Key Facts
- Under the Mental Capacity Act 2005, attorneys are permitted to make gifts on behalf of the donor, but only in specific circumstances and within strict limitations.
- Gifts made on customary occasions are the most straightforward type of gift an attorney can make.
- Attorneys can also make gifts to charities, provided the donor previously supported or expressed an interest in those charities.
- There are clear restrictions on what attorneys cannot do when making gifts.
- If an attorney wishes to make a gift that does not fall within the lawful categories, they can apply to the Court of Protection for permission.
A Lasting Power of Attorney is a crucial estate planning document that allows you to appoint someone to make decisions on your behalf if you become unable to do so yourself. Many people wonder whether their appointed attorney can use their money to make gifts, particularly to family members or charities. The answer is nuanced. Under the Mental Capacity Act 2005, attorneys do have the ability to make gifts, but only within strict legal boundaries. Understanding whether an attorney can make gifts under LPA UK rules is essential to ensure your attorney acts properly and your wishes are respected. This guide explores what gifts an attorney can and cannot make under a Lasting Power of Attorney, and how you can control gifting through your LPA documentation.
What the Law Says About Gifts Under an LPA
Under the Mental Capacity Act 2005, attorneys are permitted to make gifts on behalf of the donor, but only in specific circumstances and within strict limitations. The law recognises that making gifts can be a normal part of financial management, but it also protects the donor from abuse.
Gifts are only lawful if they are made on customary occasions such as birthdays, Christmas, weddings, and anniversaries, or if they benefit charities the donor previously supported. The value of any gift must be reasonable and proportionate to the donor’s overall estate and financial position. Without these safeguards, an unscrupulous attorney could deplete a vulnerable person’s assets. The courts take gift making authority very seriously and treat any breach as a potential fiduciary breach.
What Is Customary Occasions and Reasonable Gifts?
Gifts made on customary occasions are the most straightforward type of gift an attorney can make. Customary occasions include birthdays, Christmas, weddings, anniversaries, and similar milestone celebrations. These gifts must be reasonable in value and in line with what the donor would have given in similar circumstances.
For example, giving a modest gift to a grandchild on their eighteenth birthday would typically be considered lawful, as would a Christmas present to a close family member. However, an expensive sports car given to an adult child on their birthday could be questioned, particularly if the donor has limited means. The reasonableness test depends on the donor’s financial circumstances and their established patterns of gift giving before they lost capacity.
What Is Gifts to Charities and Causes?
Attorneys can also make gifts to charities, provided the donor previously supported or expressed an interest in those charities. This rule acknowledges that charitable giving may have been important to the donor’s values. However, the attorney must have evidence that the donor previously supported the charity in question.
Making a large gift to a charity the donor never mentioned or supported is likely to be challenged. The gift must also be reasonable in relation to the donor’s estate and should not compromise their financial security. Regular modest donations to a long supported charity are far more defensible than a substantial one off gift. The attorney should keep written records demonstrating the donor’s prior connection to the charity.
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What Is Restrictions: What Attorneys Cannot Do?
There are clear restrictions on what attorneys cannot do when making gifts. Attorneys cannot make large gifts to themselves or to reduce the donor’s estate for inheritance tax purposes without Court of Protection approval. Self-dealing is strictly prohibited, as it creates an obvious conflict of interest.
Similarly, attempting to lower the taxable value of an estate through strategic gifting is not permitted under the law. Such actions are considered breaches of fiduciary duty and can result in serious legal consequences. If an attorney wishes to make a gift that falls outside the customary occasions or reasonable value thresholds, they must seek approval from the Court of Protection. Understanding what your attorney can and cannot do is essential for both donors and attorneys.
What Is The Court of Protection and Exceptional Gifts?
If an attorney wishes to make a gift that does not fall within the lawful categories, they can apply to the Court of Protection for permission. This might include gifts to a favoured family member that exceed a reasonable amount, or gifts to support an adult child’s business venture.
The Court of Protection will consider whether the gift is in the donor’s best interests and whether it aligns with the donor’s known values and wishes. The process involves submitting an application, paying court fees, and potentially attending a hearing. Without court approval, making such gifts could expose the attorney to claims of breach of fiduciary duty and potential legal action from other family members or the Office of the Public Guardian.
What Is Record keeping and Transparency?
Attorneys have a legal duty to keep detailed records of all gifts made on behalf of the donor. These records should include the date of the gift, the recipient, the value, the reason for the gift, and how it relates to the lawful gifting rules. Good record keeping demonstrates transparency and protects the attorney from accusations of mismanagement.
When the LPA ends or the donor passes away, these records may be scrutinised by family members, executors, or the Office of the Public Guardian. Thorough documentation shows the attorney acted properly and within their authority. Without clear records, even lawful gifts can appear suspicious and lead to disputes.
Can Your LPA Include Gift Instructions?
Yes, you can include specific instructions about gifting in your LPA document. This is an important opportunity to clarify your wishes and provide your attorney with clear guidance. Your instructions and preferences in your LPA can expand the default gifting rules if you wish to be more generous, or restrict them if you prefer a more cautious approach.
For example, you might instruct your attorney that they may give gifts of up to a certain amount to family members on customary occasions, or that they should not make any charitable gifts unless you have explicitly designated those charities. Clear instructions reduce the likelihood of disputes and give your attorney confidence in their decision making.
What Is Inheritance Tax Considerations?
HMRC may investigate gifts made under an LPA if they appear designed to avoid inheritance tax. Using an LPA to make strategic gifts with the primary purpose of reducing the taxable estate is not permitted and can attract tax penalties. HMRC has powers to scrutinise patterns of gifting and may challenge gifts they suspect were made for tax avoidance rather than genuine reasons.
If tax planning is important to you, this should be addressed through proper estate planning channels before you lose capacity, not through gifting decisions made under an LPA.
What Is The Donor’s Financial Security Must Come First?
Throughout all considerations of gifting, the donor’s financial security and welfare must remain the priority. Attorneys cannot make gifts that compromise the donor’s ability to meet their own needs, whether those needs are daily living expenses, medical care, or housing. If the donor requires expensive care later, depleting their estate through gifts now could leave them without sufficient resources.
This is why the reasonableness test is so important and why large gifts are restricted. The attorney owes a duty to the donor first and foremost. Understanding the attorney’s legal duties and responsibilities helps ensure the donor’s welfare is always prioritised above any requests for gifts.
Please note: Lasting Powers of Attorney apply in England and Wales only. Different rules apply in Scotland and Northern Ireland.
Frequently Asked Questions
Can my attorney make gifts to themselves under my LPA?
No, attorneys cannot make gifts to themselves without specific court approval. This would be a clear conflict of interest and a breach of fiduciary duty. The law recognises that self-dealing puts the donor at risk of exploitation. Even modest gifts to the attorney are questionable without explicit authorisation from the Court of Protection.
What happens if my attorney makes an unauthorised gift?
If your attorney makes a gift outside their authority, they can be sued to repay the gift amount. Family members or your executors may take legal action against the attorney. The Office of the Public Guardian can investigate and take disciplinary action. In serious cases, criminal charges may be considered.
Can I allow my attorney to make larger gifts than the law normally permits?
Yes, you can include instructions in your LPA that expand the gifting rules if you wish. However, such instructions must be carefully drafted to be legally valid. You cannot completely remove all restrictions, as the law still requires gifts to be made in your best interests. The Elwyn & Mabel team can help draft instructions that expand gifting in a legally sound way.
Does my attorney need court permission to give gifts on customary occasions?
No, gifts made on customary occasions do not require court permission, provided they are reasonable in value. Your attorney can give birthday presents, Christmas gifts, and wedding gifts without seeking approval, as long as they are in line with what you would have given. However, if a customary gift is unusually expensive, court approval may be wise.
What records should my attorney keep about gifts?
Your attorney should keep detailed records of every gift made, including the date, recipient, amount, the occasion or reason, and how it falls within the lawful categories. These records protect the attorney and demonstrate transparency. They should be kept in a separate file and updated regularly.
TL;DR: Can You Make Gifts Under Lasting Power of Attorney?
Your attorney can make gifts under your LPA, but only within strict legal boundaries set by the Mental Capacity Act 2005.
- Gifts are permitted on customary occasions such as birthdays, Christmas, and anniversaries, provided they are reasonable in value.
- Gifts to charities you previously supported are lawful, as long as they are reasonable and do not compromise your financial security.
- Attorneys cannot make large gifts to themselves or intentionally reduce your estate for tax purposes without Court of Protection approval.
- You can include specific gifting instructions in your LPA to expand or restrict the default rules and provide clear guidance to your attorney.
- Your attorney must keep detailed records of all gifts and prioritise your financial security and wellbeing above all else.
More From Elwyn & Mabel
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