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Can an Attorney really take full control of someone's finances?

Many clients believe that when they execute a Lasting Power of Attorney, they are making sure that if they can no longer manage their financial affairs they have chosen someone who can do so for them.

Furthermore, the Lasting Power of Attorney forms allow the Donor to include guidance as to what action they would like the Attorney to undertake.  Many clients for example, include within the form that they would expect their Attorneys to continue to maintain family members that they have previously looked after such as their spouse or maybe a disabled child.  They also often suggest that they would want their Attorney to take advantage of any Inheritance Tax Planning that is available if so advised by an accountant or solicitor.

The reality is however, that a Lasting Power of Attorney confers authority upon the Attorney to make decisions about the Donor’s property and affairs. It does not, in fact, authorise an Attorney to dispose of the Donor’s property by making gifts except in the following circumstances:-

  1. On customary occasions to people, including the Attorney, who are related or connected with the Donor, or
  2. To any charity to whom the Donor made, or might have been expected to make gifts, provided that the value of each such gift is not unreasonable having regard to all the circumstances and in particular, the size of the Donor’s estate.

Many Attorneys believe they do, in fact, have the ability to make substantial gifts; particularly if they face a significant Inheritance Tax liability in the future, and it is surprising how many people, including solicitors, provide for this when drafting the Lasting Power of Attorney.  This however, is not the position.

Customary occasions means an occasion or anniversary of a birth, a marriage or the formation of a civil partnership or any other occasion on which presents are customarily given within families or among friends and associates.  This would not however include taking advantage of annual exemptions that are available to mitigate IHT and any person who would want to make large gifts that are not of a customary nature can only do so if they apply to the Court for authority to make this gift.  If they do not get the authority the gift may not be effective for tax planning purposes and is in fact, a ground for the Court to remove the Attorney as they have exceeded their authority.

To make matters worse, there is also no specific power to allow an Attorney to maintain another person.   If, for example, the client had been paying significant sums across to a spouse or dependent relative, the Attorney would not automatically be permitted to continue to do this without the Court first authorising any transaction, regardless of what guidance or instructions are provided by the Donor when making the LPA.

There has been a whole host of cases recently where the Public Guardian has in fact, struck out clauses that have been incorporated within the Lasting Power of Attorney on the basis that they are invalid.  In one case for example, the Donor inserted in the LPA:-

 “…I wish my Attorneys, if they think it fit, to pay my sister by way of a gift, the sum of £3,000 annually and by way of a gift, the sum of £250 annually to my brother in law, my nephew, his spouse and all my nieces including spouses, my great nephew and great niece, all of whom are listed on page 80, being the amounts of gifts exempt from the Inheritance Tax under the current Inheritance Tax laws, or such other annual sums by way of gifts as for the time being be exempt from Inheritance Tax or other tax payable on death…”

The Public Guardian refused to register the Lasting Power of Attorney with this clause and instead severed it on the grounds that it was not open to the Donor to give guidance about gift-making in terms that go beyond the statutory power.  The Court did go on to hint that if the gifts were to be made on specific customary occasions it may be possible for the Attorneys to make the desired gifts but it was clear from what the Donor had put in this section of the form, he was not in fact, contemplating the gifts to be on customary occasions hence the Public Guardian saying it was not allowed.

Customary occasions clearly cover Christmas presents and other presents given on religious festivals however, it is uncertain if this could cover a situation where there had been a past history of giving, such as paying grandchildren’s school fees. It is probably unlikely that the Court would accept that such payment of school fees effectively amounts to a customary occasion and therefore if the plan was for such payments to continue the Attorney would have to make an application to Court for permission to do so.

In summary therefore, when acting on behalf of a client of considerable means who may very much want his Attorney to make gifts in order to reduce a future Inheritance Tax liability, or indeed if not an Inheritance Tax concern but to ensure that a dependent relative is maintained, the client needs to be told that in fact, such gifting or maintenance will not be possible unless first authorised by the Court.  Clearly, a detailed file note of the client’s wishes will be compelling evidence to put before the Court but even then, as people’s circumstances change, the Court may in fact declare that the gifting should not be permitted.  A decision which may well be completely at odds with the client’s wishes!

If you have any questions regarding Lasting Powers of Attorney, please contact our team on 01926 491181 for free initial advice.

By Debbie Anderson

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