The Pitfalls Of Giving Gifts As An Attorney Or Deputy

Christmas time has long been recognised as the season of giving.  It is when most of us lean towards generosity rather than frugality and it is so easy to spend more than we originally budgeted for in an effort to make the festive period extra special for our friends and family.  However, what happens when the money we are spending is not our own?

If you are an Attorney appointed under a Lasting Power of Attorney (on behalf of a donor) or a Deputy appointed under a Deputyship Order (on behalf of ‘P’) you will be acting for a person who no longer has capacity to manage their own property and affairs.  In such circumstances, can you still purchase gifts, or give cash gifts, for that person’s nearest and dearest or make charitable donations? Or could this leave you open to scrutiny and criticism, either by members of the wider family or even by the Office of the Public Guardian?

It is not a particularly well known fact that when executing a Lasting Power of Attorney (an “LPA”), a donor may include provisions in the instrument for their Attorney to provide funds to benefit a specific relative, a friend or even their Attorney.

The wording used in the LPA may vary.  In a study undertaken in 2019 the OPG submitted 11 test cases where donors had expressed an intention for specific persons to benefit.  The OPG wanted to determine the effect and meaning of the wording used.  One example contained the wording “the needs of [x] before anyone else”.

The outcome of that study provided clarity for Attorneys appointed in England and Wales about whether they can spend the donor’s money to benefit others.  Providing the donor expressed their wishes in precatory terms the Attorney can make a best interests decision and the transfer of funds would not be considered a gift per se as it would be subject to an obligation.  Accordingly, an Attorney would be authorised to make the disposition if it was considered to be in the donor’s best interests.

Notwithstanding the above, the study concluded that an LPA that provides for Attorneys to use the donor’s funds to benefit persons other than the donor are not invalid as long as they are not linked to a ‘customary occasion’ as defined by the Mental Capacity Act 2005 (“the Act”).

In addition, there are restrictions in the Act about what an LPA can specify. Ineffective provisions in an LPA include decisions that go beyond the statutory permission for an attorney to make gifts, or provisions that go beyond what a person can do by attorney.    In such circumstances the Office of the Public Guardian cannot register the LPA without approval from the Court of Protection.

Section 12 of the Act confers on Attorneys and Deputies a limited authority to make gifts of a reasonable amount on “customary occasions” i.e. on birthdays, at Christmas, on the event of a marriage or any other occasion in which presents are customarily given to families or friends.

The value of any such gift must not be unreasonable when compared to the donor’s assets and the size (and nature) of their estate and should, where possible be in line with the previous gift giving habits of the donor. In Re GM [2013] it was held that “the threshold at which the value of a gift made by a deputy or attorney could be considered as ‘not unreasonable’ is likely to be low.”

If an Attorney wishes to make more extensive gifts i.e. for IHT planning purposes for example, then the Attorney must apply to the Court of Protection for an order pursuant to Section 23(4) of the Act.

Similarly, if the Attorney/Deputy wishes to make a gift to themselves they must ensure that they obtain an appropriate court order.   This may be applicable in situations where an Attorney wishes for example to purchase a family home after a donor has moved into care.

Section 18(1) of the Act confers on the Court of Protection the power to make orders regarding the sale, exchange, charging gift or other disposition of P’s property. 

Of course, in some cases it may be disproportionate to make a formal application to the Court of Protection for permission to make a gift, particularly in cases where the gift(s) are part of an IHT planning exercise.  This is known as the De Minimus Exception.  This principle was established in the leasing case of Re: Buckley: The Public Guardian v C [2013]. 

Factors that will be taken into consideration when retrospectively considering whether the De Minimus Exception should apply would be the donor’s life expectancy, the size and nature of their estate, whether the gifts would adversely affect the donor’s standard of care/quality of life and whether there is any evidence that the donor would be opposed to gifts of this magnitude being made on their behalf.

Any gifts made by Attorneys/Deputies, whatever the occasion, should be made in the donor’s best interests.   This can pose some difficulties as “best interests” is not defined in the Act itself but Section 4 provides a checklist of factors that anyone making a decision on behalf of the donor must consider when regarding what is in their best interests.  In some leading cases judgements have commented on the how the phrase “best interests” should be construed:-

In Re G (TJ) [2010] the judgment stated that “the word “interests” in the phrase “best interests” is not confined to matters of self interest or, putting it another way, a court could conclude in an appropriate case that it is in the interests of P for P to act altruistically.  It seems likely that the legislature thought that the power to make gifts should be confined to gifts which were not altruistic or where the gift would confer a benefit on P (or the donor of the lasting power of attorney) by reason of the at person’s emotional response to knowing of the gift.”

In OPG v Marvin [2014] the judgment stated that “[a]lthough the [MCA 2005] is silent on this issue, the best interests test applies, and in most cases, making reasonable financial provision for their dependents is likely to be in the best interests of someone who lacks capacity to manage their own finances.”

In addition, it may be worth bearing in mind that large gifts might be subject to IHT on a sliding scale if made within seven years of the donor’s death.

In the event that gifts are made without appropriate due consideration or authority, an Attorney or Deputy could face future litigation by concerned relatives or the Office of the Public Guardian. If an Attorney or deputy has gifted funds to themselves without the appropriate authority, then in any ensuing litigation it is likely that the Court would order such ‘gifts’ to be repaid, or alternatively for an accounting exercise to be undertaken upon the donor/P’s death such that the estate was reimbursed accordingly.  

In essence there is lots to consider when deciding what gifts to make (if any) on behalf of a loved one who no longer has capacity to make such decisions personally, particularly for example in the case of grandparents with grandchildren who have historically received gifts and may be too young to appreciate the change in circumstances.  Put simply, an Attorney or Deputy should always adopt a cautious approach.  Be careful not to let the Christmas spirit take over and ensure that previous gift giving habits are at the forefront of your mind when buying presents or making donations/other gifts on the donor/P’s behalf.   Considering all of the above points is extremely important at any time of year but especially at Christmas.  Our suggestion would be to ho-ho hold on to the purse strings and think very carefully about how much you can, and should, give away.