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  • Overview

    A property and affairs deputy will usually have authority to make gifts on P’s behalf. But the scope and extent of this authority is limited, and any proposed gift needs to be carefully considered. This is an issue we have dealt with on numerous occasions, and this article details the factors we consider when a gift is being contemplated.

    General authority to make gifts

    The general authority derives from section 18(1) of the Mental Capacity Act (MCA) 2005.  It is standard practice for the court to include the following clause in an order appointing a property and affairs deputy:

    “The deputy may, without obtaining any further authority from the court, dispose of P’s money or property by way of gift to any charity to which he made, or might have been expected to make, such gifts, and, on customary occasions, to persons who are related to or connected with him, provided that the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of his estate.”

    Two of the most significant cases on gift applications are Re GM from 2013 and KGS v JDS from 2012.  Both are considered in more detail below.

    Re GM 2013

    This general power was considered in more detail by Senior Judge Lush in the matter of GM.  GM was 81 years old, suffering from dementia and living in a care home. The case concerned the application by GM’s two lay deputies for retrospective approval of numerous gifts made from GM’s funds, and expenses claimed.

    In his judgment, Senior Judge Lush advised that, when considering making a gift from P’s funds, a deputy must ensure that three conditions are satisfied:

    (a)  the timing of the gift must fall within the prescribed parameters

    (b)  the recipient must either be a charity or an individual who is related to or connected with P; and

    (c)  the value of the gift must be not unreasonable, having regard to all the circumstances and, in particular, the size of P’s estate.

    Gifts to charity can be made at any time, but gifts to individuals must be made on “customary occasions”.  This is defined at s.12(3) of the MCA 2005, and includes birthdays, weddings etc.

    A deputy can make gifts to any charity to which P donated when he had capacity, or charities to which P might have been expected to donate.

    When considering what is reasonable, the deputy must have regard to all the circumstances, including the size of P’s estate.  Senior Judge Lush considered a “reasonableness threshold”, with reference to his judgment in Re Buckley (2013).  He stated that any proposed gifts should be de minimis i.e. up to the annual IHT exemption of £3,000 and the annual small gifts exemption of £250 per person up to a maximum of say 10 people if:

    (a)  P has a life expectancy of less than 5 years;

    (b)  P’s estate exceeds the nil rate band for IHT purposes;

    (c)  the gifts are affordable; and

    (d)  there is no evidence that P would be opposed to the gifts.

    Anything more than this should be referred to the court.

    Making an application to the court

    When considering such an application, the court must consider whether the gift is in P’s best interests with reference to section 4 of the MCA 2005.

    Best interests are of paramount importance, but the deputy should also give regard to the following factors:

    (a)  the size of P’s estate

    (b)  the extent to which P was in the habit of making gifts when he had capacity;

    (c)  P’s anticipated life expectancy;

    (d)  the possibility that P may require professional care and the associated costs;

    (e)  whether P is in receipt of state funding;

    (f)    the impact on the provisions of P’s will; and

    (g)  the impact of inheritance tax.

    KGS v JDS 2012

    This case involved an application by a professional deputy for authority to make a gift from the protected party, J, to his parents on the basis of a substantial inheritance tax saving on J’s death.

    The case was considered by Senior Judge Lush, who applied a “balance sheet” approach in his judgment, considering factors in favour of the gift, and those against.  He also considered whether there was any factor of “magnetic importance”, i.e. any factor to which particular weight should be applied.  As J’s funds derived from a damages award, Senior Judge Lush stated that the factor of magnetic importance was the purpose for which the compensation was awarded.  It was for this reason that he dismissed the deputy’s application.  When managing the damages award of a young vulnerable party, IHT planning should be low on the list of the deputy’s priorities.

    If you would like to further discuss the information above, please contact Associate Catherine Fuller from our Private Client team.

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