By Deborah Cable

Solicitor

An attorney appointed under a Lasting Power of Attorney (LPA) for Property and Financial Affairs will have a number of obligations and duties to follow carefully.

The overriding principle is that the attorney must act the in the ‘best interests’ of the person for whom they are acting (the donor). This applies to the management of investments and the making of gifts as well as other more day-to-day decisions such as paying bills.

In connection with the process of decision making the Mental Capacity Act 2005 requires the attorney to consider what would be in the donor’s best interests; to allow the donor to participate in the decision making as is possible; and to consider the donor’s past and present wishes and feelings, beliefs and values before reaching a decision. It is not simply the case that an attorney can do anything that the donor could have done had he or she had the capacity! A person with mental capacity is at liberty to make unwise, risky or morally dubious financial decisions, as much as their friends and family may wish they would not. An attorney, on the other hand, must be able to demonstrate that any action they take is in the best interests of the donor.

Attorneys and Inheritance Tax Planning

In the light of ‘Best Interest’ Inheritance Tax Planning is somewhat restricted for attorneys and extra care needs to be taken to make sure they are not exceeding their authority.

Attorney’s powers are, for example, particularly restricted when it comes to making gifts.

IHT planning by making gifts works by reducing the value of the estate so that less IHT is payable. This can be effective provided that the donor survives seven years after making the gift.

Generally speaking, an attorney may only make gifts on the donor’s behalf on ‘customary’ occasions, such as birthdays and weddings and the size of the gifts has to be ‘reasonable’. So unless the donor was in the habit of making regular lavish gifts before they lost capacity, this limited power will not help with IHT planning.

Attorneys are also allowed to make gifts that fall within the annual exemption of £3,000. This is of fairly limited assistance with IHT planning.

Any gift which is significant enough to be useful for IHT planning purposes will almost certainly need to be approved by the Court of Protection. Evidence will need to be provided as to the donor’s background and finances and so that the Court can weigh up various factors. These factors include:

• How much the investment or gift is;
• How big the estate is and whether there will be enough left over to last for the donor’s for the rest of their lifetime;
• Who the recipient is and whether the gift would result in unfair treatment of different family members;
• What the donor’s Will says and whether making the investment or gift would override their wishes; and
• What the donor’s own wishes and feelings are likely to be.

Whether or not the Court will agree that the gift is in the donor’s best interests will very much depend on the individual facts. For example, if the donor has a long history of being financially astute and, before they lost capacity, took care to arrange their affairs in a tax-efficient way then actions to reduce IHT on death is more likely to be authorised. It should not, however, be assumed that the saving of inheritance will automatically be considered to be in the person’s best interests.