Attorneys and Inheritance Tax – Who do you trust with your finances?
Case Impact in Brief
If you are acting as an attorney, there are very clear rules about what you can give away and what you can’t. Unfortunately not everybody seems to know them. In this case the attorneys seem to have sought advice but not from a Court of Protection specialist. Not surprisingly, the Court was not impressed with the very substantial gifts they had made and refused to ratify them. The Public Guardian then asked for the attorneys to be removed and succeeded in relieving them of responsibility for the Donor’s finances.
This case was quite extreme given the sums involved. It never ceases to amaze though the number of attorneys who think they can give away the annual Inheritance Tax allowance of £3,000, or even more, without any reference to the Court. A recent case, written about by Wrigleys Partner, Jane Netting, here has also made it clear that the Court of Protection will want to decide whether or not money can be invested in Inheritance Tax efficient but usually higher risk investments. The Court will be asking whose best interests the investment is in.
An Attorney’s starting point should always be “is this best for the Donor?”, not “is this best for me?”.
Here is another case of attorneys making gifts that they shouldn’t have. There were attempts at reducing Inheritance Tax both by way of gifting and by investing in Inheritance Tax efficient investments. The attorneys found that the Court was not impressed with their actions and ultimately they ended up being removed.
PP is a 78 year old lady who is in residential care. She had been married twice. Her son-in-law was appointed jointly and severally with a solicitor as attorney for property and affairs and health and welfare.
PP had been asked about Inheritance Tax planning on a couple of occasions, by her solicitors and her financial adviser. She had said she did not want advice about Inheritance Tax and referred to her relationship with her daughter not being good. She did agree to read some information sent by the financial adviser though she did not seem to take this forward.
The attorneys purchased a bungalow which was refurbished and later let. £324,000 was transferred to the daughter, the wife of the son-in-law, in thirteen separate transactions. Various other small gifts were given and the total of all these was £334,610.
PP found out about this after a meeting with a financial adviser and a trip to the bank, and was upset. The Public Guardian started a safeguarding investigation. In the meantime, PP had a fall, was admitted to hospital and then became a permanent resident in a care home.
The son-in-law attorney, BB, invested £350,000 of PP’s funds into Octopus Inheritance Tax investment vehicles. BB and his wife then purchased a property, £160,000 of which came from the £324,000 transfer. The couple claimed that the other £164,000 was held in a bank account and was untouched.
The Court found that although PP had capacity to make her Will in 2011 and make the LPAs in 2012, she lacked the capacity to make or approve the gifts made on her behalf between March and April 2013, including the £324,000 gift and the £250,000 Octopus investment. The Public Guardian’s Special Visitor required BB to apply to the Court of Protection for retrospective approval of gifts.
Interestingly, £160,000 was used towards the purchase of the attorney and his wife’s property, even though the application for ratification of gifts was proceeding in the Court of Protection. The attorney said that the opportunity to buy the house had come up, they didn’t want to lose it and the house was perfect for them.
The Court felt that the gift of £324,000 exceeded the attorney’s authority under Section 12 of the Mental Capacity Act 2005. The question was whether it should be ratified.
The Court found that significantly there was no history of gifting by PP to other family members and that she had not taken any steps to seek advice or minimise her Inheritance Tax liability. At the moment, PP’s income is slightly higher than her outgoings but she may well need nursing care in the future which would be more expensive, and her family have a history of long life.
PP was also very distressed when she found out some of her money had been moved and she continued to refer to this repeatedly.
The Judge required that £164,000 which was said by the attorney to be in a bank account, should be repaid immediately. He would not require the family to sell their home to realise the other £160,000 but that amount needed to be taken into account in the distribution of PP’s estate and a Statutory Will would be needed.
No further gifts, apart from the £250 per year allowance to PP’s grandchildren, would be allowed.
The Judge had concerns about the motive for the investment in Octopus and the benefit to PP but felt that she had sufficient capital for the relatively poor return on the investment not to have a significant impact on her. The Judge was concerned about the actions of the attorneys but wanted to hear from them.
The Judge found the professional attorney, CD, had not put any safeguards in place when she found out about the transfer of £324,000 to BB and his wife. CD did not want to continue as attorney without BB.
Counsel raised concerns about CD’s familiarity with Section 12 of the Mental Capacity Act and some of the decision making.
PP had also expressed concern about her daughter wanting her money to buy a farm and getting that money through her husband as attorney. PP has been very consistent in this view.
The Court did not consider that CD had acted in PP’s best interests. She approved BB’s decision without conducting her own best interests enquiry and the safeguarding measures she introduced failed to reveal the use of £160,000 to purchase a house for BB and his wife, and the use of £20,000 of PP’s money to pay BB’s costs for the action for ratification.
The Court revoked the Lasting Power of Attorney for Property and Affairs but left the Health and Welfare power in place.
The Judge also ordered that, apart from £4,000 which would probably have been occurred if BB had asked for authority for the gifts in the first place, BB should be responsible for the rest of his own costs.
Report on the ratification of gifting: http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCOP/2015/93.html&query=(EWCOP)+AND+(93)
Report on the removing the attorneys because of the gifting: http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWCOP/2016/65.html&query=(EWCOP)+AND+(65)