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Gifts by Attorneys
A recent Court of Protection case provided some useful guidance in relation to when it will be appropriate for gifts by attorneys to be given to those whose finances they manage.
The case of PBC v JMA and Others (the Court ordered that the identities of the parties involved could not be revealed to protect confidentiality) was heard in mid-April 2018. PBC is the son of JMA ("the Donor") and her attorney under a Lasting Power of Attorney and wanted to make gifts in excess of ¬£7,000,000.00 from her estate, which was stated to be in the region of ¬£18,650,000.00. The gifts would be primarily to the son himself and the main purpose of them was (subject to the Donor living for the necessary number of years) to save Inheritance Tax on her death. The proposed gifts largely mirrored the terms of the Donor's Will and the Court was told that they would produce an Inheritance Tax saving of around ¬£600,000 if the Donor died immediately rising to over ¬£3,000,000 if she was still living in March 2025.
The basic starting point is that under the terms of the Mental Capacity Act 2005, when taking decisions on behalf of the Donor an attorney is required to act in the best interests of the Donor. The question, therefore, was whether making such large gifts could be considered to be in the best interests of the attorney's mother and, in particular, whether steps that would only produce a tax saving after the Donor had died could be considered to be in her best interests while she was living.
The Donor suffers from dementia and was unable to express a view or participate in the decision making process but certain aspects of her actions over the years could be taken to give an indication of what she may have decided to do had she had the capacity to do so. For example, she had previously made significant gifts, most of which were to her son and when doing so, saving tax had been at the forefront of her considerations (albeit that her concern at the time had been to save Income Tax and Capital Gains Tax during her lifetime rather than Inheritance Tax after she died). The Judge made the point, however, that a person's best interests do not simply come down to what they might have done themselves. Most of us could be accused of doing things that were not necessarily in our best interests.
Under the terms of the Mental Capacity Act 2005 an attorney when considering a decision should reach a view on what is in the Donor's best interests on the basis of various factors, including in particular:
- The decision should not be made merely on the basis of the person's age or appearance, or a condition of his or an aspect of their behaviour which might lead others to make assumptions about what might be in their best interests.
- The attorney must consider all other relevant circumstances.
- The attorney must consider whether it is likely that the Donor will at some point have capacity to express a view and, if so, when that is likely to be.
- So far as possible the attorney should permit and encourage the Donor to participate as fully as possible in the decision making process.
- The attorney should consider the Donor's past and present wishes and feelings and in particular
- any written statements made by the Donor when they had capacity
- the beliefs and values that would be likely to influence the Donor's decision
- other factors the Donor would be likely to consider if they were able to do so
- The attorney should take into account if possible the views of anyone engaged in caring for the Donor or interested in his welfare.
After considering all of these factors, the Judge listed the points that he considered to be in favour of and against the gifts in this case, as follows:
- The recipients of the proposed gifts were those whom the Donor had chosen to benefit in her Will when she had capacity to do so and the benefit they would receive would be likely to be increased by the saving of tax.
- The management of the Donor's property and affairs with a view to tax efficiency was consistent with the beliefs and values the Donor had demonstrated when she had capacity. In particular, she took regular financial advice and made decisions in accordance with that advice to minimise her exposure to lifetime taxes, including strategies which had incidental Inheritance Tax benefits.
- Her change of circumstances now made it feasible to consider post death tax exposure (because her needs during her lifetime were relatively clear).
- The Donor could amply afford the proposed gifts with no discernible impact on her ability to meet her conceivable needs from her remaining funds.
- The proposed gifts reflected an agreement amongst the various recipients and after the Donor had been independently represented, which would have the benefit of avoiding any future potentially expensive arguments and might also have a beneficial effect on family relationships.
- The Donor had on one occasion after making previous gifts expressed the wish that her son should know that the end of financial support from her had come (although the precise meaning of this was disputed).
- The Donor's tax mitigation while she had capacity primarily related to lifetime taxes and not saving tax after she had died.
- The proposed gifts would reduce the Donor's estate by about 38%.
After taking all of these factors into consideration, the Judge said that he was satisfied that the factors in favour outweighed the factors against and he made an order authorising the gifts.
The case is useful because it gives considerable guidance about the approach the Court of Protection is likely to take in relation to proposed gifts and the best interests of patients. It was unusual, however, because of the overall size of the Donor's estate (and also the size of the gifts) and, ultimately, each case should be considered and, if necessary, will be decided by the Court, on the basis of the specific circumstances of that individual case.