Making gifts under a Power of Attorney

What is a Power of Attorney?

A Property and Financial Affairs Lasting Power of Attorney (LPA) and its predecessor the Enduring Power of Attorney (EPA) are legal documents that grant a trusted person or persons the power to manage the property and financial affairs of another individual on their behalf. Under a Power of Attorney, the person granting the power is known as the “donor” and the people making decisions on the donor’s behalf are known as “attorneys”.  These Powers of Attorney can be used when the donor is physically or mentally incapable.

With Christmas fast approaching, you (in your capacity as attorney) may be considering making gifts to friends and family on the donor’s behalf.  The scope of what constitutes a gift under a Power of Attorney is rather broad and can include money, property, possessions belonging to the donor, creating a trust for someone over the donor’s property and even interest free loans.

Issues to consider

At the forefront of any decision involving making a gift, the attorney’s main focus must always be the donor, the donor’s needs and whether it is in the donor’s best interests to make the gift. Before making a gift, attorneys should also review the Power of Attorney carefully ensuring that any restrictions or conditions on making gifts are strictly followed.

The Mental Capacity Act 2005 sets out an attorney’s power to make gifts and outlines the limitations attached when exercising this power. Under Section 12(2) of the Mental Capacity Act 2005, attorneys are only permitted to make gifts on the following terms:

• They must only be made on customary occasions such as birthdays, Christmas, anniversaries, on the celebration of a marriage or civil partnership, or on any other occasion on which presents are customarily given within families and amongst friends and associates i.e. Eid, Diwali, Hanukkah. (It should be noted that for attorneys acting under an EPA, these occasions are limited to those of a seasonal nature or on an anniversary of a birth, marriage or civil partnership).
• They must be made to persons who are related to or connected with the donor and can include the attorney themselves.
• Gifts can also be made to any charity whom the donor previously made or might have been expected to make gifts.
• Gifts must be of a relative value taking into consideration all of the circumstances including the size of the donor’s estate. Attorneys must consider how much the donor previously gifted on such occasions, the donor’s anticipated life expectancy and whether the donor’s present and future needs (including any future potential residential or care costs) may be affected as a result of any gifts made. If known to the attorney(s) and applicable to the particular gift being made, regard should also be had to the contents of the donor’s Will as this may indicate the donor’s disposition towards gift giving.

Case law

In the 2013 case of MJ and JM v The Public Guardian, Senior Judge Lush sought to provide attorneys with some guidance as to what could be classified as a reasonable gift. The Judge identified a reasonableness 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), in the following circumstances:

• The donor has a life expectancy of less than five years.
• The donor’s estate exceeds the inheritance tax nil rate band (currently at £325,000).
• The gifts were considered to be affordable, taking into account the donor’s care costs, and would not adversely affect the donor’s standard of care and quality of life.
• There is no evidence that the donor would oppose the extent of the gifts made on their behalf.

Any gifts exceeding this threshold would have to be approved by the court.

Whilst this has clarified the position somewhat for attorneys, this threshold is applied on a case by case basis and does not in any way replace the need for attorneys to consider the individual circumstances of the donor.

Attorneys are not obliged to make gifts on the donor’s behalf so they should use their discretion when deciding whether to exercise this power. It is also recommended that attorneys try to involve the donor in the decision making process wherever possible when deciding whether to make a gift.

Should an attorney wish to make a gift outside the scope of their powers, they must apply to the Court of Protection for authorisation using the formal application form.

Retaining evidence of gifts

The Office of the Public Guardian can investigate any gifts made under an LPA or EPA at any time and may ask to see evidence of any gifts made. It is therefore advisable that attorneys keep a record of all gifts given on the donor’s behalf specifying the value of the gift and the circumstances in which the gift was made.

Penalties will be imposed on attorneys for any unauthorised or excessive gifts given outside of the attorney’s powers. Feigning ignorance of the law regarding an attorney’s duties and responsibilities will not be deemed a valid excuse.

For further information and advice on making gifts under a Power of Attorney, please contact the Succession and Tax team.