Powers of Attorney - when can an Attorney make gifts from the estate of an Adult with Incapacity?
A Power of Attorney is a legal document that allows a person (the Adult) to appoint one or a number of people to look after their financial and welfare affairs in the event that they are no longer able to make decisions for themselves.
An Attorney will generally have wide-ranging powers to step into the shoes of the Adult in relation to their financial affairs – allowing them to access bank statements, pay invoices and even sell property on the Adult’s behalf.
The Power to make gifts
One perhaps more controversial power that an Attorney will often have is the power to make gifts.
There is often a lot of sense in an Attorney making gifts, for example, it might be useful estate planning to mitigate an Inheritance Tax liability on the Adult’s death. In addition, the Attorney may simply be continuing with a pattern of gifting that the Adult had established for many years.
That being said, an Attorney should be cautious when making gifts. The principal consideration under the Adults with Incapacity (Scotland) Act 2000 is that any action taken by an Attorney must be to benefit the Adult. There should be clear indication that the Adult considers gifting and tax planning to be for their benefit which may be stated in the Power of Attorney document itself or be established by a regular pattern of such action when capacity was not an issue.
The Court of Protection in England and Wales recently considered a group of test cases brought by the Office of the Public Guardian on this very subject. The Court was tasked with reviewing the rules that Attorneys can follow when deciding whether to gift money on behalf of the Adult to other parties, including themselves (Re Various Lasting Powers of Attorney, 2019 EWCOP 40).
In this judgement, the Court reiterated that an Attorney can only make gifts on behalf of the Adult if they are expressly permitted to do so within the terms of the document itself. If a gift is made by an Attorney and such a power to do so is not included within the Power of Attorney, then the gift is void.
Gifting guidance for Attorneys
In considering the validity of such a gifting Clause within a Power of Attorney, Senior Judge Jane Hilder HHJ concluded:
- Provisions within the document that provide for Attorneys to use the Adult/donor’s funds to benefit persons other than the Adult/donor are not invalid as long as they are not linked to a ‘customary occasion’ as defined by the Act (such as a birthday);
- provisions that provide for Attorneys to use the Adult/donor’s funds to benefit persons other than the Adult/donor are not valid if and because they relate to provision for a person whom the Adult/donor has a legal obligation to maintain;
- provisions that provide for Attorneys to use the Adult/donor’s funds to benefit persons other than the Adult/donor may be valid as a written statement of the Adult/donor’s wishes as long as they are expressed in terms of wishes, but they would be ineffective if they were expressed in mandatory terms;
- provisions that provide for Attorneys to use the Adult/donor’s funds to benefit the Attorney themselves are not invalidated by the Attorney’s fiduciary obligations; and
- provisions that provide for Attorneys to use the Adult/donor’s funds to benefit the Attorney themselves are valid because any conflict has been authorised by the donor and the Attorney must in any event act in accordance with the Adult/donor’s best interests.
Gifting under a Power of Attorney in Scotland
This judgement is worth bearing in mind for Attorneys acting under a Scottish Continuing (financial) Power of Attorney as the rules in England and Wales are not significantly different and many of the guiding principles for Attorneys are the same.
An Attorney acting in Scotland must ensure that they are acting within the scope of the Adults with Incapacity (Scotland) Act 2000 in that their actions must always be in the best interests of the Adult, and in line with what the Adult would have done had they been able to make their own decisions. This should be with reference to previous actions and wishes of the Adult.
Crucially, an Attorney has a duty of care and fiduciary duty to the Adult and must not benefit financially from the appointment. According to the Court of Protection, however, a gift by an Attorney to themselves on behalf of the Adult will not always be a breach of the fiduciary duty. Broadly speaking, provided the Attorney is at all times acting reasonable and in good faith, the gift will be valid.
Whilst each set of circumstances will be unique and dependent upon the Adult’s own circumstances and their relationship to their Attorney, the rules issued by the Court of Protection at the very least provide helpful guidance for Attorneys when they are making decisions about gifting, which is welcome in an area that has thus far been unclear.
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