adviser you choose is the right one.
Wendy Cochran (DIP.PFS, MSc, PhD), director and principal of Dalbeath Financial Planning Ltd, is a qualified independent financial and mortgage adviser. Wendy advises clients on all areas of their finances, including pensions and investments, but particularly specialises advice for vulnerable adults.