“Pleasure is spread through the earth in stray gifts,” said William Wordsworth. But can you make gifts using a Lasting Power of Attorney? With Christmas encroaching upon us many of us are turning our minds to buying presents for family and friends, but what happens if somebody lacks the capacity to make a gift - can their Attorney make gifts on their behalf?
An Attorney’s overriding duty at all times is to act in the best interests of the Donor. Generally speaking that means looking after and preserving the Donor’s property to ensure that their needs can always be met. But does this mean an Attorney cannot make gifts from the Donor’s assets to benefit others? Even if they know that is what the Donor would have wanted and that it would help preserve crucial relationships with family and friends? Not necessarily.
So, where to start?
Attorneys have only very limited powers to gift as set out in the Mental Capacity Act 2005. The general rule is that the Donor’s money and property can only be used for their use and benefit. However, the Act states that gifts can be made on “customary occasions” (birthdays, religious holidays, weddings etc.) to people or charities who are related to or connected with the Donor. The caveat to this is that the value of any gift must be reasonable having regard to all the circumstances, including the size of the Donor’s estate. Other important factors to consider include whether or not the Donor can afford to make a gift when taking into account all of the expenses (including any ongoing or future care costs) and if the donor has historically made gifts of a particular nature (including a pre-existing pattern of charitable gifting). Gifts, in other words, must not reduce the Donor’s quality of life.
And, no matter how generous the Donor was, you can’t give gifts on their behalf to total strangers: they must go to people or to a charity the Donor would normally have given to.
But what if you want to make a gift to reduce the Inheritance Tax bill?
Making gifts may save IHT due on the Donor’s death because it can reduce the value of their estate for IHT purposes if the Donor then survives seven years. 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. If an Attorney is considering making a large gift on behalf of the donor, they should 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. This involves a close look at the Donor’s finances, current and likely future life circumstances and the arrangements they have made by Will.
If an Attorney makes a gift without authority or improperly then they may be subject to investigation by the Office of the Public Guardian. Ultimately, they may be asked to pay back some or all of the gift personally and be removed as Attorney. In the most serious cases the gift could be treated as fraud. Therefore, if you have any doubts whatsoever, you should seek professional advice.