If you act for someone as either an Attorney or Deputy it is important that you act within the authority you have been given. While the general principles of the Mental Capacity Act 2005 are becoming better known to the public, a rising number of Attorneys are still falling foul of them when contemplating making gifts on behalf of the person whose finances they are looking after (commonly referred to as “the Donor”).
The consequences for making an error can be significant, including the possibility that the Attorney could be removed or the power of attorney appointing them cancelled, or ordered to pay back the funds (whether they have been spent or not) and even the possibility of criminal charges bring brought. Making sure you understand the rules before making any gifts as an Attorney will save a lot of time and heartache in the long run.
What are the rules around gifting?
The ‘best interests’ of the Donor must always be the primary consideration for an Attorney in every decision they make on the Donor’s behalf. However, that can be quite nuanced. It is obviously not in the best interests for a Donor to give all their money away so they cannot meet their own financial needs, but if the Donor always gave their grandchild a birthday present of cash then it is reasonable to keep making that birthday gift as long as it is affordable.
The Office of the Public Guardian guidance can’t cover every eventuality so Attorneys need to weigh up the following factors when considering whether or not to make a gift on behalf of the Donor:
- Whether the Donor would have ordinarily made that gift on customary occasions, such as birthdays and Christmas or to charitable organisations, or if the gift being proposed is out of the ordinary;
- Whether there is a record of any wishes or feelings expressed by the Donor in their LPA, Will or elsewhere relating to gifts; and
- Whether the gift that is being made is reasonable taking into account the Donor’s financial circumstances, both now and in the future.
There is no one size fits all when it comes to gifting. Every person is different; equally the timing and the context of the gift is important.
What is not allowed?
Where an Attorney is not making a gift which neatly fits within the above parameters, the law does not permit the gift to be made unless specifically authorised by the Court of Protection.
This includes scenarios such as the below, which are by no means exhaustive:
- Making a large gift (‘large’ being in proportion to the available funds);
- Making a loan from the Donor’s funds;
- Living rent free in a property owned by the Donor;
- Removing cash assets which reduce the size of the Donor’s estate;
- Selling the Donor’s property for less than it’s market value, or transferring it into someone else’s name.
What if I buy assets from the Donor?
An Attorney must take great care in a situation where they are considering making a gift to themselves or buying assets from the Donor. They cannot take advantage of their position and must always bear in mind the basic rules (above) and ensuring that the Donor’s best interests are protected.
While small customary gifts in line with gifts made while the Donor had capacity are unlikely to be contentious, anything larger or for a purpose which benefits the recipient of the gift but not the Donor should not be made without first applying for specific authority from the Court of Protection to make the gift. The Court will weigh up the value of the gift, the reasons for making it and the social and financial background to the Donor in making the gift against the obvious loss to the Donor and will make their decision according to what is best for the Donor.
Can I make gifts to save inheritance tax?
There is no specific guidance in the legislative framework as to what constitutes a “reasonable” gift. On the face of it, gifting to avoid inheritance tax has no benefit for the Donor so it will not be assumed to be reasonable without first being scrutinised by the Court.
However, some applications to the Court of Protection for authority to make gifts to save inheritance tax have been successful. In those successful cases the Court was satisfied that the gift was affordable, would not impact on the Donor’s lifestyle and there was evidence to show that minimising inheritance tax was important to the Donor.
What happens if I don’t have the right authority?
The most serious consequence for an Attorney who gives the Donor’s money away is falling foul of criminal legislation such as s.4 Fraud Act 2006. Both an Attorney and Deputy are expected to act in the financial best interests of the Donor. If they dishonestly abuse this position with an intention of personal gain or gain to another, or to cause loss or expose a Donor to potential loss, they will be in breach of s.4 Fraud Act 2006.
In other circumstances, the Office of the Public Guardian will launch investigations or ask the police to investigate for them. Gifting without authority can also trigger your removal as an Attorney or Deputy and possibly action to recover the unauthorised gift.
How can we help?
Taking advice before making any gifts will save money in the long run – it is important to make sure that you keep within the rules and always act in the best interests of the person who appointed you. If you need advice about acting as an Attorney or Deputy, we have an experienced team who can provide you with expert advice.
Please contact Megan Allen to discuss further on 01872 265100 or ITD@stephens-scown.co.uk.