Can an attorney or deputy make gifts or maintain a family member?

Humans are innately social beings. Making gifts and supporting friends, families and charities are important parts of many people’s lives, and there is often an assumption that this can simply carry on following a loss of capacity. However, this is not always the case. This short article looks at the legal position for attorneys and deputies when considering whether to make a gift or maintain a family member or friend.

Capacity to make a gift

The first thing to consider is whether the protected party (known as ‘the person’ for the rest of this article) still has mental capacity to make the gift in question. The test for this was established in a case called Re Beaney in 1978. This case confirmed that in order to be able to make a gift, the person making the gift must understand the effect of the gift on their overall estate, and the more significant the gift in relation to a person’s estate, the higher the level of understanding that would need to be demonstrated. If the person still has capacity to make the gift in question, then they should be supported and facilitated to do this themselves, rather than their attorney or deputy doing this for them.

Factors to consider when making a gift

Attorneys and deputies can only make gifts in specific situations if the person no longer has capacity to make the gift themselves. They are as follows:

1. On customary occasions such as birthdays or festivities to people who are related to or connected with the person provided that the value of the gift is not unreasonable having regard to all the circumstances, and in particular, the size of the person’s estate
2. Making gifts to charities that the person might have made provided that the value of the gift is not unreasonable having regard to all the circumstances, and in particular, the size of the person’s estate

If the above initial criteria are met, then the attorney or deputy needs to decide if making the gift or transfer is in the person’s best interests. When making this decision, the attorney or deputy should ascertain, consider and keep a written record of the following:

• What the person’s current wishes and feelings are about the proposed gift or transfer. A deputy or attorney should discuss this directly with the person if at all possible.
• Any previously communicated wishes and feelings of the person about this issue, including how they have acted in the past in respect of gift making and transfers. Specific attention should be paid to any preferences and instructions set out in the LPA, or in any side letter.
• Any estate planning that they have done, including any Will that the person has made.
• Their relationship with the proposed recipient of the gift or transfer
• The views of others involved with the person where they are relevant to this decision, such as a financial or legal advisor, or family members that may be impacted by the decision, including the views of anyone that may not agree. All of this forms part of the decision making.

Following this first stage, the attorney or deputy needs to consider whether the proposed gift is ‘not unreasonable’ in light of P’s wider circumstances, which will include the views and considerations above, but also a number of other wider factors, including:

• Impact of the gift on the person’s financial situation – can the person afford it?
• The person’s current and future needs, for example, whether they will need to pay for care costs or care home fees, and whether their costs for this are likely to change as time goes on
• Impact the gift may have on inheritance tax payable on the person’s death and on anybody who stands to inherit under the person’s Will or the intestacy rules
• The person’s life expectancy
• Any conflict of interests between the person making the decision to make the gift and the person receiving the gift
• If the gift will create inequality between family members, is there a reason for this?

What level of gift is an attorney or deputy allowed to make without Court of Protection authority?

If the gift meets the above criteria, then the attorney or deputy then needs to consider whether they can make the gift without additional authority from the Court of Protection. As a rule of thumb, the Court of Protection has set out what is known as the ‘de minimis’ provision, established in MJ and JM and the Public Guardian [2013] EWCOP 2966, which states that where P’s estate is worth at least the value of the nil rate band (£325,000 for a person without property at the time of writing) that a gift in line with the following criteria could be made without additional Court of Protection authority:

• The person has a life expectancy of less than 5 years
• Attorney or deputy considers that the gift is in the person’s best interests
• 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

In those limited circumstances, the following gifts can be made without additional Court of Protection authority:

• 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 is Court of Protection authority needed to make a gift?

In any event, the following types of gifts will very likely require Court of Protection authority, and specific legal advice should be sought:

1. Loans from the person’s funds
2. Creating a trust of the person’s property
3. Living rent free in a property owned by P the person
4. Selling a property for less than it’s value or transferring it into someone else’s name
5. Changing the Will of someone who has died to redirect funds away from the person’s estate
6. Making regular payments to another person, for example, paying school fees, except in certain limited circumstances set out below
7. Removing assets from the person’s estate to reduce the size of their estate
8. Gifts that don’t meet the de minimis criteria, above
9. Significant change to the person’s investment strategy, especially where there is a conflict of interests between the decision maker and the person.

Meeting the needs of another person

The Court of Protection distinguishes making a gift to another person, from making payments to meet the needs of another person. For example, if there is a legal obligation to meet another person’s needs because they are a spouse or a dependent child, then Court of Protection authority is not required to make the maintenance payment. This would also extend to a situation where the person has meet the needs of another person, such as a disabled adult child, for a long time whilst they had capacity, and continued to do so up until the point that they lost capacity.

Ideally, any LPA document or Deputyship Order would authorise the ongoing payment. Many Deputyship Orders cover these points expressly, which can give reassurance to a Deputy. If there is any doubt about whether there is a legal obligation to continue to make the payment, specific advice should be sought. Any such transfer must be in the best interests of the person.

The concept of meeting the needs of another person can also be relied on to continue payments for things such as school fees for grandchildren, where there is a clear history of such payments being made whilst the person had capacity, to the extent that there is an expectation that they will continue to be made, to the extent that a sense of obligation on the person to continue making them. The transfer should not be linked to a birthday or other customary occasion, and must be in the best interests of the person.

The right to make a gift to or benefit another person isn’t always clear cut, so if you would like advice on this or any element of gifting or estate planning for a person that lacks capacity, then please do not hesitate to get in touch with one of our expert team, please call on 020 7940 4060 or send us your query at mail@anthonygold.co.uk.

To learn more about the legal complexities of gifting and supporting family members under a power of attorney or deputyship, register for our upcoming event on 12 June, where our Court of Protection specialist Holly Miéville-Hawkins and contentious probate expert David Wedgwood  will explore what happens when such decisions are challenged after the donor’s death.

Register for the event here