Can Attorneys Use LPAs To Make Gifts?
Can attorneys use LPAs to make gifts from a donor’s money?
We regularly receive questions about this issue, unfortunately, some attorneys act first and ask questions later – usually when they find they’ve landed in difficulty.
Is there any power for attorneys to use LPAs to make gifts?
The starting point for discussing any decision-making on behalf of people with mental incapacity is the Mental Capacity Act 2005 (MCA 2005). The Act deals specifically with the extent of an attorney’s authority to make gifts.
Does the gift pass the reasonableness test?
Giving away a donor’s assets may be permitted if the circumstances are reasonable. Basically, attorneys have statutory authority to make certain kinds of gifts from a donor’s assets in some situations but only if the value of the gift is not unreasonable having taken into account all of the circumstances, particularly the total value of the donor’s estate.
“Gifts from a donor’s assets may be permitted if the circumstances are reasonable.”
Gifts can be made by attorneys on what the Act refers to as “customary occasions” i.e. birthdays, marriages, anniversaries etc or as the Act says, “occasions on which presents are customarily given within families or among friends or associates.” The Act makes clear that even gifts falling within the definition of “customary occasions” are subject to any conditions or restrictions the donor imposed in the power of attorney document.
Gifts for tax planning purposes
It’s not uncommon for attorneys to consider making gifts to use the donor’s annual IHT allowance of £3,000 and although inheritance tax planning can be a perfectly legitimate aim, gifts for that purpose do not fall within the “customary occasions” limits permitted under the Act.
What if the attorneys believe the gift would be what the donor would have wanted?
Gifts that don’t fall within the permitted limits set out in the MCA 2005 must be authorised by the Court of Protection. Attorneys who go ahead and use donors’ assets to make gifts without obtaining the authority of the court could find their appointment being revoked. The court will look very closely at all the circumstances before allowing attorneys to make gifts and last year the Court of Protection ruled on 2 important cases that have implications for attorneys making gifts: Re Buckley* and Re GM**.
In the Re Buckley case attorneys were reminded that they have a number of responsibilities which include:
>> Keeping the donor’s money and property entirely separate from their own or any third party’s;
>> A duty to apply to the Court of Protection for sanction to make any gifts that do not fall within the scope of s12 MCA 2005 and;
>> Making sure they are aware of the laws regarding their role before they act – ignorance is no excuse.
The Re GM case related to court appointed deputies who made gifts to themselves, their families and friends and some charities, all without the prior authority of the court. The court considered whether the parties had stepped over a “reasonableness threshold”.
Is the gift in the best interests of the incapacitated person?
It was said that the reasonableness threshold differs from case to case but in every situation the paramount consideration must be whether making the gift is in the incapacitated person’s best interests. To determine this the court considers various issues including whether the incapacitated person was in the habit of making gifts of that nature and the value of all their assets. The court decided in this case that the gifts were completely out of character and exceeded the reasonableness threshold. The deputies were ordered to repay £204,459.74.
What should attorneys (or deputies) do before making gifts?
Using someone else’ money or property to make gifts of any amount is always something that should be done with great caution.
Assessing all the circumstances is vital and the decision-maker should draw up a list of considerations against which to benchmark the proposed gift.The simple answer is, if in doubt either don’t do it or get the court to sanction the gift first.
*Re Buckley: The Public Guardian v C COPLR 39
** Re GM:MJ and JM v The Public Guardian (2013) EWHC 2966 (COP) (2013) MHLO 44