Attorneys and deputies have the authority to make financial decisions on behalf of someone who no longer has the capacity to make such decisions. They should ensure the decisions made are in the best interests of the person and attempt to gain their authority before doing so.
However, there are restrictions on attorneys and deputies which limit their powers. For instance, whilst they can make reasonable gifts to others on behalf of the person on customary occasions, gifting a large sum of money for other purposes (such as gifting to mitigate tax) will require the Court of Protection’s approval. In considering such an application, the Court will look at whether such a proposal is in the person’s best interests and several factors will be considered.
PBC v JMA and others  EWCOP 19
The recent case of PBC v JMA focuses on gifting during the lifetime of a person for the purposes of mitigating inheritance tax. JMA was a 72 year old woman who had been diagnosed with dementia. Her son, PBC was appointed as her sole deputy for her property and affairs. JMA had assets of an estimated £18m consisting mainly of investments and shares. PBC applied to the Court of Protection for an order whereby he would be granted £7m as gifts from PBC during her lifetime. In addition, the remaining parties, who were various charities, would receive a substantial sum. The basis for the gifts was for inheritance tax planning and to reduce the tax payable on her estate on JMA’s death.
Although there was an agreement amongst the parties (which included JMA, the charities and JMA’s granddaughter) in relation to the proposed gifts, the Court listed the matter for a hearing to ensure the gifts were in JMA’s best interests. In particular, the Judge wished to see in what sense the proposed gifts were for the benefit of JMA and to what extent the gifts were in accordance with JMA’s past and present wishes, feelings, values and beliefs.
As mentioned above, it was stated from the outset that the main purpose of the gift was for tax mitigation. It was made clear in this case that tax mitigation, on its own, was not an independent factor in deciding whether the proposed gifts were in the person’s best interests. One has to apply a balance sheet approach and perform a balancing exercise between a range of divergent and competing factors before concluding whether such a proposal is in a person’s best interests.
Findings of the Court
- The Judge noted that JMA was in the habit of gifting large amounts of money to PBC when she had capacity. JMA had also created a will leaving her residuary estate to PBC and had made provisions for the charities of her choice.
- The Court also found that when JMA had capacity, she was regularly taking financial advice in relation to any gifts she made or any issues surrounding her investments.
- Since JMA was previously heavily involved in her finances and took advice from financial advisors on a regular basis, the Court found that if JMA had capacity, she would have done the same, in view of the change in circumstance.
- The Court reviewed JMA’s personal financial situation which showed that even after making the proposed gifts, which would mean a loss of 38% of her estate, JMA’s financial needs would still be met during her lifetime. Compared to the amount JMA had, the proposed gifts were not a significant loss to JMA’s estate.
- The Court considered the family dynamics and concluded that giving effect to the agreement reached by the parties may have a beneficial effect on family relations.
Having considered the above factors, amongst others, the Court of Protection allowed PBC and the charities to receive large gifts as part of inheritance planning on the grounds that it was in JMA’s best interests to gift the money during her lifetime.
It is sensible to assume that JMA’s finances, age and health were factors which the Court considered before allowing the gifts to be made. If JMA was younger and had limited funds, the Court would be less likely to grant the gifts as it would have affected her financial welfare. It is also important to note that inheritance tax planning, on its own, has limited weight in convincing the Court. The Court will want to evaluate the bigger picture of a person’s circumstances together with any other issues which may affect a person’s financial welfare.
There is not a set provision in the Court of Protection on matters relating to inheritance tax planning. Such an application is case specific. It is therefore advisable to seek legal advice before an application is made to the Court.