Attorneys and gifting – what you need to know

We have previously looked at why making a Lasting Power of Attorney is so important. Ensuring you nominate a trusted person to make decisions on your behalf can give you the peace of mind that you’ll be looked after if you can’t make your own decisions. It also means your ‘best interests’ are served.

On the other side of the coin, acting as an attorney for someone who has lost the capacity to make their own decisions can be quite a responsibility.

One area where attorneys do sometimes encounter issues is where they wish to use the donor’s funds to benefit others. Indeed, according to Money Observer, court judgements against attorneys acting outside of their permitted powers more than doubled in 2018/19.

A recent Court of Protection ruling aims to give attorneys more guidance when it comes to making gifts using the donor’s funds. Here’s a summary of this important guidance.

A Lasting Power of Attorney can conflict with ‘acting in the donor’s best interests’

The cases which led to this guidance were referred by the Office of the Public Guardian (OPG) to the Court of Protection.

The OPG receives applications to register Lasting Powers of Attorney and have access to the Court if they need help determining the meaning and effectiveness of any statements included in the application.

In some cases, the Court ruled that instructions in a Lasting Power of Attorney conflicted with the key principle of ‘acting in the best interests’ of the donor, and that the attorney should not be bound by these instructions. In these instances, these statements should be removed by the OPG.

The judge also commented on situations where an attorney could use the donor’s money to benefit others without Court approval.

Restrictions on gifting rules can make estate planning difficult

The Mental Capacity Act 2005 sets out the rules regarding the gifts that attorneys are permitted to make. These are designed to protect the donor’s assets from being given away frivolously.

  • The attorney can only make gifts on customary occasions, such as birthdays and Christmas
  • The attorney can donate to charities the donor may have previously supported
  • The value of gifts must be reasonable based upon the individual circumstances

So, under the law, it may not be reasonable to make gifts even on customary occasions if, as a result, the future financial needs of the donor may be compromised.

In addition, authority cannot be given to expand the scope of gifting.

One of the issues with this restriction is that it makes estate planning difficult, as it prohibits the attorney making large gifts with the intention of reducing the value of the estate. If the attorney wishes to make gifts outside of these powers, they can apply to the Court of Protection. However, this adds both cost and delay, with no guarantee that the gifts will be approved.

Of course, if the donor still has capacity they can still make the gifts themselves and, wherever possible, should be supported to make their own decisions. If the donor has a strong desire to make lifetime gifts, and sufficient assets to do so, it makes sense to do this long before incapacity becomes an issue. And the use of trusts can help ease any concerns of giving family members too much at an early age.

New guidance on making gifts

There are occasions where an attorney can use a donor’s money to benefit others where this is not regarded as a ‘gift’.

Previously, these were principally to meet the needs of an individual that the donor was obliged to provide for, such as a spouse or dependant.

However, the Court of Protection ruling has extended this scope. The judge felt that attorneys should no longer be limited to ‘needs’ but may also consider the donor’s ‘past and present wishes and feelings, beliefs and values’.

This enables the attorney to make gifts based on what the donor may have reasonably done themselves. However, evidence for this must be provided.

Evidencing what the donor may have intended

How does an attorney evidence ‘what the donor might reasonably have done themselves’?

  • Past behaviour
  • An expression of wishes the donor has included in their Lasting Power of Attorney

For example, a parent in good health may have provided financial assistance to the eldest of their two children to get on the housing ladder. An attorney acting for the parent after they’ve lost capacity may consider doing the same for the youngest child, as long as they are confident it’s what the parent would have wanted.

The key issue here is that the attorney must be able to support their decision with evidence or an expression of wishes in the Lasting Power of Attorney to that effect. Without this evidence, the attorney cannot assume that the donor would have done the same for the youngest child.

If they’re unsure, they should apply to the Court of Protection for authority.

The attorney should always consider what is in the best interests of the donor, and not the interests of the recipient. If they try to justify a transaction solely on the basis that it may reduce the Inheritance Tax liability of the donor, it’s unlikely to be seen as being in the donor’s best interest. There should be another motive.

For the avoidance of doubt, if money is transferred to another individual and is not a ‘gift’ in terms of the Mental Capacity Act 2005, it will still be regarded as a transfer of value for Inheritance Tax, unless covered by an exemption.

The Court of Protection ruling

The Court of Protection was asked by the OPG to rule on 11 separate cases which all had similar circumstances. In each of these cases, a Lasting Power of Attorney had been submitted to the OPG for registration and the donor had included either specific instructions or preferences for the attorney to follow. Examples include:

  • “If I am currently making payments towards either of my daughters’ living expenses then my attorneys must carry on with those payments which are currently made out of my excess income. If there is insufficient excess income these payments should come from capital.”
  • “My attorney must ensure that any children (when over 18) are financially supported with my finances in any educational aspirations they may have. This must be equally distributed.”

The Court determined that these instructions were written in a way which removed the attorney’s ability to exercise their discretion to determine whether the payments were in the donor’s best interest. Consequently, the court ruled that they must be omitted from the Lasting Power of Attorney when it was registered, rendering the instructions ineffective.

What does this mean for attorneys?

The Court of Protection ruling does now mean there’s greater scope for attorneys to provide for the needs of family members without being constrained to making gifts only on birthdays and at Christmas.

However, this may only be possible if there is a clear expression of wishes included and the attorney believes it to be in the donor’s best interests.

If you need advice about your Lasting Power of Attorney, or any estate planning matters, please get in touch. Email or call us on 01189 876655.

Please note

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.