Gifts by Attorneys and Deputies

The legal framework

Gifts by Attorneys and Deputies from P's (the name the Mental Capacity Act 2005 gives to the person who does not have capacity) funds are coming under increasing scrutiny from the Office of the Public Guardian and the Court of Protection. This article considers the current law on lifetime gifts, the Court's approach to applications and post-death points for Executors and residuary beneficiaries to consider.

Starting point

The powers and duties of Attorneys and Deputies to make gifts are set out in:

1. statute (the Mental Capacity Act 2005);

2. the governing documents – in the case of Attorneys, the Power of Attorney itself, and in the case of a Deputy, the Court Order appointing them.

There is some scope to make gifts from P's assets under an LPA, but the ability to do so is restricted to certain 'customary occasions' and only to people who are related to or connected with P (section 12(3), MCA 2005). Customary occasions means births and birthdays, a marriage or civil partnership, or any other occasion on which presents are customarily given (such as Christmas, Eid, Diwali, Hanukkah or Chinese New Year). Gifts may also be made to any charity to whom P made or might have been expected to make gifts.

Interest free loans from P also count as gifts.

Any gift must be ‘reasonable’ in all the circumstances and, in particular, in the context of the size of P's estate.

Of paramount importance is whether the gift is in P's 'best interests'. The factors to be taken into account when considering what is in P's best interests are set out in section 4 of the MCA 2005 and include:

• the issues that are most relevant to P;

• P's past and present wishes, feelings and concerns in relation to the decision;

• P's values and beliefs (eg religious, cultural or moral) in relation to the decision; and

• any other relevant circumstances.

There is no hierarchy of importance between these factors, but the Court will be particularly anxious to know that P will have sufficient money left for their needs after the gift.

In January 2017 the OPG published online guidance notes to Attorneys and Deputies on 'Giving Gifts for Someone Else'. As well as setting out the parameters for gift-making by Attorneys and Deputies the guidance recognises the importance of some gifts being made 'gifts help to preserve the relationships with family and friends of the person whose finances you are helping to look after'. The guidance can be found at:

Where are we on 'doing the right thing'?

In addition to 'section 4 factors', case law in the past 10 years has introduced the concept of 'doing the right thing' and of P being remembered well by their friends and family. In Re P [2009] Lewison J said:

‘what will live on after P's death is his memory; and for many people it is in their best interests that they be remembered with affection by their family and as having done “the right thing” by their will. In my judgment the decision maker is entitled to take into account, in assessing what is in P's best interests, how he will be remembered after his death.’

While section 4 MCA 2005 sets out a clear checklist of factors, the introduction of ‘doing the right thing’ and ‘being remembered well’ has perhaps had the most significant impact. It is a highly subjective gloss on the statutory factors. Some judges have attached weight to it and others (such as Morgan J in G(TJ) [2010] have not attached any weight to it).

In Re JC [2012] (a statutory will case) Senior Judge Lush said that the idea of being remembered with affection for having done the right thing was not always of assistance:

‘JC has an appalling track record. He has spent his entire life doing precisely “the wrong thing” in his relationships with others …’

Senior Judge Lush also commented:

‘… his malevolence is such that he would probably relish the prospect of thwarting his children's designs on his estate and would rejoice at being remembered by them with disaffection.’

He said it would be unrealistic to expect P to undergo a significant change to his feelings and attitude simply because he lacked capacity.

The concept of doing the right thing has come back to the fore in the recent case of ADS v DSM [2017] where Charles J stated:

'The perception of others and so how P will be remembered links back to the need to consider whether wishes expressed by P are rational (and so could be reasonably held by P if he or she had capacity), sensible and responsible and to the point made by Munby J that the fact that a circumstance is not expressly mentioned in s.4 of the MCA does not mean that it is not relevant or should not be given weight.'

In light of this recent judicial approval of the subjective test of 'doing the right thing', it will be interesting to see how the test develops in future case law, particularly in cases relating to the approval of lifetime gifts.

Retrospective approval

If an Attorney or Deputy makes a gift which is beyond the scope of their powers (and for which approval should therefore have been sought), they can apply to the Court of Protection for retrospective approval. Sometimes these applications are voluntary but sometimes they occur because of an investigation by the Office of the Public Guardian (which has powers to investigate if it has concerns).

If an Attorney or Deputy makes an application for the approval of a gift before it is made, or for retrospective approval of a gift, the Court will consider the gifts in light of the evidence and, using the factors set out above, will approve or disallow them. Where gifts are disallowed on a retrospective application it is likely that the Attorney or Deputy will be ordered to repay the money personally. Depending on the facts of the case, the Court may also order the removal of the Attorney or Deputy and a replacement Deputy.

A common misconception often arises in relation to two areas: (i) property adaptions/improvements where P is living in someone else's property and (ii) payment of school fees.

Permission will be needed where adaptions or improvements are to be carried out on a property that P lives in but does not own. While the adaptations may be perfectly justified to make life easier for P, the Court's permission is necessary. The Court is particularly concerned about P funding adaptions and renovations to another person's property because those works may result in an increase in property value which will not benefit P. There has been a number of cases where, although the property adaptions undoubtedly benefited P (to some extent), the Court criticised the Attorney or Deputy for failing to obtain the Court's permission.

In the case of The Public Guardian v AW and DH [2014] the judge said that if P contributes to the cost of significant renovations, P's beneficial interest in the property should be safeguarded with a declaration of trust and the entry of a restriction on the proprietorship register at the Land Registry.

When P had capacity they may have paid for the school/university fees of their children or grandchildren. Attorneys and Deputies sometimes incorrectly assume that because the payment of school fees was part of P's regular pattern of giving, and they believe P would have wanted it to continue, they carry on making those payments without obtaining Court authorisation. However, even if P made regular payments such as this when they had capacity it does not automatically entitle the Attorney/Deputy to continue them; the making of gifts on 'customary occasions' does not extend this far and Court authorisation is needed.

If there is evidence that P had a history of such gifting when they had capacity, it is likely that the Court will consider the continuation of the gift to be in P's best interests. The Court will, however, still take into account other factors such as the size of the gift in the context of P's estate and whether costs such as care home fees mean the donor's estate is decreasing. In some cases it is necessary to establish when P lost capacity, as that will define the point from which retrospective permission is needed.

In the case of Re A [2015] the Court held that it was in a severely disabled child's best interests for the court to authorise her professional Deputy to apply funds from her damages award towards payment of her younger brother's school fees. P's brother's school performance had suffered from the family circumstances. His secondary school was some distance from the family home and his parents wanted to send him to a local independent school. Senior Judge Lush commented that it is impossible to consider P's interests in isolation from her family as a whole and that 'in considering A's best interests at a particular time, the decision-maker must take a holistic approach and consider her welfare in the widest sense, not just financial, but social and emotional'.

Post death questions for an executor or residuary beneficiary

The Attorney or Deputy's role comes to an end when P passes away, but as ‘fiduciaries’ (ie people who look after assets on behalf of another) they have an ongoing obligation to provide an account of how they have handled P's assets.

If post-death financial information you have received in relation to P's estate shows an Attorney or Deputy made substantial or regular payments to P's family members or other people during P's lifetime, you may wish to enquire what the payments were and, if appropriate, whether the Court's permission was sought. Similarly, if the financial information shows that P has been receiving regular sums from a family member of other person, you may wish to enquire whether that person has been repaying a loan to P and what the terms were.

When administering an estate or receiving a legacy from an estate of a person whose financial affairs were handled by an Attorney or Deputy, it is important to understand the Attorney or Deputy's obligations. This is particularly important when reviewing the estate accounts. Thought should be given to whether the Attorney or Deputy should provide a formal account.

The duty to account is owed to P. Therefore, on P’s death their personal representatives have authority to request an account, review any lifetime gifts that may have been made and, if necessary, investigate the actions of the Attorney or Deputy.