Making gifts under a power of attorney
We’ve written a couple of pieces this year looking at later life planning. In July we looked at Power of Attorney (POA), its importance and how it can help in managing yours and your loved ones financial affairs in later life (if you missed it click here to give it a read). And earlier this year we also looked at some ideas for managing inheritance tax (IHT) liabilities (read it here). But what happens when you want to make a gift as an Attorney?
A recap of POA
POA involves an individual (the Donor) choosing someone (the Attorney) to act on their behalf in financial and/or wellbeing matters if they become unable to. A Guardianship order is similar but is created when the Donor has already lost capacity to act for themselves. The Court of Protection will appoint a Deputy to handle financial or wellbeing affairs or both. This is usually a longer and more complex process with other agencies involved.
What constitutes a gift?
While there’s the obvious gifts and presents, it might surprise you to know that lending money without charging interest is also classed as a gift, as is selling a property for less than the market value. Setting up and placing assets into a trust is also considered gifting. The law sets out strict rules governing what an attorney or deputy may do and, unless the power of attorney says otherwise, they may only make gifts:
To a family member, friend or acquaintance of the Donor on a ‘customary occasion’ (birthday, wedding, religious celebration) or,
To a charity
Gifts must also be of a ‘reasonable value’ considering the size of the Donor’s estate and they must be acting in the best interests of the Donor. It is not permitted to gift the Donor’s property away to avoid paying care home fees.
Inheritance tax planning as an Attorney
The limitations in terms of the powers afforded to Attorneys and Deputies are many and as such large gifts that may be used to manage IHT liabilities cannot be made without prior approval from the Court of Protection. An application must be put forward to the court by the Attorney giving details of their proposal and reasons behind the gift. There are a small number of exceptions whereby gifts can be made beyond the powers of an Attorney but without a court application (these are called de minimis exceptions and are very specific). The de minimis exceptions do not include loans to the Attorney or their family members, investments in the Attorney’s own business, sales or purchases below market value or any other transactions where there is a conflict of interests between the Donor and Attorney.
Records, records, records
If you’re acting under a POA for somebody, it’s vital to keep complete and accurate records of the gifts you make. This should include information about the circumstances surrounding the gift (such as a reason or justification and the financial impact). Don’t forget if an Attorney goes beyond their powers the Office of the Public Guardian (OPG) can remove them or suspend them, and they can even ask the Court of Protection to freeze the accounts of the Donor for their protection. In the most serious cases it can ask that gifts be returned or refer a case to the police.
The rules governing what Attorneys and Deputies can and cannot do are complex and the tax implications can be equally so. Even if you think you’re acting in someone’s best interests it’s possible to overstep the line. As a result it’s worth seeking professional legal and/or financial advice to ensure you’re acting both within the law and effectively from a tax perspective.
The Financial Conduct Authority does not regulate tax advice.
Can you make gifts if you are an Attorney or a Deputy? Helen O’Hagan, PruAdviser Technical Bulletin, 21.08.18