Lifetime gifts: Invalidation for lack of capacity and undue influence

A gift made by an individual during their life will only be valid if made while they had sufficient mental capacity to make the decision, and while they were free from undue influence. Litigation of such gifts will often occur after death, when estate beneficiaries or executors find that the deceased person gave away substantial assets before their death. In these situations, Court orders would be needed to overturn the gifts and claw the relevant assets back into the estate.

Capacity to make a gift is judged differently to the capacity for making a will. The test as set out in the case of Re Beaney [1978] 1 WLR 770. The standard of capacity expected is relative to the gift being made, meaning that the greater the gift – the higher the level of understanding required.

Whilst lack of capacity can lead to a gift being voidable, often there is overlap between the principles that apply to the doctrines of lack of capacity and that of undue influence, in that lower capacity can make someone more vulnerable to undue influence.

The test for whether undue influence caused a gift to be made is often split into two categories. The first is actual undue influence – which is when the level of coercion is so high that the gift giver is no longer making the decision for themselves. Evidence of the coercion would be needed to reverse any gift.

Presumed undue influence is the second category, and this is based on the nature of the relationship between the influencer and the person making the gift. Relationships of confidence and trust between parties or a specific relationship such as that between parents and a child, doctor and patient, solicitor and client can indicate an already existing influence. The nature of the relationship is looked at as a whole and in particular the balance of power between the parties.  If the person giving the gift is in such a relationship as the influenced party, then the Court can presume that there was undue influence – unless the party with the power/influence in the relationship can explain the gift in a way that discounts undue influence in the decision.

Overturning gifts for want of capacity or on the basis of undue influence can be difficult, not least because of the lack of evidence often available in relation to these transactions. Early specialist advice should always be sought if a gift of value has been made by someone who may lack capacity or be subject to influence from another party.

Anthony Gold are proud of their work in recovery of assets taken from vulnerable persons and a founder sponsors of Hourglass a charity that works to prevent Elder Abuse.