The constraints of making gifts under a Power of Attorney
A frequent question asked by clients who have been appointed as attorneys is whether they can they make gifts on behalf of the person for whom they act for (the donor)?
The answer is yes, but there are strict rules which have to be adhered to. It cannot be emphasised enough that attorneys have very limited powers in this regard and may need to seek the authority of the Court of Protection (C of P). Failure to comply with these rules without getting the prior approval from the C of P may lead to anything from being suspended as an attorney to criminal prosecution.
The Office of the Public Guardian for England and Wales (OPG) has recently provided updated guidance in Practice Note PN7 on how attorneys should approach making gifts on behalf of the donor. The practice note applies to all attorneys appointed under a registered lasting power of attorney (LPA) for property and affairs, or under an enduring power of attorney (EPA). The key points covered in the updated guidance are as follows;
Donor’s mental capacity to make a gift
Before making any decision on gifting, the attorney must establish whether the donor has the mental capacity to make the decision themselves. If they do, then the donor should make the gift because an attorney is restricted by the legal limits on the donor’s gift-making authority. This is still the case even if the donor has the capacity and has instructed the attorney to make a gift on their behalf.
In order for the donor to have capacity to make a decision the donor has to be able to:
- understand the information relevant to the decision
- retain that information
- weigh up or use that information
- communicate their decision
If in any doubt a medical opinion about the donor’s capacity should be obtained.
Where it is considered that the donor has capacity to make a gift, the attorney should keep a record of the steps taken to establish the donor’s mental capacity. The Public Guardian can ask the attorney at any stage to explain their decision, or others could challenge them later.
Involving the donor in the decision
It is important, even where the donor lacks capacity to decide about a gift, that the attorney still consult with them and encourage them to participate in decision making. Records should be kept of any discussions with the donor.
What is a reasonable gift?
To work out whether or not a gift is reasonable the attorney must consider:
- the impact of the gift on the donor’s financial situation. The attorney must consider not only the donor’s current and future income, assets, capital and savings but also their present and future needs. They must also consider whether the donor’s income covers their usual spending and will continue to do so in the future and whether the gift would affect that.
- whether making the gift would be in the donor’s best interests.
If the attorney does accept a gift from the donor’s estate, the Court of Protection can look carefully at whether the donor had capacity and may decide the attorney went beyond their authority.
Providing for others’ needs
Legislation allows EPA attorneys to benefit themselves or others if the donor might have provided for those needs.
Legislation does not directly say that an LPA attorney can benefit themselves or other people by providing for their needs. However, the C of P has confirmed in some cases that an LPA attorney may provide for the needs of family members if the donor is legally obliged to maintain them – for example, in the case of the donor’s husband or wife, civil partner or a dependent child. This may include the attorney themselves, if they are a dependant.
The attorney should apply to the C of P if there is any doubt about whether they can rely on this provision to make payments to someone who is financially dependent on the donor.
What happens if an attorney makes an unauthorised gift?
OPG can investigate any gifts or financial transactions attorneys make on behalf of the donor.
The attorney should make sure that they keep the donor’s money and property separate from their own or anyone else’s. There is an exception and this is where they have had long-held joint accounts. It is extremely important that the attorney keeps a record of all transactions they make on the donor’s behalf. This includes a record of gifts and the reason for making them.
The OPG has the power to investigate complaints and concerns about the way an attorney is carrying out their duties and take appropriate action.
As can be seen, attorneys have little power to make gifts on behalf of the donor without having to seek the approval of the C of P. The main test is whether it is in the donor’s best interests and the attorney must abide by the terms of the specific EPA or LPA they are acting under.
The responsibility of being an attorney should not be taken lightly and failure to act within the rules and maintain full records could prove costly.
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This article has been compiled by James Hay in association with Wren Sterling, the Financial Conduct Authority does not regulate legal services. This article is based on the legislation covering England & Wales. Different rules apply to Scotland & Northern Ireland.
Please note that every care has been taken to ensure that the information provided in this article is correct and in accordance with our understanding of current law and HM Revenue & Customs practice. You should note however, that James Hay Partnership cannot take upon itself the role of an individual taxation adviser and independent confirmation should be obtained before acting or refraining from acting upon the information given. The law and HM Revenue & Customs practice are subject to change. The tax treatment depends on the individual circumstances of each client.