Recent court ruling shines a light on attorney’s power to make gifts

A recent ruling by the Court of Protection provides new guidance on the permitted powers of attorneys.  And, in certain situations, it gives attorneys more scope than previously.

Reducing one’s estate to mitigate inheritance tax is always better done sooner than later. The overriding message for those wishing to undertake significant Inheritance Tax (IHT) planning, including gifts into trust, remains the same.  Do it before the donor (the person creating the power of attorney) loses mental capacity..

The Court of Protection (COP) and the Office of the Public Guardian (OPG)

Looking after the finances of someone who has lost capacity weighs heavily.  The recent cases under scrutiny were referred to the COP by the OPG, the body which receives applications to register Lasting Powers of Attorney (LPA) from the public. 

Cases under review had contained mandatory instructions to the attorney on how to act.  The Court ruled that these conflicted with the key principle of “acting in the best interests” of a donor and therefore should not be binding.  The Judge also commented on where an attorney could use the donor’s money to benefit others without the need to obtain approval from the COP.  Broadly, these are as follows:

  • Power to make gifts – various regulations apply and these potentially rule out any meaningful estate planning by making large gifts to reduce the value of the estate and so are designed to protect the donor’s assets from being given away frivolously. 
  • Providing for others – on occasion, an attorney can use the donor’s money, without it being regarded as a gift, to benefit others.  Prior to these cases, these were to meet the needs of person the donor was obliged to provide for such as a spouse.  The ruling extends this to take the donor’s past and present wishes and feelings, beliefs and values into account as long as there is some evidence to support any action taken by the attorney.
  • Evidencing what the donor may have intended – this may come in the form of past behaviour or a written expression of wishes such as a parent, in good health, having provided financial help to one child and the attorney considering doing the same for another child provided they’re confident it’s what the parent would have wanted.  They must be able to support any such decision with evidence. 
  • Court of Protection ruling – The COP was asked to rule on eleven separate cases, all with similar circumstances.  The donor in each case had included either specific instructions or preferences to be followed. The COP ruled these ineffective by instructing that they were omitted from the LPA when it was registered.  This now allows the attorney to exercise discretion in determining whether payments were in the donor’s best interests.
  • Scottish Continuing Powers of Attorney – the position in Scotland is a little different and it’s possible for a Scottish Continuing Powers of Attorney to make gifts.

Summary

The COP’s ruling means that there’s greater scope for attorneys to provide for the needs of family members without being constrained on the making of gifts.  However, this may only be possible if there’s a clear expression of wishes included and the attorney believes it to be in the donor’s best interests.

Clearly, it’s far better to consider gifting earlier rather than leaving it to chance.  And by doing so, the donor can take pleasure in the benefit their generosity has on their loved ones.

As ever, it’s critical to take professional advice before embarking on a big IHT give away.  So for advice on IHT planning and/or putting a Lasting Power of Attorney document in place, please speak to your contact partner or to Andrew Tricker andrewtricker@lubbockfine.co.uk

Source: The Standard Life 

Blog archive