One might think that, having received the power to act in respect of one’s parents’ financial affairs, this would include dealing with the gifts which they had been in the habit of making, or might have wished to make.
Far from it: this area can be a minefield and often results in costly litigation, quite apart from affecting the validity of the tax planning if not done correctly.
Background – previous situation
The 2013 case of MJ and JM v The Public Guardian  EWHC 2966 (COP) was only one of the extreme cases faced by the Courts in relation to gifts made by deputies. There two deputies applied to the Court of Protection for retrospective authority for various gifts the deputies had made to themselves, their family, friends and charities. They had given away over £230,000 of the donor’s estate. They also claimed new cars and computers as their deputyship expenses.
The Court refused to grant authority for the majority of gifts, the deputies’ appointments were revoked, and the deputies were held to be personally liable for the unauthorised gifts. The new cars and computers were added to the list of unauthorised gifts.
The judge felt that there was insufficient guidance available to deputies as to what gifts they could make and provided guidelines in his judgment. The guidelines were a useful reminder of the limited circumstances in which gifts could be made by deputies. The guidelines were also applicable to attorneys acting under an Enduring Power of Attorney or Lasting Power of Attorney. Deputies and attorneys alike were advised to review the Mental Capacity Act 2005 Code of Practice from time to time to ensure that any actions they take are within their authority.
Three years later the Office of the Public Guardian (OPG) has issued new “plain English” guidance for deputies and attorneys helping them make gifts within their authority.
What counts as a gift?
Deputies and Attorneys need to ensure they understand what counts as a gift. Gifts include a wide range of transactions, such as money spent on individuals on birthdays and customary occasions, such as Christmas; money spent or assets handed to individuals generally; donations to charity; paying school/university fees; allowing someone to live rent-free in property owned by the donor; selling the donor’s assets below market value; using the donor’s assets to create a trust for someone else; and making an interest-free loan to someone else from the donor’s funds. This applies even if the donor was previously in the habit of making those same gifts himself.
If the donor can no longer make his own decision as to whether or not to make gifts, and the deputies or attorneys have been unsuccessful in involving the donor in the decision-making process, they can make the decision on the donor’s behalf – for certain types of gift only. This only applies to those making property and financial affairs decisions, as deputies and attorneys making health and welfare decisions do not have even limited authority to make gifts.
When can someone benefit from gifts?
Gifts can only be made to family, friends, or acquaintances of the donor on customary occasions (e.g. birthdays, anniversaries, and other days on which it is customary to give gifts), or to charity.
What cannot be done (without Court permission)?
Making any other gifts, including making gifts to utilise inheritance tax allowances, such as the annual exemption.
How much can be given away?
The gift must be of reasonable value given the size of the donor’s estate. The Mental Capacity Act 2005 does not say what is reasonable or unreasonable so the deputies and attorneys have to decide. When deciding on what is reasonable, the deputies and attorneys need to consider the donor’s particular circumstances, i.e. the nature and value of the donor’s assets, whether the donor would have made the gift but for their incapacity, whether the gift will leave the donor with sufficient assets to meet their own expenses, the donor’s life expectancy, and the terms of the donor’s Will. Previous such birthday gifts would also be relevant evidence. If deputies and attorneys wish to make more extensive gifts, they must apply for permission to the Court of Protection, using a special procedure.
What if the authority is exceeded?
Deputies and attorneys exceeding their authority could face an investigation by the OPG, a warning, an order for the money to be paid back to the donor’s estate from their own pockets, having their appointment revoked, a police investigation, increased supervision (deputies only) or the security bond being called in (deputies only). The invalid gifts will also be added back into the estate for inheritance tax purposes.
Hauke Harrack, TEP, a solicitor in Hewitsons’ Private Client team, comments: “Up until now there has been very limited guidance for deputies and attorneys on gift-making. This has resulted in an increased number of cases where, usually following the death of the donor, it turns out that the gifts made were unauthorised. Now that the OPG has issued further guidance, deputies and attorneys should refer to it alongside the Mental Capacity Act 2005 and, if in doubt, seek legal advice whenever they are considering making gifts on behalf of the donor. This will help to avoid any personal liability in the future.”
For further information please read the OPG’s guidance or contact one of our solicitors:
Northampton – Hauke Harrack, on 01604 463131 or click here to e-mail Hauke
Cambridge – Amy Wallhead, on 01223 461155 or click here to e-mail Amy.
Milton Keynes – Carolyn Bagley, on 01908 247015 or click here to e-mail Carolyn.
London – Francesca Rossi, on 020 7831 8888 or click here to e-mail Francesca.