Every business owner, regardless of sector, faces the potential for unexpected events that could impair their ability to make critical decisions. Whether it’s age-related illness, a sudden accident, or any other unforeseen circumstance, the consequences of impaired capacity can be devastating for a business. This is especially true for family businesses, which often rely heavily on the leadership and decision-making of a few key individuals.
Why is this particularly important for family businesses?
In family businesses, things can easily go wrong if someone can’t make decisions anymore. It’s not just a “maybe” problem, it’s a real worry that needs sorting out. To keep the business running, make sure it lasts, and protect everything you’ve worked for, you need to have proper legal plans in place. A Lasting Power of Attorney (LPA) is a really important tool for any business owner to have.
Having offices throughout the South West and South East of England and in areas like Devon, Cornwall and the New Forest where the farming industry is very developed, we have supported many farmers prepare for the future but have also witnessed the difficulties their business and family faced when they were unprepared.
When little errors add up: farming and capacity
The impact of a gradual decrease in decision-making capacity is complex as the cognitive decline can be very slow, far more so than where there is a single, catastrophic event. Instead of a sudden accident, the decline might manifest as a series of seemingly minor misjudgements: consistently overpaying for feed, neglecting routine machinery maintenance, or misreading market trends. Individually, these errors might appear inconsequential, easily dismissed as a momentary mistake. However, cumulatively, they can lead to a slow but steady decline in the farm’s profitability and efficiency. The herd’s health may suffer, fields might become less productive, and financial savings can decline, all while the farmer, and those around them, struggle to pinpoint the root cause of the creeping problems. This slow burn of impaired judgment can be particularly devastating, as it often goes unnoticed until the farm’s very viability is threatened.
Why is this important?
Through our work we have supported hundreds of business owners who found themselves unable to make decisions for themselves or their business following a serious injury or age-related illness.
While a successful personal injury claim can significantly alleviate the financial strain on an injured business owner and their family, particularly when trying to keep their business afloat during recovery, it’s not always a viable option. To pursue such a claim, you must demonstrate that the injury resulted from another person’s negligence or wrongful actions. However, life’s inherent unpredictability means that some accidents are unavoidable, and no one can be held responsible. This is particularly relevant when a business owner’s ability to make work related decisions is affected by an age-related illness like dementia or an unexpected event like a stroke.
Planning for life’s ups and downs
Planning for unexpected events is an important part of any family business. Preparing a Lasting Power of Attorney (“LPA”) is a great step to ensure that there is someone chosen by you that you trust in place to take over decision making on your behalf if unexpected events happen.
There are two main types of LPA, one for property and finance decisions, and the other for health and welfare decisions. An LPA allows you to appoint an Attorney or Attorneys to make decisions on your behalf when you do not have the capacity to do so. Examples of property and finance decisions could be dealing with banks, paying bills, selling land or property or entering into a tenancy agreement. Health and Welfare decisions could include deciding where a person should live or what medical treatment they receive. There is a third type of LPA called a Business LPA that would provide someone else with authority to make decisions relating to the business only, and not in relation to your personal finances.
You can prepare an LPA at any time, as long as you have the required understanding and capacity to do so. You can only make an LPA if you still have capacity so this is something you need to consider before unexpected events happen.
So what decisions can be made on your behalf?
Capacity is time and decision specific, so a person may not have capacity to manage a large investment portfolio and decide where money should be placed, but they could still have capacity to pay a bill or do the shopping. With a Property and Finance or Business LPA, the LPA can be used under those circumstances, where the Attorney only assists with the more difficult decisions. However, for a Health and Welfare LPA, the donor (the person who has made the LPA) needs to have lost capacity to make those decisions for themselves before the LPA can used.
Some people put off preparing an LPA until later in life, and that is ok, as long as you know you will have capacity to prepare the document later on. Of course, no one can be sure of what the future holds and it is therefore advised to put LPA’s in place as early as possible. This is especially the case where you are running a business as the consequences of not being able to do that in the future can be far more complicated. Presently, it takes around 6 – 12 weeks to register an LPA before it can even be used, but if a person has already lost capacity to make decisions, then the legal process becomes less straightforward.
Let’s take a property and finance scenario where a farmer has run a farm business for many years, but unfortunately develops dementia. The bank notices his signature is not the same and freezes his accounts. His son tries to apply for the basic payment, but the Rural Payment Agency refuse to deal with the son without sight of legal authority that he can act for his father. The elderly farmer is now unable to prepare an LPA because he does not have the capacity to prepare and understand the document, so an Application to the Court of Protection would have to be made, costing thousands of pounds in legal costs and taking up to six to twelve months to appoint a Deputy. In that time, the deadline for claiming the basic payment would have expired, leaving the farm without receipt of payment. For many farms, the basic payment is most if not all of the profit for a year.
An LPA for decision makers in a farming business is an important part of the constitutional documents (together with up to date partnership agreement, and wills for the partners). Without these the future of the business can be significantly curtailed.
It’s always sensible to consider preparing an LPA when you are in the right frame of mind, and when you have thought about the most appropriate person to appoint as your Attorney or Attorneys, someone who can help you make decisions and ultimately help keep those doors open for you when you are at your most vulnerable.
How we can help
At Enable Law we have one of the biggest and most experienced team of mental capacity solicitors in the South West and South East of England. Our clients are based throughout England and Wales and we support them with any issues relating to capacity as well as preparing for the future. If you want to explore your future options and don’t know where to begin, a member of our mental capacity team will be able to advice you and find a solution that is right for you.
To have an initial free discussion with us call us on 0800 044 8488 or fill in our contact form so we can give you a call back at a time convenient for you.
