The Public Guardian’s new ‘Practice Note PN7: giving gifts’ is a must-read for any attorney appointed under an Enduring or Lasting Power of Attorney, or deputy, faced with the thorny issue of whether they can use the incapable donor’s funds in a transaction which is not for value – such as a payment by way of gift or to meet a person’s needs.
An attorney’s ability to make gifts is severely limited by the Mental Capacity Act 2005. An attorney must not make a gift from the donor’s funds unless it is made on a customary occasion for making gifts within families or among friends (Christmas, weddings etc). It must be made only to someone related or connected to the person or to a charity that the donor would have supported, and be of a reasonable value in all the circumstances and given the size of the person’s estate. Acting outside these constraints can land the attorney in varying degrees of hot water.
PN7 is essentially an excellent road map, based on recent Court of Protection decisions, to help attorneys stay safe. For example, it makes clear that a gift includes:
- making an interest free loan from the donor’s funds;
- entering into a deed of variation to redirect an inheritance received by the donor; and
- creating a trust of the donor’s property (even if the donor can benefit from the trust) – this is often done in the context of care fee planning.
These gifts require the Court of Protection’s approval.
An area of particular difficulty is how to meet another person’s needs. For example, if a parent still cares for a disabled, adult child and continues to have financial commitments towards their child’s care, how can that parent, facing the possibility of a loss of mental capacity, ensure that their assets are still used to look after the child? Would such payments constitute gifts, which the attorney is not allowed to make without authorisation from the court?
On this point, PN7 refers to a 2014 Court of Protection case in which the Judge noted that an LPA donor could legitimately require her attorney to meet her disabled daughter’s needs from her estate without seeking court approval, as this was meeting a need rather than making gifts. However, the PN7 states that this case may normally be relied upon ‘only if one of these points applies:
- the person had provided for those needs in the past, or
- it’s reasonable to conclude that the person would have provided for those needs’.
A take-home point for those making LPAs in this situation is the Judge’s recommendation that ‘In order not to allow for any doubt at all, a prudent donor may wish to make the matter explicit by including a condition or statement in their LPA about the future provision for the needs of specified persons’. Drafting tips from the judiciary are always especially welcome, so take note if this applies to any of your clients.