A recent Court of Protection case has highlighted some important points to note when it comes to deciding whether gifts, even of a significant value, are in an individual’s best interests.
A lady had sadly lost the mental capacity to make decisions herself and her attorney had applied to the Court to authorise gifts totalling around £7 million. It was established that inheritance tax mitigation was a key factor in making the application. Even so, the Court did authorise the gifts.
The judge considering the case decided that the application of the principles of best interests under the Mental Capacity Act do not fit with any presumptions, starting points or any inherent bias to be overcome. Whilst there is no presumption that a gift for inheritance tax planning is in itself a reasonable expectation for everyone, equally there is no presumption that a gift made for the main purpose of inheritance tax planning should be seen in a negative context when considering what is in someone’s best interests.
Instead, the Court emphasised that when considering whether a particular gift was in the best interests of an individual, it should apply a balance sheet approach, where the decision maker is required to perform a balancing exercise between a range of factors.
In this particular case, the individual had assets of significant value but even so, the Court still had to be satisfied that even if the gift was made, she would still have had sufficient resources to maintain her financial position. The Court also took into account previous pattern of lifetime giving, as well as the wishes of her family.
This case highlights the way the Court of Protection approaches an application to authorise a gift and will be of interest to anyone acting under a lasting power of attorney or a Court appointed deputy. It should always be remembered that the authority of an attorney or a deputy to make gifts is very limited and the Court’s express, prior approval will be required in many cases and so proper advice should be taken at an early stage.
Anyone considering drawing up a lasting power of attorney or who thinks there will be an inheritance tax issue on their death may also wish to consider the implications of this case, as it could be well worth taking steps now to set out their wishes in the event they ever did lose capacity.
If you would like to find out further information on gift applications or the process of creating a lasting power of attorney, please contact Patrick Green on +44 (0)20 7354 3000 or firstname.lastname@example.org.