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21st June 2013

Can Deputies and Attorneys make gifts?

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A recent case in the Court of Protection has highlighted the issue of gifts made by a deputy acting under a deputyship order.

Facts

The case concerned a widow of 92, (“P”), who lived in a care home. Her only daughter had died during her lifetime and P had inherited the whole of her daughter’s estate. Two relatives (related only by marriage) were appointed as deputies to manage P’s property and financial affairs.

The deputies were advised, and applied, to the Court of Protection for retrospective authority for various gifts the deputies had made to themselves, their family, friends and charities. An investigation into exactly what gifts had been made found that over £230,000 had been given which amounted to 44% of the widow’s estate.

Not surprisingly, the Court refused to grant authority for the majority of gifts and the deputies were held to be personally liable to P’s estate for the unauthorised gifts. The deputies’ appointments were also revoked and a panel deputy (that is a professional person) appointed in their place.

Guidelines for Making Gifts

Whilst the facts of this case are extreme, the guidelines set out in the judgment are a useful reminder of the limited circumstances in which gifts can be made by deputies. The wording of the authority to make gifts under a deputyship order is normally based on s12 Mental Capacity Act 2005 which states that:

• Gifts to charities can be made where the donor might have been expected to make such gifts

• Gifts to persons related to or connected with the donor (including the deputy themselves) can be made on “customary occasions”. Customary occasion is then defined as a birthday, marriage or formation of a civil partnership, or any other occasion where family would ordinarily give gifts.

Senior Judge Lush emphasised that deputies should understand that they only have very limited authority to make gifts to ensure that the property and finances are primarily used to benefit P. If a deputy wishes to make more extensive gifts, they can apply for permission to the Court of Protection.

The authority conferred on a deputy states that gifts must be “not unreasonable” when considered in the context of the following factors,:

• The size of the donor’s estate, taking into account their current and anticipated capital, income, debts and outgoings.

• Whether the gift is in the best interests of the donor

• The frequency and amount of any gifts made by the donor before they lost capacity

• The donor’s life expectancy

• Whether the donor needs to fund their own care

• Any inheritance tax implications that will arise on the donor’s death

The threshold of what would be deemed a reasonable gift will differ from case to case and, unlike some other countries, England and Wales has no prescribed monetary value over which a gift will be unreasonable. However, the indication is that such a threshold would be in the very low thousands.

Senior Judge Lush indicated that gifts within the £3,000 inheritance tax annual exemption or the inheritance tax annual small gifts exemption of £250 per person (up to a maximum of ten people) will be acceptable where the donor has less than five years to live, their estate exceeds the Inheritance Tax Nil Rate Band (currently £325,000), the gifts are affordable and there is no evidence to show that the donor would oppose the gifts.

Attorneys acting under a valid Enduring Power of Attorney or Lasting Power of Attorney have the same limited powers to make gifts as deputies and so these guidelines are also applicable to attorneys.

One final point…. …

the judge made was that ignorance of the law applying to an attorney’s or deputy’s duties is not a valid defence. He advised deputies and attorneys to review the Mental Capacity Act 2005 Code of Practice from time to time to ensure that any actions they take are within the constraints of their appointment.

For further information please contact Amy Wallhead on 01223 461155 or click here to email Amy.