Many of us give gifts to others throughout our lives to express our love, appreciation and to show that we care. However, the provisions of the Mental Capacity Act 2005 (MCA 2005) limit an attorney’s ability to make gifts, on behalf of a Donor, under a Lasting Power of Attorney (LPA).
This article discusses the different types of gifts that attorneys can make, and the consequences of making gifts that go beyond the scope of their powers.
What constitutes a ‘gift’?
An attorney may only make a gift under the MCA 2005 if it is:
1. Given on a customary occasion (such as birthdays or anniversaries) to someone related or connected to the donor (such as friends or family members); or
2. Given to a charity that the donor might have supported if he or she had capacity.
The value of the gift must also be ‘reasonable’ in light of all the circumstances. This includes considering:
1. The size and extent of the donor’s estate;
2. Whether the value of the gift would affect the donor’s ability to meet their financial needs now and in the future; and
3. Whether the donor made gifts of this value when he or she had capacity.
What if the gift falls outside the scope of gifting?
If an attorney wishes to make a gift that exceeds the scope of their authority, they must submit a formal application to the Court of Protection (COP) for approval (unless it falls within one of the ‘de minimis exceptions’). Several documents must be filed in support of the application, including a schedule of the donor’s assets, income and outgoings, and a report on the donor’s current medical condition and anticipated life expectancy.
The COP has discretion to decide whether or not to approve a gift. However, the court’s primary consideration in making a decision will be whether the proposed gift is in the best interests of the donor. When determining the donor’s best interests, the COP must take into account all the relevant circumstances, including whether the donor will regain capacity, whether the donor will participate in the decision, whether it is necessary to consult the decision with others, and the donor’s previous wishes and feelings. From our experience, when we have appeared before the Court concerning such requests, is that the court’s primary concern always is to ensure that in all circumstances the donor will be left with sufficient assets to cover their future needs whatever circumstances, including if government assistance towards care costs was to be removed or reduced.
The COP has pronounced several times that gifts intended purely for tax purposes such as saving inheritance tax when the donor dies will always be denied as a matter of public policy.
What are the consequences of making unauthorised gifts?
If an attorney makes a gift that is outside the scope of gifting, and does not obtain approval from the COP, the Office of the Public Guardian may conduct an investigation and:
1. Apply to the court to have them removed as an attorney;
2. Instruct them to seek retrospective approval of the gift from the COP; and/or
3. Request that they repay money or return the gifts made.
Example case: Chandler v Lombardi [2022]:
Facts of the case
In November 2021, the case of Chandler v Lombardi came before the High Court of Justice Business and Property Courts. In this case, Ms Lombardi was registered as Concetta Chandler’s attorney in respect of her property and financial affairs on 28 November 2016. Ms Lombardi used the LPA to transfer Concetta’s property into their joint names on 4 June 2018. As a result, from 8 June 2018, Concetta and Ms Lombardi were the registered owners of the property.
Issues that arose in the case
1. Did Ms Lombardi, as an attorney under the LPA, have the authority to transfer the property into their joint names?
2. If Ms Lombardi lacked such authority, was the gift of property to herself void or voidable?
3. What relief, if any, should be granted?
High Court Judgment
1. Ms Lombardi did not have the authority or power as Concetta’s attorney to dispose of her interest in the property, because the gift fell outside the scope of gifting as defined by the MCA 2005.
2. As the transfer was effected in breach of the prohibition in Section 12(1) of the MCA 2005, the gift of property into their joint names was void.
3. The judge ordered that the Land Register be corrected so that Concetta’s sole name appears on the legal title again. This was deemed an appropriate remedy because Ms Lombardi’s carelessness had resulted in the registration error.
What does the case tells us?
The COP needed to authorise the transfer prior to the application to the Land Registry for the gift of property to be valid. It made no difference that the attorney was unaware of this requirement, or that the solicitor who witnessed her signature had failed to inform her of it, because she should have taken steps to educate herself on the true legal position. Therefore, this case serves as a reminder to attorneys that they must understand the rules that govern their duties. Ignorance of their legal responsibilities is not an excuse.
When should you seek legal advice?
This article highlights the strict rules on gifting by attorneys and the potential consequences of making an unauthorised gift without first obtaining approval from the COP. Residential conveyancers regularly work with attorneys and understand the importance of ensuring that they have the requisite authority to transfer a donor’s property. Expert Court of Protection and probate practitioners can also advise attorneys on their duties and responsibilities, as well as prepare the LPA document itself.