A Lasting Power of Attorney (LPA) is a powerful legal tool that allows someone you trust (the ‘attorney’) to make decisions on your behalf. One area where this authority can come into play is gifting. There are specific rules and guidelines governing how and when an attorney can make gifts on behalf of the person who granted the LPA (the ‘donor’). Here’s a simple guide to understanding the rules of gifting under a Lasting Power of Attorney.
What is Gifting?
Gifting in this context refers to the attorney giving away some of the donor’s money or property. This could be in the form of birthday presents, charitable donations, or other types of gifts. The rules about gifting are in place to protect the donor’s finances and ensure that any gifts made are in their best interests.
Deputies and attorneys need to be aware, however, of the strict rules on gift-making. As a deputy or attorney you have limited powers to make gifts on the person’s behalf and you may need to seek the authority of the Court of Protection when you do.
Rules of Gifting Under an LPA
When acting as an attorney under an LPA for Finance and Property, you must follow certain principles. These principles ensure that any actions taken are in the best interests of the donor. For gifting, there are additional specific rules:
- Customary Gifts: An attorney can make gifts on customary occasions such as birthdays, weddings, or other significant events. These gifts must be of reasonable value and in line with what the donor would usually give if they had the capacity.
- Charitable Donations: An attorney can make donations to charities, but these should be in accordance with the donor’s past practices or known wishes.
- Value of Gifts: Any gift should be reasonable in value considering the size of the donor’s estate. The law requires that gifts should not be so large that they affect the donor’s ability to meet their own needs.
Public Guardian Practice Note on ‘gifting’
The Public Guardian has published a practice note (Public Guardian PN7 ) that gives detailed guidance on how deputies and attorneys should approach giving gifts on behalf of the person they act for (often called ‘the person’ in this practice note).
The note explains the legal framework to gifting and the approach the Office of the Public Guardian (OPG) takes when deputies or attorneys go beyond their authority to give gifts.
Seeking Permission for Larger Gifts
If an attorney wishes to make a gift that goes beyond these limits, they must apply to the Court of Protection for approval. This court oversees the administration of affairs for people who lack mental capacity and can give permission for larger or non-customary gifts if it deems them to be in the donor’s best interests.
Best Interests of the Donor
Every action taken by an attorney must be in the best interests of the donor. This means considering:
- The donor’s past and present wishes
- The donor’s beliefs and values
- The potential impact on the donor’s wellbeing and financial situation
An attorney must balance the desire to maintain the donor’s previous practices with the need to protect their financial future.
Keeping Records
It’s essential for an attorney to keep detailed records of all gifts made, including:
- The value of the gift.
- The recipient of the gift.
- The occasion for the gift.
- The rationale behind the decision to make the gift.
These records provide transparency and can protect the attorney if there are questions about their actions.
Preferences and Instructions
There are occasions when the donor will add preferences or instructions about gifting or allowing for funds to be given to someone other than the donor. Sometimes it will be to look after a family member or sometimes to look after either the donor or someone else where the relationship is unclear. The instructions are mandatory whereas the preferences are not.
In 2019, the Court of Protection heard 11 instances of provisions made in an LPA for others. These are all in terms of “…provisions in an LPA that provide for the attorney to use the donor’s funds to benefit persons other than the donor…”. The following are what the COP considered allowable or not:
- These are not invalid as they purport to gifts in contravention of the Act, as long as they as not linked to a ‘customary occasion’.
- These are not valid if and because they relate to provision for a person whom the donor has a legal obligation to maintain.
- These may be valid as a written statement of the donor’s wishes as long as they are expressed in preferences but, they would be ineffective as part of a lasting power of attorney if they were expressed in mandatory terms.
- Provisions that provide for the attorney to use the donor’s funds to benefit the attorney themselves:
- are not invalid because of a fiduciary duty;
- are valid because any conflict has been authorised by the donor and the attorney must in any case act in the donor’s best interests.
By way of an example:
Under ‘Preferences’ the donor entered the words “The needs of [LS] before anyone else.’ Under the heading ‘Instructions’, she entered the words “The attorney [SS] must ensure that the needs of my daughter [LS] are taken care of…” Basically, the preferences were allowable but, the instructions were not.
Under ‘Instructions’, the donor entered the words “Must make sure that you continue to look after my son [M] in the same way that I do.” This is not allowable because it is mandatory and prevents a best interests decision.
Under ‘Instructions’ the donor entered the words “…[DW] lives with me in my own home. She must continue to be allowed to live there in the event that I have gone into fulltime care.” This provision was mandatory and prevented a best interests decision so was not allowable.
Generally making mandatory instructions for gifting allowances for the benefit of others is not going to be allowable because it prevents a best interest decision. They may be allowable, however, under ‘preferences’
Inheritance Tax Planning
In the case of MJ and JM and the Public Guardian [2013] EWCOP 2966, Senior Judge Lush said the exceptions can be taken as covering the annual Inheritance Tax exemption of £3,000 and the annual small gifts exemption of £250 per person, up to a maximum of, say, 10 people when:
- the person has a life expectancy of less than 5 years
- their estate is worth more than the nil rate band for Inheritance Tax purposes (currently £325,000)
- the gifts are affordable, taking into account the person’s care costs, and won’t adversely (negatively) affect their standard of care and quality of life
- there is no evidence that the person would be opposed to gifts of this value being made on their behalf
Being able to gift small amounts up to the Inheritance Tax exemption without the permission of the court doesn’t mean that you can carry out Inheritance Tax planning without the court’s permission.
Conclusion
Acting as an attorney under a Lasting Power of Attorney is a significant responsibility, especially when it comes to managing finances and making gifts. Understanding and adhering to the legal framework is crucial to ensure that the donor’s interests are protected. By following these guidelines, an attorney can navigate the complexities of gifting while fulfilling their duty to act in the donor’s best interests. If in doubt, seeking legal advice or consulting the Office of the Public Guardian can provide additional guidance and support.
Resources:
OPG2 – Giving gifts for someone else
Court of Protection – Decision Tree for Using Donor’s Funds to Benefit Others
