Dementia, brain injuries and mental health problems can make managing money a struggle. An attorney or a deputy with authority to manage the property and money of someone who has lost capacity (“P”) can make various decisions including making gifts on P’s behalf.
What is a gift?
A gift is a transfer from P to another which reduces the value of P’s estate. Gifts can be monetary or can take the form of other benefit such as the transfer or purchase of assets, placing of a policy under trust for a third party or even an interest-free loan.
Are there restrictions on an attorney or a deputy when making gifts?
An attorney or deputy can make gifts on behalf of P provided there are no restrictions contained within the power of attorney or the deputyship order. However, the attorney or deputy must also follow the relevant legislation and guidance.
Attorney’s authority under an Enduring Power of Attorney
Section 3 (5) of the Enduring Power of Attorney Act 1985 prohibits attorneys acting under an Enduring Power of Attorney from making gifts unless they fall into one of the following categories:
- Gifts of a seasonal nature (for example at Christmas, Easter, etc);
- Gifts at the time of a birth or marriage;
- Gifts on a birthday or wedding anniversary;
- Gifts to charities which P had previously supported or might be expected to support;
- Gifts where P might have been expected to make such a provision for the recipient’s needs (such as maintaining a dependant relative of P). The attorney’s powers are limited to whatever P might do to meet those needs.
In addition, the attorney must ensure that the value of the gift is not excessive and P’s immediate and future needs will be met.
Attorney’s authority under a Lasting Power of Attorney
The Mental Capacity Act 2005 does not authorise an attorney to make gifts except to the extent permitted by section 12 (2) of the Mental Capacity Act 2005. This legislation is based on section 3 (5) of the Enduring Power of Attorney Act 1985.
An attorney acting under a Lasting Power of Attorney can only make gifts to people who are related to or connected to P on occasions such as birthdays, weddings or civil partnership anniversaries, or on any other occasion (such as Christmas, Easter, Diwali, etc) when they would have usually given gifts to family, friends or associates. In addition, the attorney must ensure that the value of the gift is reasonable compared to what P owns.
Deputy’s authority in a deputyship order
The common clause in a standard deputyship order covers gifting. The wording of the authority is based largely on section 12 (2) of the Mental Capacity Act 2005 and it appears to have been the intention of the Court of Protection when making deputyship orders that deputies should have the same powers to make gifts as attorneys acting under an Enduring Power of Attorney or a Lasting Power of Attorney (see above).
What if the attorney or deputy wants to make a large gift or a gift that is not considered seasonal/customary?
The attorney or deputy will need to consider making an application to the Court of Protection to obtain permission. The attorney or deputy should consider whether the proposed gift is reasonable and in determining what a reasonable gift is, the following factors, amongst others, should be looked at:
- Is the gift in P’s best interests? This is of paramount importance.
- Is the proposed gift for a reasonable amount?
- Is it affordable, bearing in mind the size of P’s estate as well as all of P’s current and anticipated income, capital, expenditure and debts?
- What is P’s anticipated life expectancy?
- Is it in line with the sort of gift which P used to make before he lost capacity?
- Are members of P’s family being treated equally when making gifts? If not, is there a good reason for it?
- Is the attorney or deputy taking advantage of their role and making gifts only to themselves?
- What is the effect of Inheritance Tax (“IHT”) arising on P’s death?
Consequences of unauthorised gifts
If gifts are made without the permission of the Court of Protection (save for what is authorised by legislation), the attorney or deputy may be investigated and removed. In some circumstances, the matter may even be referred to the Police for criminal investigation. Attorneys and deputies have been warned in recent case law (MJ & JM v The Public Guardian ) that ignorance of the law regarding their duties and responsibilities is no excuse.
If you are considering making a gift on behalf of a vulnerable person, it is advisable to seek legal assistance to ensure that the gifts proposed are authorised by legislation. If they are not, the appropriate application to the Court of Protection may be required.