When you use a power of attorney (Lasting or Enduring) to make gifts to anyone (including yourself) or to take expenses, there are no specific legal rules. If there is a dispute or a complaint, then the Court of Protection will be called upon to make a ruling. We suspect that a lot of attornies or indeed deputies will be left somewhat embarrassed – or worse, so you might want to read through this case.
Much of English Law is based on precedent – the decisions made previously by Judges, as to what is right in a particular set of circumstances. Other judges may in future find reasons to distinguish their case from this one and make a different decision, but this seems to be a great place to start if you want to get things right.
There are a number of important cases that we will writers must have an understanding of. Not all law is statute based and many of these cases form the basis of the law that applies to lasting powers of attorney.
This is an overview of the case MJ and JM v The Public Guardian [2013] EWHC 2966 (COP). It concerned the authority of a deputy to make gifts under section 12 of the Mental Capacity Act 2005 which allows the following gifts:
Gifts to charities that the donor may have given to; and
Gifts to family members, friends or acquaintances of the donor on customary occasions.
Anything beyond this, approval is needed from the Court of Protection. On Whilst this case a deputy was involved, but the judge in the case said the decision would apply equally to the attorneys of a Lasting Power of Attorney or Enduring Power of Attorney.
Facts of this case on Gifting under a Deputyship.
The case concerned GM, a 92 year old woman suffering from vascular dementia. Her two property and financial affair deputies had made gifts to themselves, their relations and to charities on behalf of GM and now had applied for retrospective approval of those gifts. The judge asked the Public Guardian to investigate and review the gifts and recommend whether or not approval should be granted. It transpired that well over 40% of GM’s assets had been given away! The OPG investigation identified a number of gifts that did not deserve approval along with advising that some “expenses” were in reality gifts to the deputies, these being a car and computers.
Decision: the dangers of generosity….
Some gifts were approved, mainly those to charity and one recommended by the Public Guardian’s report for approval. All other gifts were not approved, and the deputies were ordered to repay them. The expenses were also considered unauthorised gifts.
So what is it reasonable to gift under a Power of Attorney?
Gifts falling within a de minimis exception were also approved. The court recognised that there are exceptions to the powers granted in section 12 of the Mental Capacity Act otherwise the court would be overwhelmed by applications.
Senior Judge Lush defined the de minimis exception to be the annual IHT exemption of £3,000 and the annual small gifts exemption of £250 per person, up to a maximum of ten people in the following circumstances:
- where the person has a life expectancy of less than five years, and
- their estate exceeds the nil rate band for IHT purposes, and
- the gifts are affordable having regard to the person’s care costs and will not adversely affect the person’s standard of care and quality of life, and
- there is no evidence that the person would be opposed to gifts of this magnitude being made on their behalf.
The judge also confirmed that the de minimis exception does not apply to potentially exempt transfers or to the use of normal expenditure out of income exemption and authority would still be required for these.
Senior Judge Lush also gave some guidance on when a gift is considered reasonable:
Firstly, the gift must be a value that can properly be described as not unreasonable. This would be ascertained by considering all circumstances, but emphasis is given to the size of their estate.
By estate, a person’s current and anticipated income and capital, expenditure and debts must be considered.
The first and paramount thing to consider is whether the gift is in the person’s best interests. Other circumstances, in addition to the size of the estate, include but are not limited to:
- the extent to which the person was in the habit of making gifts or loans of a particular size or nature before the onset of incapacity,
- the person’s anticipated life expectancy,
- the possibility that the person may require residential or nursing care and the projected cost of such care,
- whether the person is in receipt of aftercare pursuant to section 117 of the Mental Health Act 1983 or NHS Continuing Healthcare,
- the extent to which any gifts may interfere with the devolution of the person’s estate under his or her will or intestacy, and
- the impact of Inheritance Tax on the person’s death.
So be careful in choosing your attorneys by making your choice well in advance, and make sure they understand your wishes. Most of us will need other to make decisions for us at some point, maybe only for a brief period after an operation, accident, or sadly, dementia. But ist pays to get sound advice now, so please do contact us to set the wheels in motion – it takes a while, and once the need arises, it is too late and a deputyship (at a far higher cost) is needed and the choice is no longer yours.