The Court is more receptive to allowing an attorney, in specific situations, to mitigate an incapacitated individual’s inheritance tax exposure and/or make lifetime gifts on their behalf, writes Stuart Smyth
Lasting Powers of Attorney (LPA) are a crucial part of an individual’s estate planning toolkit (if not one of the more glamorous tools). As one can imagine, talking about what you would like to happen if you should lose capacity is rarely top of the agenda.
However, this tool should not be left to linger in the shed, as one never knows when an accident may happen. For example, if you are an Australian batsman who had turned up in England for an easy summer of scoring runs and suddenly found yourself in the firing line of some particularly hostile fast bowling.
One specific area that has been considered recently in respect of LPAs is the scope an attorney has to undertake tax planning and/or make gifts once the donor of an LPA has lost capacity. Whether and the extent to which an LPA can be used for such purposes in the event that an individual has, for whatever reason, not put in place such planning, is a question worth considering.
The general position under the law is simple: unless a limited range of exceptions apply, an attorney cannot make gifts from an estate of an incapacitated individual or undertake inheritance tax planning.
The exceptions to the general rule are drafted narrowly. They permit gifts which are made on a customary occasion, such as a birthday or Christmas. The gift must also be made to someone related or connected to the person and be of ‘reasonable value’ taking into account the size of the donor’s estate. When preparing an LPA, a donor may restrict an attorney’s remit under the general law even further but the attorney is not allowed to expand it. Interestingly, where an attorney is acting under an Enduring Power of Attorney (the forerunner of the LPA) the rules as to what gifts an attorney is permitted to make are even more restrictive.
A couple of recent cases have considered this area and have shown that the Court of Protection, which hears cases concerning matters of incapacity, seems more open than previously thought, to allowing attorneys to make a pattern of gifts on behalf of an incapacitated individual and/or to enter into inheritance tax planning on their behalf.
Each case will turn on its facts as the Court will need to undertake a delicate balancing act. However, it seems that the Court will give particular weight to the following factors: how an individual wishes to be remembered, whether any tax planning has been carried out prior to the loss of capacity, the individual’s history of making gifts and/or charitable donations (if appropriate), their relationship with their family and the terms of their will (if they have one). It should also not be forgotten that an attorney must always act in the best interests of the incapacitated individual and the Court will not sanction any gifts or planning unless it is satisfied this is the case.
It is clear that the general principle that an attorney cannot make gifts on behalf of an incapacitated person, unless the gifts fall within one of the narrow exceptions, is still firmly in tact.
However, it is now apparent that the Court is more receptive to allowing an attorney, in specific situations, to mitigate an incapacitated individual’s inheritance tax exposure and/or make lifetime gifts on their behalf.
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Stuart Smyth is an associate at boutique private wealth law firm Maurice Turnor Gardner LLP.