Can an attorney make gifts under a Lasting Power of Attorney?

Insights - 05/12/2018

With Christmas not too far away, many of us are already turning our minds to buying presents for family and friends, but what happens if somebody lacks the capacity to make a gift- can their attorneys make gifts on their behalf? As solicitors, it is a question we are often asked and, as is often the case, the answer is- it depends.

The main duty of an attorney acting under a Lasting Power of Attorney (LPA) is to act in the donor’s best interests at all times (a donor is the legal term for the person who made the power of attorney). Generally speaking that means looking after and preserving the donor’s property to ensure that their needs are met. But does this mean an attorney can’t use the donor’s property to benefit others, even if they know that’s what they would have wanted?

Not necessarily.

An attorney’s first port of call should be to check the terms of the LPA to see if the donor has included any specific provisions or restrictions about gifts.

If the LPA is silent on this issue, the default position is that that the attorneys only have a very limited power of gift, this is set out in the Mental Capacity Act 2005, section 12(2). In summary this states that gifts can only be made on ‘customary occasions’ (birthdays, religious holidays, weddings etc.) to people who are related to or connected with the donor. There is also power to make gifts to charities.

The caveat to all of this is that the value of any gift must be reasonable having regard to all the circumstances, such as the size of the donor’s estate. Other factors to be taken into account include the affordability of the gift, taking into account things such as any ongoing care costs and whether the donor made gifts of this type before they lost capacity.

But what if you want to make a gift for another reason, such as to save inheritance tax (IHT)?

Making gifts can save IHT when the donor dies because gifts reduce the value of the estate for IHT purposes if the donor survives seven years after making the gift. But isn’t this in the best interests of the beneficiaries of the donor’s estate rather than the donor himself? Again, not necessarily- the law does recognise that reducing IHT can be in the best interests of the donor.

This is a very tricky area and if an attorney was considering making a large gift on behalf of the donor they would be advised to obtain authorisation from the Court of Protection first.

The court will take into account factors such as the size of the gift relative to the estate, the donor’s attitude towards tax planning and gifting before they lost capacity, who will be receiving the gift and whether the gift is fair to others that the donor may wish to benefit.

It is incredibly important that an attorney takes proper legal advice before making a significant gift on someone else’s behalf. If a gift is made without authority, the attorney may be asked to pay back some or all of the gift personally, in the most serious cases the gift could be treated as fraud.

If you are unsure about whether you can or should make a gift on someone else’s behalf and you would like our advice, please get in touch with Kate Rae or another member of the Private Client department who will be happy to assist.

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.