Attorneys and deputies: is it ever a good idea to make a gift?

Acting as an attorney or deputy on behalf of a person who lacks capacity can inevitably involve many difficult decisions. One of those difficult decisions that can cause some problems for attorneys and deputies is deciding whether to make a gift from the donor’s funds.

The consequences of making an unauthorised gift as an attorney or deputy can be devastating. The Office of the Public Guardian now has power to investigate gifts. When investigated, an attorney or deputy may:

• be required to provide an explanation of any gifts or financial transactions made;
• be instructed to seek retrospective approval from the court themselves;
• be suspended temporarily from their role; and
• in some instances even be removed from their role.

Indeed, in some more serious circumstances, the matter may even be referred to the police for criminal investigation.

It is therefore of paramount importance for attorneys and deputies alike to be aware of the strict rules on gift making and it is always advisable for attorneys and deputies to seek legal advice before making any gift.

This is compounded by the comments made by Senior Judge Lush in Public Guardian v V [2013] EWCOP 2965 where it was made clear that attorneys should be aware of their legal responsibilities and that ignorance is no excuse.

What does the law say?

The general rule for deputies and attorneys is that apart from some exceptions, you must not make gifts from a donor’s estate without approval from the Court of Protection.

Section 12(2) of the Mental Capacity Act 2005 (MCA 2005) sets out those exceptions and details an attorney’s power to make gifts and the limitations attached when exercising this power, as follows (my emphasis):

The donee may make gifts—

(a) on customary occasions to persons (including himself) who are related to or connected with the donor, or

(b) to any charity to whom the donor made or might have been expected to make gifts, if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor’s estate.

“Customary occasion” means—

(a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership, or

(b) any other occasion on which presents are customarily given within families or among friends or associates

This power is however subject to any conditions or restrictions contained in the instrument.

A further difficulty that attorney’s face is that the MCA 2005 does not define what is a ‘reasonable’ or ‘unreasonable’ gift and attorneys therefore need to ensure that they take all relevant factors into account when determining whether a proposed gift is within their authority and in particular whether the gift can be considered to be in the donor’s best interests.

Attorneys would be well advised to consider, carefully, the instrument creating the power to see whether the donor provided any helpful guidance as to what gifts can be made.

For deputies, the power to give gifts will be set out in the deputy order and is usually similar to an attorney’s statutory authority.

Applications to the Court of Protection

If an attorney or deputy wishes to make a gift that is not covered by section 12(2) of the MCA 2005, pursuant to section 23(4) MCA 2005, the court can authorise the making of additional gifts provided that there are no restrictions in the power itself and the court is satisfied that the gift(s) would be in the best interests of the donor.

Exceptions

The court has, however, recognised that there are exceptions to the general rule when an attorney or deputy would be exceeding their authority to make a gift but in such a way that it would not justify a court application. These are referred to as the ‘de minimis exceptions’ and Senior Judge Lush provided some helpful guidance to attorneys on the parameters of those de minimis exceptions in the case of Re GM: MJ v JM The Public Guardian [2013] EWCOP 2966.

Senior Judge Lush identified a threshold of £5,500 annually per donor, representing the annual inheritance tax exemption of £3,000 and the annual small gifts exception of £250 up to a maximum of 10 people where:

• the donor has a life expectancy of less than five years;
• the donor’s estate exceeds the inheritance tax nil rate band (currently £325,000);
• the gifts are considered affordable, taking into account the person’s care costs and will not adversely affect their standard of care and quality of life; and
• there is no evidence that the person would be opposed to gifts of this value being made on their behalf.

The ‘de minimis’ exceptions do not, however, apply in circumstances set out in the case of The Public Guardian v C [2013] EWCOP 2965 which include:

• loans to the attorney or to members of their family;
• investments in the attorney’s own business;
• sales or purchases below value; or
• any other transactions where there is a conflict between the interests of the person and the attorney’s own interests.

The court has also made clear that being able to gift small amounts up to the Inheritance Tax exemption without the permission of the court does not mean that Inheritance Tax planning can be carried out without the court’s permission and indeed in the case of Re PC: The Public Guardian v AC and Anor [2014] EWCOP 41, Senior Judge Lush stated that attorneys who want to make larger gifts for Inheritance Tax planning purposes, such as setting up monthly standing orders to themselves, should apply to the Court of Protection for an order under section 23(4).

Conclusion

The statutory position and the case law in this area serves as a strict warning to attorneys and deputies that they cannot simply pay themselves or gift what they want, particularly if there is no provision for this in the instrument itself. Indeed, Re GM is a clear example of financial abuse by joint deputies that did not go unnoticed by the Office of the Public Guardian.