How can we be sure Dad’s wishes are followed?

John and his sisters have a Lasting Power of Attorney for their Dad who recently lost his capacity. Dad’s mental health deteriorated very suddenly, before he had time to discuss inheritance tax planning with his solicitor. Something the family know he was keen to do.

Is there anything the family can do to ensure Dad’s wishes are followed?

Lifetime Gifts

Lifetime gifts are a key part of inheritance tax planning as they can be an effective way of removing value from an estate. Broadly speaking, if an individual survives seven years from the date of making a lifetime gift, the value will not form part of their estate on death for inheritance tax purposes.

However, there are strict rules governing gifts by attorneys on behalf of an incapacitated person. The default position is that you must not make gifts from the estate of a person who lacks mental capacity. There are exceptions such as gifts made for a birthday or wedding to people who are related to the donor. The value of such gifts should be reasonable in relation to the size of the donor’s estate.

If the family want to make a gift on behalf of Dad as part of an estate planning exercise, you will need to submit an application to the Court of Protection. An assessment of capacity is required to be completed by an appropriate medical professional and filed with the application together with supporting evidence. The Court of Protection will consider whether or not the proposed gift is in Dad’s best interests.

Best Interests Test

The best interest test is of overriding importance and is assessed on a case-specific basis. A range of factors will be taken into account such as the size of the estate, the extent to which he was in the habit of making gifts when he had capacity and his likely wishes do so in the future. The family will probably have to prove Dad was interested in estate planning or mitigating IHT.

The Court of Protection will be particularly concerned about whether Dad has enough assets after the gift, factoring in cost of care which we know can be significant. The Official Solicitor is normally appointed to act as a ‘litigation friend’ for incapacitated persons, so if the family decide to proceed, they can almost certainly expect the Official Solicitor to act on Dad’s behalf to represent his interests.

If the family does want to proceed with making an application to the Court of Protection to authorise a lifetime gift, they will need to complete prescribed forms together with any evidence in support of the application.

The process can be quite cumbersome and protracted and, therefore, it would be prudent to seek professional advice before going ahead. The costs of the application, including those of the Official Solicitor, are typically assessed by the Court and would be paid from the father’s assets.

Assess the Assets!

The family will need to undertake a thorough assessment of the current assets, liabilities and their values, as any gifting will need to take the whole value of the estate into consideration. Most importantly, and as is the case for every decision made in the role as an attorney, John and his siblings should reasonably believe it is in their father’s best interests.

When and to whom they give gifts is subject to certain conditions. Section 12 of the Mental Health Capacity Act 2005 states that family and friends can receive a gift on customary occasions, such as a birthday, wedding or religious holiday and charity donations are allowed if it is a charity to which their Dad made donations or might have been expected to. In both cases, it is essential the gift is of reasonable value given the size of Dad’s estate and his future needs. By way of example, a gift of £1,000 would be reasonable for an estate worth £100,000 but not for an estate worth £10,000.

Gifting outside the above specification usually requires an application to the Court of Protection unless it is covered by the ‘de minimis’ rule, which allows attorneys to make gifts when the donor’s life expectancy is under five years, their estate is more than the nil-rate band (currently £325,000) and the gift is affordable and will not negatively affect Dad’s quality of care. In addition, there should be no evidence their father would oppose any gift. However, be aware this rule does not apply when these gifts are being given to attorneys or members of their families.

For further information please speak to your Prosperis adviser or call 01423 223640 or email us below for a free, no-obligation consultation.