I am the sole Attorney under my mother’s Lasting Power of Attorney. I do not have any siblings. Under my mother’s Will I am the sole residuary beneficiary. Can I make gifts on my mother’s behalf for my benefit and my children’s benefit?
This question is one often asked by clients keen to understand their remit under a Lasting Power of Attorney (“LPA”). There can be a misconception that an Attorney can make gifts of any size under an LPA, provided they are satisfied that such gifts are in the Donor’s best interests, without seeking the approval of the Court.
Prior to considering this, it is crucial to recognise that an LPA cannot be used until it has been registered with the Office of the Public Guardian. Once registered, a property and financial affairs LPA can be used whilst the Donor still has capacity, unless it specifies otherwise, provided the Donor consents to this.
It is advisable that, should an Attorney be in doubt over the capacity of the Donor, they request a mental capacity assessment to be undertaken by a doctor specialising in this area.
Turning now to the specific question raised, the Mental Capacity Act 2005 (“MCA”) provides an Attorney with limited power to make gifts of a Donor’s money or property. The recipient must either be a relative of the Donor or connected to him (this could be the Attorney himself) or a charity to which the Donor has made gifts in the past or might be expected to make gifts if he had capacity. Any gift made must be seasonal i.e. related to a specific occasion like a birthday, Hanukkah or Christmas.
The value of the gift must not be unreasonable, having regard to the circumstances and the size of the Donor’s estate. This is not a straightforward exercise and it is wise to seek legal advice when considering this point.
Ordinarily, if an Attorney wishes to make gifts to himself, an application to the Court of Protection would be needed to have the authority to make gifts on behalf of the incapacitated person (“P’). As with all decisions made on behalf of P, a Court can only authorise a gift if it is satisfied that it would be in P’s best interests to do so, in accordance with the MCA.
The Official Solicitor usually acts on behalf of P and their role is to inform the Court whether or not they are able to support what is being proposed by an Attorney (or any other interested party for that matter). The Official Solicitor will scrutinise the application and request information that they consider relevant from the Applicant before reaching a decision.
Despite P lacking mental capacity, the Official Solicitor will still personally meet them to establish their thoughts on the proposed gift(s) in an effort to ascertain their current wishes.
Any evidence supplied must satisfy the Court that what is being proposed is in P’s best interests. The Court will also require up to date details of the assets of P, including their annual income and expenditure. The current guidance also indicates that, for gift applications, the Applicant needs to provide evidence as to P’s life expectancy.
In most cases, an acceptable agreement can be reached between the Applicant and the Official Solicitor (although the terms of the agreement may be different from what was originally proposed) and the application can be dealt with on paper by way of written submissions.
What exactly are the legal principles that are considered by the Court of Protection?
The Court’s power to authorise gifts of property of P is conferred by s.18(1)(b) of the MCA. The overriding principle is that what is being proposed must be in P’s best interests and not that of the Applicant.
Section 4 (6) of the MCA dictates that in deciding whether to authorise proposed gifts, the Court must consider (so far as is reasonably ascertainable):
- P’s past and present wishes and feelings (and, in particular, any relevant written statements made by them when they had capacity);
- The beliefs and values that would be likely to influence their decision if they had capacity; and
- The other factors that they would be likely to consider if they were able to do so.
The overarching principle is that any decision made on behalf of a person who lacks the required mental capacity must be in their best interests, which is not the same as simply inquiring what P would have decided if they had capacity. The Court must follow the structured decision-making process laid down by the MCA and must then make a value judgment.
The MCA contains no hierarchy between the various relevant factors. The weight to be given to each will differ depending on the circumstances of the case, although there may be one or more features of “magnetic importance” to the outcome.
Although an Applicant may be anxious to mitigate P’s inheritance tax exposure, it cannot simply be assumed without thorough investigation that P would share the same objective/attitude towards saving inheritance tax.
PBC v. JMA  was a case involving an application for authorisation to make substantial gifts in the hope of saving inheritance tax. The Senior Judge held that:
- Affordability of the proposed gifts was a necessary, but not a sufficient, condition for their approval by the Court;
- There was no assumption that reducing tax was in P’s best interests. This must be positively established by reference to the relevant factors under MCA s.4.
How we can help
What at first sight might appear a simple and well-intentioned plan to make uncontroversial gifts (and which may have the effect of significant tax savings) may not be quite so straight forward; we would always recommend that Attorneys take the appropriate advice before implementing any such decisions.
If you do have further questions or require advice on this topic, please speak to your usual Druces contact or: