A power of attorney cannot be used for inheritance tax planning without the court’s permission

A recent judgement in the Court of Protection has highlighted that attorneys have limited authority to make gifts under a power of attorney.

The case is also a strong reminder of the duties and responsibilities of attorneys, whatever the relationship to the person giving them authority and the need to be mindful of properly planning forward with inheritance tax.

Under a lasting power of attorney (LPA) for property and financial affairs dated June 2009, an elderly woman appointed her two sons as her attorneys, jointly and severally. The woman’s GP witnessed her signature and certified her capacity to create the document. The LPA was registered in August 2009.

In December 2009, the woman moved into residential care. She was self-funding with care fees of £735 a week. Her assets included a house worth about £360,000, which was let by her attorneys to tenants.

In January 2014, the Office of the Public Guardian was informed by the care home that the fees were not being paid and were significantly in arrears.

One of the sons happened to be an independent financial adviser. He attended the court hearing but his brother did not. In the context of inheritance tax planning, the son who attended had suggested that it would be “unprofessional not to take the opportunity of structuring our mother’s affairs accordingly.” He said that, “since our mother’s home already exceeded the nil rate inheritance tax band it was felt sensible to use this facility to legitimately reduce the overall value of our mother’s eventual estate.”

The public guardian carried out detailed analysis of the woman’s income and expenditure. On that basis, the public guardian’s position was that the attorneys had not satisfactorily accounted for the management of their mother’s financial affairs. Furthermore, the attorneys had not acted in their mother’s best interests by making gifts of money to themselves that should have been used to pay her care fees.

A Court of Protection official found that the woman lacked capacity to manage her own affairs and that she was unable to revoke the lasting power of attorney and to make a new one.

The judge made an order revoking the lasting power of attorney and inviting a member of the Panel of Deputies to be appointed as the woman’s deputy.

The judge commented “I must comment briefly on the use of an LPA for inheritance tax planning purposes. Section 12 of the Mental Capacity Act 2005 confers on attorneys a limited authority to make gifts of a reasonable amount on customary occasions. If attorneys wish to make more extensive gifts for inheritance tax planning purposes… they should apply to the Court of Protection for an order…”

The judge also said “[The son] suggested that that it would have been “unprofessional not to take the opportunity of structuring our mother’s affairs.” What I would regard as unprofessional conduct, particularly on the part of someone who holds himself out to be an independent financial adviser and acts for the families of people who are in exactly the same position as his mother, is that [he] went ahead and structured his mother’s affairs without obtaining a court order authorising him to do so.”

Our private client team acts for attorneys and deputies, protecting them in their line of duty and ensuring the best interests of the person whose affairs are being managed.