Making gifts: a guide for Attorneys and Deputies

You may have clients who are mentally incapable of making decisions and have attorneys or deputies acting for them in respect of their financial affairs. You should be aware that the ability of attorneys or deputies to make gifts from the incapable person’s assets is strictly limited.

What is the extent of an Attorney’s or Deputy’s powers?

A Deputy’s powers will be set out in the court order appointing him or her while the Lasting or Enduring Power of Attorney (LPA) document will govern an Attorney’s powers. In addition, both Attorneys and Deputies are subject to the Mental Capacity Act 2005 (MCA) and its Code of Practice. If an Attorney or Deputy wishes to take actions which are not authorised by the law or the document appointing them, it is necessary to apply to the Court of Protection for consent to the proposed course of action.

Can an Attorney or Deputy make a gift on an incapable person’s behalf?

A gift might be a small one, such as a cash gift at Christmas to a grandchild, or it might be a larger gift intended, for example, to reduce the incapable person’s inheritance tax liability on their death.

As far as small gifts are concerned, provided they are not prohibited in the document appointing the Attorney, they can be made on certain specified occasions generally without the court’s authorisation. The Mental Capacity Act 2005 (MCA) authorises gifts by Attorneys under an LPA to persons related or connected to the incapable person on occasions when gifts are “customarily” made. Small gifts under Enduring Powers of Attorney can be made on “seasonal occasions”. In practice this covers gifts on occasions such as birthdays and Christmas and at other times when gifts are normally made.

Gifts to a charity the incapable person has previously made gifts to are also authorised under LPAs.

All the above gifts must not be unreasonable, especially bearing in mind the size of the incapable person’s estate, and must be in the incapable person’s best interests.

A court order appointing a Deputy will usually confer similar powers to make small gifts on specified occasions.

What about larger gifts for other purposes?

The starting point for any decision is to consider the best interests of the incapable person. This should be paramount in the Attorney’s mind and it will be the basis of any court decision. The Court of Protection has previously indicated that gifts that use the inheritance tax annual exemption (currently £3000) and gifts falling within the inheritance tax small gifts exemption of £250 can be made if they are in the incapable person’s best interests, and their estate exceeds £325,000 and so is theoretically liable to pay inheritance tax.

In addition, the incapable person must have a life expectancy of less than five years, the gifts must be affordable and there must be no evidence that the incapable person would oppose the gifts.

An application to the court for approval is necessary for any other gift

This will require submission of detailed evidence and information to the court so the court can determine whether the gift is affordable and in the incapable person’s best interests.

Other payments from an incapable person’s assets to benefit others

Not all payments which benefit others are gifts. In some cases, the incapable person might be under a legal obligation to make the payment; for example, maintenance payments to a former spouse. Or, the incapable person may have made regular payments to an adult child, for example because they felt under a moral obligation towards them, and they may have expressed a wish in the LPA that these payments should continue. In a recent case the court clarified the decision-making process that should be followed to decide whether the incapable person’s wishes can be followed.

Please contact us if you or your client would like advice on this, gratuitous care allowances or gifts by attorneys or Deputies generally.