Deputies must be aware that they only have a very limited authority to make gifts, understand why their authority is limited and be aware that, in an appropriate case, they may apply to the Court of Protection for extensive gift-making powers. Ignorance regarding their roles and responsibilities is no excuse. These were comments made by Senior Judge Denzil Lush in the recent unreported Court of Protection case of GM: MJ & JM and the Public Guardian (case number 11843118).
GM had been a widow since 1961. There was one child of the marriage, Barbara. However, she passed away in 2010 intestate and her circumstances meant that GM was the sole beneficiary of Barbara’s estate which amounted to just over £300,000. Combined with GM’s own wealth of circa £200,000, GM had an estate value of approximately £500,000.
GM had lived with Barbara until her death in 2010, after which she resided in a residential care home. She had never made a Will and her closest blood relatives were a niece and children of a deceased nephew.
GM was diagnosed with vascular dementia in 2007 which resulted in the eventual loss of her requisite mental capacity to deal with her own financial affairs. Having never made an Enduring Power of Attorney (“EPA”) or Lasting Power of Attorney (“LPA”), her late husband’s great niece (“MJ”) and late husband’s niece (“JM”) applied to be GM’s deputies to take control of her property and financial affairs. A court order was made appointing them in this role (“deputies”) on 25th August 2010.
The order gave the deputies the following authority to make gifts:
“The deputies may jointly and severally (without further authority from the court) dispose of money or property of GM by way of gift to any charity to which she made or might have been expected to make gifts and on customary occasions to persons who are related to or connected with her, provided that the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of her estate.”
The deputies made an application to the Court of Protection for retrospective approval of gifts they had made on behalf of GM and for the court to agree personal expenses they had incurred. However, it emerged during the course of proceedings that they were seeking approval of gifts of £231,259.50 and personal expenses of £46,552.24.
The gifts included a sum of a £57,352 split between different charities, gifts to themselves which came to almost £105,000.00, cash gifts to six members of their families totalling £60,000.00 and other items which were purchased for their families which totalled £7,155.00.
The gifts they made to themselves included a Rolex watch, rings and designer handbags. The deputies described the watches and rings as “heirlooms” with the intention of them being passed down through the family generations. Designer handbags also featured in the list of the gifts given to members of their families.
The expenses they claimed covered two cars worth a combined total of approximately £45,000 and laptops. The deputies said they needed the transport to visit GM and the laptops were used to keep track of GM’s investments, which they did, in fact, hold in their personal names.
Cash gifts totalling £2,500.00 were also made to a friend of Barbara’s and her family.
All of the gifting and expenses, coupled with the payment of GM’s care home fees and a small amount of expenditure allowed for GM herself, left GM’s estate valued at £177,230.96. The deputies were of the opinion this was a reasonable amount given at the date of the final hearing GM was 93 years old and they had not acted outside the authority given to them in the court order.
The Public Guardian opposed the application on the grounds that unauthorised gifting had taken place in relation to the gifts made to themselves and their families and that their personal expenses amounted to the same thing. They did not oppose the gifts to charity or the gift to Barbara’s friend and her family.
Senior Judge Lush agreed with the Public Guardian. The deputies could only rely on the authority of the court order if three conditions were satisfied:-
- The timing of the gift must fall within the prescribed parameters;
- The recipient must either be a charity or an individual who is related or connected with GM and;
- The value of the gift must not be unreasonable, having regard to all the circumstances, and in particular, the size of GM’s estate
A three-part approach was then set out in order to determine if the gifts made were not unreasonable, namely:
- GM’s estate should be construed as meaning the combined total of income and capital, expenditure and debts;
- Paramount consideration must be whether the gifts are in GM’s best interests. Not only should the size of the estate be considered but other factors should be looked at, for example, the extent to which GM was in the habit of making gifts or loans before the onset of incapacity or the extent to which any gifts may interfere with the passing of her estate on death and;
- Unless a de-minimis exception applies deputies must make an application to court for approval of a gift (Re Buckley: The Public Guardian v C  COPLR 39)
De-minimis was construed as covering the annual Inheritance Tax exemption of £3,000.00 and the annual small gifts exemption of £250.00 per person, up to a maximum of, say, ten people in the following circumstances:-
- Where life expectancy is less than five years. At the age of 93, this could be assumed to be the case for GM;
- The estate exceeds the nil rate band for Inheritance Tax, currently at £325,000, which in GM’s case it did before the gifts were made;
- The gifts are affordable having regard to the care costs and will not adversely affect the standard of care provided and quality of life and;
- There is no evidence that, GM in this case, would be opposed to the gifts of this magnitude being made on her behalf. However, there was no evidence that GM had ever made such gifts herself before the onset of dementia
Senior Judge Lush therefore authorised retrospective gifting to the deputies and their families to the value of £13,500.00. Since their appointment as deputies was made, annual Inheritance Tax exemptions of £9,000.00 were allowed and the small gift exemption of £250.00 for each of the six family members as related or connected persons was applied.
As the gift to the charities of £57,352.00 and gifts to Barbara’s friends and her family of £2,500.00 were not disputed, these were also retrospectively authorised.
The expenses claim was not authorised. Expenses are meant to reimburse a deputy for out of pocket expenses for the services he or she has rendered. This was not the case here and they were viewed as unauthorised gifts.
Total gifting of £73,352 was authorised leaving a shortfall of £204,459.74 which the deputies were held personally liable for and which they must pay back.
This guidance can equally apply to an Attorney under an EPA or LPA and should act as a stark reminder to all those acting on behalf of an incapacitated person to make sure they are aware of and comply with the Mental Capacity Act 2005 and its Code of Practice before making any gifts.
This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information.