In a recent case involving the removal of a lady's 2 sons as her attorneys under a Lasting Power of Attorney, Senior Judge Lush has looked critically at attorneys who take steps to reduce the estate for IHT purposes without prior permission from the Court of Protection.
In the case of Re PC (2014) concerns were brought to the Office of the Public Guardian's attention anonymously about the conduct of a lady's 2 attorneys – her sons – which resulted in both being removed as attorneys and the Court of Protection appointing a Deputy in their place. One of the sons was an independent financial advisor, and had set up a monthly standing order of £250 in his favour in order to reduce the value of the estate for IHT planning. His argument was that it would have been, "unprofessional not to take the opportunity of structuring his mother's affairs" and since his mother's home already exceeded the nil rate band for inheritance tax he felt it was sensible to begin reducing the overall value of the estate.
This argument was rejected by Senior Judge Lush, who revoked his appointment as an attorney and clarified the position. Under section 12 of the Mental Capacity Act, attorneys are allowed limited authority to make gifts of reasonable amounts on customary occasions, however Senior Judge Lush has confirmed that any more extensive gifts for IHT planning purposes – such as setting up a monthly standing order of £250 to themselves – is not permissible without prior authority of the Court of Protection.
But has he gone too far?
In the case of Re Buckley (2013) Senior Judge Lush himself confirmed that, subject to a sensible de minimis exception, where the potential infringement was so minor that it would be disproportionate to make a formal application to the court, an application must be made to the Court of Protection for an order under section 23 of the Mental Capacity Act 2005 in any of the following cases:
- gifts that exceed the limited scope of the authority conferred on attorneys by section 12 of the Mental Capacity Act;
- loans to the attorney or to members of the attorney's family;
- any investment in the attorney's own business;
- sales or purchases at an undervalue; and
- any other transactions in which there is a conflict between the interests of the donor and the interests of the attorney.
In the matter of re GM (2013), Senior Judge Lush defined what that de minimis exception was, as being gifts within the annual IHT exemption of £3,000 or the annual small gifts exemption of £250 per person (up to 10 people), where the Donor has a life expectancy of less than 5 years, the estate exceeds the nil rate band, the gifts are affordable and there is no evidence that they would be opposed. He confirmed however, that this exception did not apply to PETS or the use of the normal expenditure out of income exemption where authorisation of the court is required under section 23 (above).
In this case, the son made a monthly gift of £250 to himself, i.e £3,000 per annum and his mother's estate did exceed the nil-rate band, therefore, technically he should have just fallen within Senior Judge Lush's own definition of the exception. Applications to the Court of Protection are slow, expensive and therefore to be avoided wherever possible, and shouldn't a sensible, professionally qualified independent financial advisor be able to determine whether or not to gift £3,000 per annum is appropriate, given that the cost of the application to the court itself is likely to be of that order?
If these gifts had all been made in good faith, perhaps the case would have been decided differently, however in this case the son wasn't a sensible IFA and his decision-making was squarely not in his mother's best interests – treating his clients to lunch at expensive Italian restaurants on his mother's account, costing almost £1,000, and gifting his son £15,000 for university fees are just some of the more misguided decisions made, constituting serious breaches of his fiduciary duties and resulting in his removal as an attorney.
The outcome for the attorney who makes sensible decisions and acts in good faith is now confirmation that any IHT planning which involves the use of regular payments or normal expenditure from income necessitates approval by the Court of Protection, therefore regular payments totaling £3,000 per annum should be reconsidered in the light of this judgment and if necessary, a retrospective application to the Court made accordingly.
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