Jemma Garside explains what is required to make a gift on behalf of another and explores the recent case law including the recent judgment in of FL v MJL (by his litigation friend, the Official Solicitor)  EWCOP 31.
When would an application be necessary?
The Office of the Public Guardian has published a very helpful guidance note for deputies and attorneys which explain the limited circumstances in which they are authorised to make gifts on behalf of a person who lacks capacity to make such a decision themselves. The practice note can be found here.
The rules are strict and the general rule is that apart from certain exceptions, a deputy or attorney must not make gifts from the person’s estate and must apply for permission from the Court of Protection.
What are the exceptions?
Section 12 of the Mental Capacity Act 2005 allows an attorney to make gifts:
- On customary occasions to persons who are related to or connected with the donor; or
- To any charity to whom they made or might have been expected to make gifts.
Customary occasions are events such as birthdays, weddings and religious holidays. The gifts must be of reasonable value, taking into account the circumstances in each case and the size of the person’s estate. This is subject to any conditions within the lasting power of attorney instrument which may also restrict any future gifts.
For deputies the power to give gifts will be defined in their deputyship order. This is usually similar to the attorney’s authority and so must be of a reasonable size.
How should a deputy or attorney decide whether to make the gift?
The first question a deputy or attorney should ask themselves is whether they are sure that the person they act for has the necessary capacity to make the decision or can participate in it as they must always be consulted. They must then apply the best interests checklist in accordance with section 4 of the Mental Capacity Act 2005 to determine whether it is reasonable.
In order to decide whether a gift is reasonable the attorney or deputy should consider the person’s financial situation, in particular their current and future income and expenditure to ensure that it is affordable. It will also mean considering factors relevant to their circumstances such as:
- Their habits prior to their loss of capacity,
- Life expectancy,
- Future care costs,
- Amount of the gift,
- Interference with inheritance under the terms of their will; and
- The impact of inheritance tax on their death.
When should I make an application to the Court of Protection?
In the following circumstances, it will always be necessary to make an application to the Court of Protection for approval of a gift:
- Monetary gift of significant sums;
- Making an interest free loan from a person’s funds (the interest that is not charged counts as a gift);
- Creating a trust of the person’s property;
- Selling a property for less than its value;
- A gift or transfer of real property;
- A gift of valuable personal possessions; and
- Changing the will of someone who has died in order to redirect the person’s share in the estate.
If a monetary gift is within the Inheritance Tax Exemption (currently £3,000 per annum) it may be acceptable to make it without the need to apply to the Court of Protection. However, deputies and attorneys must be wary and must seek approval from the Court of Protection for Inheritance Tax Planning that extends beyond this amount.
We would advise all deputies and attorneys to exercise caution when making gifts on behalf of others as the repercussions could be significant.
What happened in the case of MJL?
The Court approved past and future gifts from MJL’s estate. However, the Court was only willing to approve the limited proposal that had been put forward by the Official Solicitor who was instructed to act for him. MJL was very wealthy with an estate worth more than £17 million and no children. He had a significant income and little expenditure as his care was funded through the National Health Service. His Deputy had previously applied to the Court for approval of a statutory Will dealing with his estate upon his demise but a new application was made for gifts to be made to his siblings and to the charities named in his Will in order to make inheritance tax savings, this included ongoing gifts from his surplus income and capital. The Official Solicitor put forward an alternative proposal which limited the amount that would be gifted from his capital.
The Court approved the Official Solicitor’s proposal. The Court accepted that it was affordable but confirmed that, although a gift must be affordable, an application will not be permitted solely on this ground. The only assumption in the Mental Capacity Act 2005 is that of capacity and every other issue requires a best interest’s analysis. No assumption could therefore be made that MJL would have made such gifts during his lifetime or taken such steps in relation to tax planning. This is consistent with the judgment of PBC v JMA  EWCOP19.
When carrying out the balancing exercise as part of the best interest’s analysis the court concluded that:
- MJL had not discussed his financial affairs with his family other than when they had unsuccessfully tried to get him to seek financial advice. It was not clear whether he would have undertaken tax planning and so this could not be assumed to have been one of his prior wishes and beliefs.
- As MJL had previously declined further assets from family trust(s) in favour of charitable causes it did not appear to be in his best interests to add significantly to the wealth of his siblings.
- MJL did not make a Will before he lost capacity but this was not a conscious decision made to for his sibling’s advantage.
- There was no evidence that the family’s view of MJL would change depending on the success of the application. The proposition that “structuring one’s affairs in a manner which enhances the provision that can ultimately be made under ones’ will for family and other beneficiaries clearly affects how a person is remembered” was rejected.
- The combination of MJL’s personal views and the fact that he was being cared for by the NHS would not have led him to want to reduce the tax he paid to the state.
- The Official Solicitor’s proposal recognised MJL’s circumstances, his love for his siblings and his clear commitment to charitable giving.
What information should I include in my application?
The Court has published a Practice Direction which sets out a list of what is required to make an application. As the case of MJL has shown, the Court needs as much information as possible in order to make a decision and will need to be satisfied that not only is the gift affordable, but is also in the best interests of the person on whose behalf you are making the gift.
Due to the complexity of these matters and the amount of information required by the Court and Official Solicitor we would advise seeking professional assistance when making an application for approval of a gift. Please contact us by email at email@example.com for a no obligation discussion.