So what happens then if you don't make a power of attorney, but then you subsequently do lose legal capacity to look after your own affairs? Well, the answer to this is that there is a system for dealing with people in this situation.
Just as some people die without having made a will, and there is a system whereby their estates can be dealt with in spite of the lack of a will, so there is also a system for people who become incapacitated during life without having made a power of attorney. This system is now called 'deputyship'.
The way it works is this: somebody who knows that you have begun to lack capacity and feels you need looking after will apply to the Court of Protection through the Office of the Public Guardian to have somebody appointed to look after your affairs as your deputy. The deputy is supposed to be, in effect, the equivalent in this situation of the attorney that you could have appointed by your power of attorney, but never got round to appointing.
Unfortunately however there is no way of knowing for certain whether the deputy that gets appointed by the Court of Protection is the same person or people that you would have appointed if you had got round to doing a power of attorney, and therefore the issue of who should be deputy can be quite contentious. So if you do set out your wishes in a power of attorney, there is nothing to contend about.
By not making a power of attorney you also miss out on the chance of making various stipulations that can be made within a power of attorney document limiting or putting restrictions on the power of the attorney. In the absence of a power of attorney decisions about extents of powers etc have to be made by the Court of Protection, and may not again necessarily be precisely what you would have wanted.
It is also worth pointing out that the Court of Protection process is a lot more complicated, time consuming and expensive than doing the same thing yourself by making a power of attorney.