Attorneys and Deputies making gifts

04 Feb 2014

A case in the Court of Protection (CoP) has provided clarification for many Deputies and Attorneys on their ability to make gifts using monies belonging to someone who lacks mental capacity (P).

The case of Re GM was heard by Senior Judge Lush.  The case was referred to him after the Office of the Public Guardian (OPG) asked the Deputies to make a retrospective application to the CoP in order to ratify various gifts and expenses paid away by the Deputies.

The case involved two relatives (by marriage rather than blood) appointed by the Court to administer the affairs of P. P lacked the necessary mental capacity to deal with her own affairs.  During their time acting, the Deputies had bought themselves each a car (to visit P) and a computer and ancillary equipment (to monitor P’s investments online).   They had submitted these on the Deputy annual return which was sent to the OPG as Deputy expenses.

In addition they made various gifts to charities (cash), to themselves (handbags, watches, cash) and to some of their relatives (cash).  This, they argued is what P would have wanted had she the mental capacity to decide.  In the alternative, if this is not what P would have wanted then they argued that it is definitely what her daughter would have wanted.  P’s daughter had died before P and without a Will and so her entire estate had passed to P.

In hearing the case Senior Judge Lush pointed out that the Deputies had no authority to make these gifts without proper approval of the Court.  He reminded the Deputies they had signed an undertaking when wishing to become appointed stating that when carrying out their duties, they would have regard to the Mental Capacity Act 2005 (MCA) and the accompanying code of practice.

The MCA provides the Deputies are entitled to their reasonable expenses in discharging their functions and if the Court directs remuneration for discharging them.  There does appear to be a misconception with lay deputies that this includes charging for their time.  This is not allowed unless the Court directs.  What the Court envisages in respect of expenses is telephone calls, travel and postage.  If you claim expenses that are unreasonable you may be asked to repay them and in certain circumstances the Court could remove you as a Deputy.

In the case discussed, the expenses were not deemed reasonable and the Court refused to ratify the actions of the Deputies.

Turning to the issue of the gifts, the court pointed out that although the standard wording of an Order a Deputy appoints authority to make gifts, the authority is narrow in nature and restricts the making of gifts to charities that P supported or does support and gifts on customary occasions to persons who are related or connected to P such gifts must not be unreasonable having regard to all the circumstances.  A similar provision is contained in the MCA for Attorneys acting under LPAs.

Although Senior Judge Lush did not want to be too prescriptive on amounts that could be gifted without authority to the Court as it would very much depend on the individual case he did suggest some guidelines in this case.  He suggested that gifts utilising the annual Inheritance Tax (IHT) exemption (£3,000) plus small gifts of up to ten people of £250 should be acceptable in the following circumstances:

a. P has a life expectancy of less than five years.
b. The estate exceeds the Nil Rate Band for tax purposes (currently £325,000).
c. The gifts are affordable having regards to P’s care costs and will not adversely affect P’s standard of care and quality of life.
d. There is no evidence that P would be opposed to gifts of this magnitude being made on her behalf.

If a Deputy/Attorney wishes to make gifts above this amount then an application to the Court is necessary.  It is also worth noting that HMRC are aware of this restriction and therefore if larger gifts were made in order to save IHT and there was no approval Order, HMRC may treat the assets as still belonging to P at death and therefore no IHT is saved.

In this particular case, although Senior Judge Lush was able to ratify some of the gifts, he refused the majority.  He also removed the Deputies from their position.  It is likely that the Deputies will be required to pay back what was taken from P’s estate.

Kelly  Greig, Associate and Head of Trethowans' Private Client Team, commented "It is important to take proper advice in the performance of your duties as a Deputy or Attorney. A qualified solicitor can assist by providing such advice, as well as assisting with gift applications to the Court and applications for statutory Wills. If you believe that a Deputy is acting inappropriately it is important to get guidance on the steps to be taken to investigate their actions".