When an attorney assumes responsibility for the financial affairs of another, be it under an old style Enduring Power of Attorney (EPA) or a more recent Property and Financial Affairs Lasting Power of Attorney (LPA), it is important that they are aware of the scope of their authority when it comes to making gifts on the donor’s behalf. The same can be said of deputies appointed by the Court of Protection to manage the affairs of someone who does not have a power of attorney in place.
When making gifts an attorney must follow any restrictions or conditions imposed by the donor in the EPA/LPA. An attorney should be careful to check the terms of the relevant document to ensure that they do not exceed the scope of the power expressly conferred upon them.
An attorney has a limited statutory authority to make gifts on customary occasions such as Christmas (or other religious festivals), birthdays and anniversaries and on the formation of marriages and civil partnerships, provided in all cases that the recipient (who could be the attorney themselves) is a relative of the donor or is otherwise connected to them. Donations to a charity which the donor regularly supported, or may have been expected to support, are also permitted.
In making gifts, an attorney must always be mindful of the overriding principle that they must act in the best interests of the donor. Any gift must be reasonable having regard to all of the circumstances, particularly the size of the donor’s estate.
Attorneys should ask themselves a number of questions to determine the issue of reasonableness, looking at the circumstances both at the time that the gift is proposed and as they are likely to be in the future:
An attorney should also consider the intended recipient of the gift. They must ensure that they do not take advantage of their position by only making gifts to benefit themselves and should be able to justify their decisions if members of the donor’s family are not treated equally. The terms of a donor’s Will can act as evidence of their wishes and so an attorney should have regard to any Will, if the terms are known to them, when the recipients of any gift are being selected.
In the 2013 case, Re GM: MJ and JM v The Public Guardian, the two deputies sought retrospective approval for substantial gifts which they had made totalling over £275,000. Of this amount, over £170,000 comprised substantial gifts of cash, expensive jewellery and watches and designer handbags which the deputies had made to themselves and to members of their immediate family. They also sought ratification of “expenses” in the region of £46,500 which they had incurred in buying cars, which they claimed were necessary for them to visit GM, and computer equipment that they felt was required to manage her financial investments.
The Court of Protection refused to ratify the “expenses” on the basis that they were, in reality, additional gifts to the deputies which they had no authority to make. Of the other gifts, only £13,500 was considered to have been within the authority of the deputies. This was on the basis that it would have been covered by the annual gift exemptions which would have applied to GM over the various tax years in which the gifts were made.
The more extensive gifts were disallowed on the basis that they were not in GM’s best interests. They were out of character with the gifts she had made previously and the deputies had not consulted with her so as to establish whether the gifts were in accordance with her wishes. The Court also considered it relevant that GM did not have a Will and so had not chosen to make the deputies the residuary beneficiaries of her estate. They would not have been entitled to benefit from GM’s estate upon intestacy since they were only related to her by marriage.
In circumstances where an attorney wishes to make a more substantial gift not permitted by the limited statutory authority, for example where a member of the donor’s family finds themselves in financial need or where they wish to undertake some inheritance tax planning on behalf of the donor, they should make a formal application to the Court seeking prior approval before the gift is made.
Attorneys should also bear in mind that some less obvious transactions can also constitute gifts. The granting of an interest free loan will be deemed as a gift, as will creating a trust of the donor’s property or varying the Will of a deceased person so as to re-direct the donor’s entitlement from the estate elsewhere. Prior approval from the Court should also be sought in these instances.
The Public Guardian has the ability to investigate gifts made by an attorney and, if these are deemed excessive, can require the attorney to apply for retrospective approval to the gifts. Alternatively, the Court may issue the attorney with a warning and require them to take steps to have the gifts returned. In the most serious cases, the Public Guardian may apply to the Court for suspension or removal of the attorney and can refer the matter to the police for investigation. In Re GM the deputies were held personally liable to repay the unauthorised gifts back to GM’s estate and also had their appointment as deputies revoked, highlighting the seriousness of the consequences for attorneys and deputies who act outside the scope of their power.
For further information or advice, please contact Alice Clewes.
Call: 0191 232 8345