Subject to any restrictions or conditions in the Lasting Power of Attorney (“LPA”), a property and affairs attorney can make gifts on the donor’s behalf to the donor’s friends, family members or acquaintances on customary occasions. This includes birthdays, anniversaries, weddings, religious festivals. An attorney could also donate funds to a charity if the donor historically made gifts or supported a particular charity. Any gifts made however must be reasonable, proportionate and affordable to the donor’s estate and must not harm the donor’s care or quality of life.
It must first be established whether or not the donor has capacity to make the gift in question (i.e. can they retain information about the gift, can they use that information to make a decision and can they communicate their decision). If the donor has capacity to make the gift, it is useful to make a note of the conversations you have in case the Office of the Public Guardian (the “OPG”) queries the gift in the future, which may be the case if it’s a gift of substantial value.
It is not recommended that an attorney accepts a gift from the donor’s funds because there is a clear conflict of interest. The best practise would be to apply to the Court of Protection for authority for the attorney to make and receive a gift from the donor’s estate. The same would be the case if the gift were to be made to the attorney’s relative or friend.
Making gifts will be context specific and dependant on the donor’s circumstances. When considering whether to make a reasonable gift, an attorney should consider:-
- Whether or not there would be any adverse effect on the donor’s financial circumstances. What is the donor’s current and future financial position (income, assets, capital and savings) and how does this fit with the donor’s present and future needs. Would there be sufficient funds to cover all expenditure if the gift were made?
- Whether the gift would be in the donor’s best interests.
- The donor’s life expectancy.
- Whether the donor had a history of making such gifts when they had capacity.
- Whether the gift would impact on the donor possibly paying for care costs / care home fees in the future.
- Is the gift affordable and is it a normal sum for customary occasions / charitable donations.
- Whether the gift will impact on the donor’s estate planning or the distribution of their estate under their Will or under the intestacy rules.
- Whether there would be any Inheritance Tax (“IHT”) implications from making large gifts. If the donor dies within 7 years of the gifts, and the gifts exceed the nil rate band (currently £325,000) then there may be IHT payable.
A formal application will need to be made to the Court of Protection to authorise gifts which are not occasional gifts or charitable donations (based on the donor’s history of gifting / donating). Case law has provided exceptions to making an application if the gifts fall within the annual IHT exemption of £3,000 and/or fall within the small gifts exemption of £250 per person up to a maximum of ten people when:-
- The donor has a life expectancy of less than 5 years.
- The donor’s estate is worth more than the nil rate band (i.e. £325,000).
- The gifts are affordable and will not impact on the donor’s care or quality of life.
- There isn’t evidence that the donor would not approve of the gifts being made on their behalf.
- The proposed gift is substantial and/or is being made to someone who is not a relative or an acquaintance of the donor.
It is important to seek legal advice if you are thinking of making gifts on the donor’s behalf which fall outside of customary occasions / charitable donations. For example, such gifts could include using the donor’s funds to make a loan to a third party, paying someone else’s school or university fees or allowing someone to live in the donor’s home without paying market rent. An application should also be made if the proposed gifts are to be made as part of IHT planning as this falls outside of an attorney’s usual powers to make occasional gifts/charitable donations.
If an attorney makes an unauthorised gift, the OPG has statutory powers to investigate and this may lead to an application to remove the attorney from acting, return the gifts and/or they may report this to the police. The OPG may request that the attorney applies to the Court of Protection for retrospective authority for making the gift, however it is advisable that an attorney seeks advice from the outset and, if necessary, to make a formal application to avoid this situation.
If you have any concerns about capacity, or if you are contemplating making a LPA for the first time, please get in touch with our team for more information.
About the author
Sameena Munir is a solicitor in the Private Client Department. Sameena has a Court of Protection focus, supporting property and financial affairs deputies. She works closely with clients who lack capacity, with a particular specialism of cerebral palsy and severe brain injury cases. She prepares statutory will and gift applications to the Court, and creates personal injury trusts. She also advises on lasting powers of attorney and probate matters.