Attorneys often ask if they can make gifts on behalf of the person who appointed them (the donor). Attorneys may be able to make gifts on behalf of the donor – but there are strict Power of Attorney gifting rules.
What is Lasting Power of Attorney?
A Power of Attorney is a legal document that allows someone to act for you if you’re not able to make decisions about your finances or wellbeing – or want help with making those decisions.
Attorneys are now created using two types of ‘Lasting Power of Attorney’ (LPA), which separates which areas an Attorney can assist with:
- Your property and finances – paying bills, making mortgage payments, investment decisions, and dealing with your taxes.
- Your health and welfare – your medical care, where you should live, what you should eat, who you have contact with, and what kind of activities you should take part in.
An ‘Enduring Power of Attorney’ (EPA) has been replaced by the different types of LPAs, but EPAs made before the 1 October 2007 are still valid. However, in this article, we’re focusing on LPAs.
LPAs must be made when the donor still has capacity to make their own decisions. Making an LPA isn’t just about getting older. You can appoint a friend or family member to help you manage your accounts, or if you need someone to act on your behalf.
What is a gift?
A gift is when an attorney moves ownership of money, property or possessions from the donor to themselves or to other people, without full payment in return.
Gifts must always be well within what the donor can comfortably afford. But Attorneys must keep in mind that what is ‘affordable’ for one person won’t be the same for another. £200 has a bigger impact on someone with £9,000 than someone with £90,000.
When does a Power of Attorney come into effect?
If the donor still has mental capacity, it’s up to them whether or not to make any gifts. Only when a person is no longer able to (or no longer wants to) make decisions on their own can an Attorney assist with these decisions. A donor is considered to have capacity then they are able to:
- understand the information relevant to the decision
- retain that information
- weigh up or use that information
- communicate their decision
If the donor’s capacity is in any doubt, a medical opinion should be obtained. The attorney should keep a record of the steps taken to establish the donor’s mental capacity – as the Office of the Public Guardian can ask the attorney at any stage to explain their decision.
Remember: the purpose of an LPA is not to make gifts. The different types of LPA appoint someone to help the donor manage their finances or make decisions about their wellbeing. All decisions must be made with the donor’s best interests at heart.
What can be considered a gift?
An Attorney does not need to make gifts, and should not be bullied into doing so. While Power of Attorney gifting rules are in place to allow gifting, they do not need to be used. But gifting can help preserve relationships between the donor and their friends and family.
- using the person’s money to buy something for someone else (including you), for example, for a birthday gift or other ‘customary occasion’
- giving the donor’s money or possessions to another person
- donations to charities
- paying someone’s school or university fees
- living rent free or at a ‘friends and family’ rate in a property belonging to the donor
- selling the person’s home to someone at less than market value
- creating a trust for someone from the person’s property
- giving someone an interest-free loan from the person’s funds (the ‘lost’ interest counts as a gift)
The rules for gifting as a power of attorney
There are strict rules, and Attorneys should always be acting in the best interests of the donor. When considering making any gift, the Attorney must be able to answer ‘yes’ to all three questions below. If they can, then they don’t need permission from the Court of Protection to give a gift.
- Is the recipient of the gift someone related to, or connected with, the donor – or to a charity they might normally have given to?
- If the gift is to a person, is it being made on a customary occasion? For example, for Christmas, Eid, the birth of a child, or a wedding.
- Is the gift of reasonable value, given the size of the person’s estate and their expected future needs? Attorneys can’t give the person’s property away as gifts, or spend their money on gifts, to avoid contributing to care home costs. The law calls this ‘deprivation of assets’.
It is important, even where the donor lacks capacity to decide about a gift, that the attorney still discusses the gifts with them and encourages them to participate in decision making. Records should be kept of any discussions with the donor.
Accepting gifts as an Attorney
An LPA does not prevent the Attorney receiving gifts from the donor. If the Attorney is unsure about making a gift, or would like further guidance – they should contact the Court of Protection.
The Attorney should wait before making any gifts which fall outside of their authority, and apply to the Court of Protection. If an Attorney fails to do this the Attorney may be investigated, asked to return the gift, removed as Attorney. Abusing the gifting duties as an Attorney may be considered fraud.
An Attorney should record the details of any gifts. This includes gifts to family or friends – even those within their normal level of expenditure. The Office of the Public Guardian has the power to investigate complaints and concerns about the way an Attorney is carrying out their duties and take appropriate action. Be sure to record the value of any gifts and the circumstances in which it was made.
Who can receive a gift?
Attorneys may be able to receive gifts from the donor. For the gift to be valid, it must be in the donor’s best interests. An example might be where the donor is legally obliged to maintain the Attorney as a family member – 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 dependent.
The Attorney should apply to the Court of Protection if there is any doubt about the suitability of the gift. Courts have the power to either retrospectively ratify or disallow a gift by an attorney.
Planning your other gifts
Whether you’re considering making an LPA, or have been asked to act as an Attorney, we hope this article has helped outline some of the duties of an Attorney and the rules around gifting.
If you’re not sure how to gift your legacy to your family, you do not need to make an LPA in order to do so. You can make as many gifts as you like – but the executors of your Will will need to pay any inheritance tax due before your assets can pass on to your beneficiaries. There are legal provisions for reducing the amount of unnecessary inheritance tax you need to pay. Learn more about gifting rules in this article.
You can talk to a financial adviser to find out whether you have any inheritance tax liability, and put plans in place for later life. Making a plan today can help you avoid financial stress, and give you confidence knowing how your legacy will be handled if you’re no longer able to manage it. If you have a question about LPAs or later life planning, please get in touch.
Important: The Financial Conduct Authority does not regulate taxation and trust advice, Will writing and legal services.