An increasing number of people are appointing children and other relatives to act for them as their attorneys using Lasting Powers of Attorney (LPAs). There does appear to be a widespread misconception that attorneys are in a position to undertake IHT planning for those that have appointed them and in doing so to make gifts to other members of the family.
The general rule, as is clearly stated in the LPA document itself, is that an attorney does not have the power to make gifts on behalf of the person who appointed them. Therefore, where the donor of an LPA has lost the mental capacity to manage their own affairs any gift or series of gifts that are intended to reduce the value of their estate for IHT planning purposes needs to be approved by the Court of Protection. This was highlighted in the recent case of Re PC where Senior Judge Lush in his judgment reminded attorneys that the Mental Capacity Act 2005 confers on attorneys only a limited authority to make gifts of a reasonable amount on customary occasions. “If attorneys wish to make more extensive gifts for IHT planning purposes, such as setting up monthly standing orders of £250 to themselves they should apply to the Court of Protection for an order …”.
The consequences of not applying for an order are clearly illustrated by the case where the two sons who were appointed as attorneys had their appointments revoked by the Court.
In this particular case a widow had appointed her two sons, one of whom was a financial adviser, to be her attorneys on a joint and several basis. Her estate exceeded the Nil Rate Band (NRB) for IHT purposes. PC (the mother) was living in residential care accommodation but it appears sharing a room despite the fact that she had a significant estate and a significant level of income.
PC was visited by a Court of Protection general visitor who concluded that she did not have the capacity to manage her own affairs nor to understand sufficiently to direct her attorneys to make decisions on her behalf and that she certainly did not have the capacity to make financial gifts. Indeed the visitor’s view was that PC did not recall one of her sons at all and that any of the male members of staff in the care home could have been her other son, the financial adviser.
The attorneys were asked to account to the Court for their actions and the Court found that at least £150,000 of expenditure could not be accounted for and probably had not been used for the benefit of PC. This included £15,000 spent on university fees for one of PC’s grandchildren and just under £1,000 on a bill at a restaurant in Chelsea near the offices of one of the sons where it was established that PC never accompanied him to any of the meals concerned.
The sons had also set up monthly standing order payments of £250 to themselves and endeavoured to justify this on the basis that it would have been “unprofessional not to take the opportunity of structuring our mother’s affairs” to reduce IHT. The payments were put in place at a time when there were arrears in payments to the care home.
One of the attorneys, the financial adviser, attempted to justify his actions on the basis that had he not intermingled his mother’s money with his own that he and his family would have found themselves homeless and on State Benefits.
It was in fact BUPA who reported concerns about the manner in which the attorneys were acting to the Office of the Public Guardian (OPG).
The attorneys were removed from their position as attorneys and ordered that a deputy be appointed to deal with PC’s affairs to investigate further the accountability of the attorneys for funds misappropriated.
The case highlights a number of issues:
• That the Court of Protection and the OPG will investigate allegations of misuse of LPAs by attorneys which come in from third parties. In the past this has occurred when nursing homes have reported concerns over arrears in their payments.
• Whilst it would appear that the donor of a power has sufficient income and capital available to make significant gifts to their family (as appears to have been the case here) attorneys do not have the authority to make those gifts without first obtaining the approval of the Court.
• The Court is prepared to consider and where appropriate approve the making of gifts for IHT saving purposes provided that it is clear that it is in the interests of the donor of the power and does not affect his or her ability to maintain themselves.
Therefore, where attorneys feel that IHT planning should be undertaken, they should first seek legal advice and where appropriate an application should be made to the Court of Protection through the OPG for approval of the scheme proposed.
It is quite possible that arrangements that would be approved by the Court if they were involved, could lead to attorneys being dismissed from their position and becoming the subject of other proceedings if they choose to proceed without obtaining the Court’s approval such as in this case.
Ian Newcombe is the partner in charge of the Exeter Private Client Team of Stephens Scown LLP. He and his team are able to provide IHT planning advice and assist attorneys with making applications to the Court of Protection for the approval of IHT planning schemes where required. Contact the team on 01392 210700 or by email private.client.exeter@stephens-scown.co.uk