Firstly, let’s consider what Attorneys are in this context. An Attorney is someone who has been chosen by another to manage that person’s financial affairs and make decisions for them in the event that they lose mental capacity and cannot manage their own affairs or make decisions themselves. Someone can appoint an Attorney using either a Lasting Power of Attorney (LPA) or its older equivalent, an Enduring Power of Attorney.
Sometimes, the terms Attorney and Executor are used incorrectly. An Attorney acts on someone’s behalf while that person is still alive but lacks mental capacity to manage their own affairs, whereas an Executor is appointed in someone’s Will and acts on their behalf after they have died. An Attorney cannot act for someone that has died and an Executor cannot act for someone who is still alive.
What can an Attorney do for me?
The LPA document itself will set out what decisions an Attorney can make. It is possible to specify certain decisions you wouldn’t want your Attorney to make for you, but most choose not to put restrictions like this in place, instead, trusting them to make whatever decision may be necessary to safeguard their best interests.
If an Attorney wishes to make a decision which is not within their remit to do, they must first apply to the court to obtain an order authorising their course of action, normally, before they have taken the action. Sometimes it is possible to obtain retrospective “approval” of decisions made in the past but this isn’t recommended.
Whatever decisions they make, Attorneys must act in accordance with the Mental Capacity Act 2005 (MCA) and the accompanying Code of Practice.
Can an Attorney make gifts?
Whether an Attorney can make gifts on the donor’s behalf out of the donor’s own money is a common question. The gift could, for example, be a small cash gift to a grandchild on their birthday or it could be a much more valuable gift as part of an estate planning exercise to mitigate an anticipated inheritance tax liability.
First and foremost, an Attorney ought to consider what is in the best interests of the incapable person.
Historically, the court will consider allowing a gift to be made if it is within the incapacitated person’s annual Inheritance Tax allowance of £3,000 or is small enough to fall within the small gift exemption (currently £250) and both are relevant because the estate of the incapacitated person may face an Inheritance Tax liability in the first place. The life expectancy of the incapacitated person is considered as well and generally, if it is less than five years the court is more likely to allow the gift to be made.
Regardless of the above, however, the court will also consider the overall affordability of the gift assessing the incapacitated person’s financial position and current and future needs. This does mean that even a relatively small gift of say £200 may not be deemed affordable for someone that relies on state funded benefits to maintain their needs.
Bearing in mind that any decision an Attorney makes must be made in the incapacitated person’s best interests, the court will also need to determine what the incapacitated person’s own view on making the gift might have been and whether they themselves would have taken the decision to make it.
So you want to make a gift at Christmas?
Reverting to the law, the MCA itself allows Attorneys to make gifts to persons related or connected to the incapable person on occasions when gifts are “customarily” made and under an older EPA documents gifts can be made on “seasonal occasions” i.e. birthdays and Christmas. In those circumstances the court’s authorisation isn’t needed provided that the LPA/EPA document doesn’t expressly forbid it and provided the decision to make the gift is made having considered all the factors mentioned above.
It is also possible under the MCA to make gifts to a charity that the incapable person has previously made gifts to – again unless expressly forbidden in the LPA/EPA itself and again provided to do so will not adversely impact the incapacitated person’s best interests.
An Attorney is able to obtain a copy, or indeed the original Will of the incapacitated person (unless this is expressly forbidden). You should consider whether any gifts you intend to make would interfere with any gifts made in their Will – if so, this may be evidence of the fact that the incapable person would object to the gift being made if they could.
Above all, any gift made must not be unreasonable particularly when considering the value of the incapable person’s estate and making the gift must be in the incapable person’s best interests. Whether an Attorney should make a gift in any particular scenario will be determined on a case by case basis.
Any Attorney thinking about making a gift, large or small, should consult a professional and take all steps necessary to ensure they have considered all the relevant factors before coming to a decision even if it is a gift to be made at Christmas.
Please call us if you need any help or advice, 0800 84 94 101.