Guidance for Deputies about Making Gifts
If you find it difficult to manage your own money, it can be very useful to have someone else who is authorised to do this for you, either an attorney chosen by you or a deputy appointed by the court. These arrangements can work well, and can often be very straightforward in practice (seeing that bills are paid on time for you and so on). However, problems can arise if the attorney or deputy would like to make gifts on your behalf. It has always been hard to know when it is permissible to make a gift, and whether or not it might be necessary to get court approval first. Luckily, help is now at hand. The courts have provided some useful guidance, in the light of an extraordinary case that came before them earlier this year.
In another case that came to court earlier this year, two deputies were found to have made very large unauthorised gifts to themselves and others from their elderly aunt’s money. Ordering the nieces to repay the money, the court also took the opportunity to set out much-needed guidance on how to determine whether gifts are reasonable.
The court’s guidance
Attorneys may make the following gifts:
- Gifts made on customary occasions such as birthdays and Christmas to persons (including himself) who are related to or connected with the donor.
- Gifts made to any charity to whom the donor made or might have been expected to make gifts.
Such gifts are subject to the proviso that each gift is not unreasonable, taking into account all the circumstances and, in particular, the size of the donor’s estate.
The court said that:
- A gift must be of a value that can be described as not unreasonable. This is determined by taking into account all the circumstances, but with an emphasis on, and by reference to, the size of the incapacitated person’s estate.
The judge then set out the following issues to consider when making gifts on behalf of an incapacitated person, taking into account the size of the incapacitated person’s estate:
- Whether the gift would be in the incapacitated person’s best interests. This was of paramount importance.
- Other circumstances, in addition to the size of the incapacitated person’s estate, including (but not limited to):
- the extent to which the incapacitated person had been in the habit of making gifts or loans of a particular size or nature before he lost capacity;
- the incapacitated person’s anticipated life expectancy;
- the possibility of having to meet residential or nursing care costs for the incapacitated person and the projected cost of that care;
- whether the incapacitated person was receiving after care under section 117 of the Mental Health Act 1983 or NHS Continuing Health Care;
- the effect of inheritance tax arising on the incapacitated person’s death.
Considering the wording of the order appointing deputies, the court identified a reasonableness threshold, being a limit beyond which gifts made by deputies would be considered as unreasonable. This threshold would differ from case to case. However, a gift would have to fall within a de minimis exception. Gifts outside this exception would have to be approved by the court.
A de minimis exception was to be construed as covering the annual inheritance tax exemption (£3,000) and the annual small gifts exemption of £250 per person, up to a maximum of ten people in the following circumstances:
- the incapacitated person had a life expectancy of less than five years.
- the incapacitated person’s estate exceeded the inheritance tax nil rate band (currently £325,000).
- The gifts were affordable, taking into account the incapacitated person’s care costs, and would not adversely affect the incapacitated person’s standard of care and quality of life.
- There was no evidence that the incapacitated person would oppose the extent of the gifts made on his behalf.
Practical steps to take
If you are considering making a power of attorney, you might wish to:
- Add a condition that the attorneys must act or not act in a particular way, for example, specifying that the attorneys cannot make any gifts.
- Add a condition that the attorneys must keep accounts of how they spend your money and submit them to someone you choose as a safeguard.
- Add a condition that the attorneys must not make charitable donations on your behalf.
You should also think carefully about who to appoint. You can appoint a member of your family, or, you could appoint a professional attorney. Potential beneficiaries of your will, such as family members, may be somewhat overenthusiastic about gifts, as they seek to minimise the impact of nursing home fees or inheritance tax on their inheritance.
If you are appointed as a deputy or an attorney, you should familiarise yourself with the court’s guidance and be sure to follow it. You should also heed the judge’s warning that ignorance of the law regarding legal duties and responsibilities is no excuse.