I’m an attorney, can I make gifts?

This is the most common question I am asked by attorneys looking after Granny’s financial affairs under an Enduring or Lasting Power of Attorney. The simple answer is, “NO”!

The key piece of legislation is the Mental Capacity Act 2005 (MCA) and the key question under this legislation is whether Granny has “capacity” to make decisions for herself.

The questions that should be asked, on a decision-by-decision basis, are:

  • Does Granny understand the information given to her?
  • Can Granny retain that information long enough to enable her to make the decision?
  • Can Granny weigh up the information available to make the decision?
  • Can Granny communicate her decision – this could be by talking, using sign language or even simple muscle movements such as blinking an eye or squeezing a hand?

If the answer to all of these questions is in the affirmative, then Granny has capacity and she can make decisions regarding her own affairs. It may be that the attorney has to implement the decision if Granny is physically unable to deal with any relevant paperwork, etc – it is the decision-making process that is at the heart of this.

So, if Granny has capacity then she can do what she wants with her own money and make gifts and loans to her hearts content. Gifts may, of course, be brought back into account for any future means-testing for care fees under the “Deliberate Deprivation” rules or for Inheritance Tax under the “Potentially Exempt Transfer” or “Gifts with reservation of benefit” rules.

However, if the answer to any of the four key questions is in the negative, then Granny doesn’t have capacity and the decision-making process is then in the hands of the attorney and entirely different rules apply.

It is the job of Parliament to enact legislation and the job of the Courts to interpret that legislation, if there is any doubt about the precise meaning or intention of any legislation. In the case of the MCA, the relevant Court is the Court of Protection and the Senior Judge was Denzil Lush. Recent cases have enabled Senior Judge Lush to clarify the law in relation to gifts and loans made by Attorneys on behalf of Granny.

In another context (investment), Senior Judge Lush made the following observations:

“People who manage their own financial affairs are generally not accountable to anyone and don’t have to keep accounts or records of their income and expenditure. They can do whatever they like with their money…. None of these options are open to an attorney acting for an incapacitated donor, partly because of their fiduciary (position of trust) obligations and partly because an attorney is required to act in the donor’s best interests”.

Specifically in relation to gifts and loans, Senior Judge Lush goes on to say:

“… subject to a sensible de minimis exception, where the potential infringement is so minor that it would be disproportionate to make formal application to the court, an application must be made to the court for an order under section 23 MCA in any of the following cases:

(a) Gifts that exceed the limited scope of section 12 MCA

(b) Loans to the attorney or to members of the attorney’s family

(c) Any investment in the attorney’s own business

(d) Sales or purchases at an undervalue and

(e) Any other transaction in which there is a conflict between the interests of the donor and the interests of the attorney”

Basically, section 12 MCA limits gifts to those that Granny habitually made during her lifetime and limits the amount by what “is not unreasonable having regard to all the circumstances”. So, if Granny gave all her Grandchildren £50 for Christmas, Birthday and Easter, then that is the sort of pattern that the attorney can continue, but nothing significantly more. Existing donations to charities can be continued, but new ones can’t be started.

What next?

If you are acting as an Attorney and need help and advice on how best to organise Granny’s financial affairs, please speak to me today or complete the form below.

    - Wills, Trusts and Lasting Powers of Attorney

    Opt-out of direct marketing communications.

    About Clive Barwell

    Clive Barwell is one of the most experienced and qualified financial planners working in the later life market today, he specialises in advice and guidance for the over 55s. To ask Clive a question, please email him at info@clivebarwell.co.uk. Alternatively, you can follow Clive on Twitter, connect with Clive on LinkedIn or see Clive's profile on Google+.