Update: Making gifts to family and charities on behalf of individuals who lack capacity

Family members will often wish to ensure that gifts can be made on behalf of a relative who, for whatever reason, lacks the mental capacity to make them himself. However, deputies and attorneys do not automatically have authority to make gifts from the assets of the relevant individuals. 

The starting point is that such gifts should not be made except on customary occasions to someone related or connected to the person, and that they should be of “not unreasonable value”. What happens where an attorney or deputy proposes to make a gift in other circumstances? 

The Court of Protection has jurisdiction to bless the making of gifts and it is often important for Deputies and Attorneys to take advice on this option so as to avoid breaching the duties imposed on them by virtue of their position. 

A recent case provides a useful illustration of the applicable considerations in such cases. We set out a brief summary of the case below before turning to its wider ramifications.

FL v MJL (By His Litigation Friend, the Official Solicitor) [2019] EWCOP 31 

In the anonymised case of FL v MJL, the sole deputy (FL) of a man who is now in an irreversible coma (MJL) applied to the Court of Protection for an order approving substantial cash gifts from MJL’s assets to family members and certain charitable causes which he had supported during his life.

MJL had assets of c. £17m, and a net annual income surplus of c. £107,000. The assets were found to be sufficient to pay for his needs for the rest of his life. MJL’s statutory Will divided his estate between his siblings (as to 60 per cent) and the charities (as to 40 per cent).

There was, therefore, some rationale to the proposed gifting scheme. There was also a fiscal justification - FL proposed to give away MJL’s accumulated income (£1.2 million) to his four siblings, and a further £790,000 of MJL's capital to his charitable beneficiaries in order to mitigate inheritance tax. 

However, the Official Solicitor, acting as MJL's litigation friend, argued that (a) capital should not be distributed but (b) the proposed £1.2 million gift of income should instead be split in the same proportions as under the statutory Will (ie 60 per cent to MJL’s siblings and 40 per cent to his charitable beneficiaries).

This was on the basis that there was no evidence MJL would have undertaken tax planning or lifetime giving if he had retained mental capacity, as he had not done so before losing capacity. The Court accepted this argument and therefore only authorised the gifts out of surplus income. 

The Court gave weight to the question of how MJL would have wanted to be remembered but was not persuaded by FL’s proposition that mitigating IHT (and therefore maximising the size of the estate) would affect the beneficiaries’ memory of him.

Some conclusions

1. It is important to note that if a Deputy or Attorney is found to have made an unauthorised gift they may be investigated by the Office of the Public Guardian (and even, in serious cases, the police). Therefore, where an attorney or deputy wishes to make gifts they should take appropriate advice as the first step. 
2. Any application for approval of gifts should be made as soon as possible and comprehensive evidence (together, where appropriate, with details of relevant professional advice) should be provided to the Court. 
3. Gifts to family members and charitable causes can be made, but they will not simply be “rubber stamped” by the Court. The Court will undertake a careful balancing exercise in reaching its decision.
4. This case is a useful illustration of the approach that the Court of Protection takes. It will examine the way that the incapacitated individual ordered his affairs and the terms of any will, his or her personal views and history of charitable giving. 
5. The Court will also consider the way that the relevant individual would have wanted to be remembered. However, if there is not evidence that they wanted to minimise tax then it may be difficult to persuade the Court that this is how they would want to be remembered.

If you require further information about anything covered in this briefing, please contact Adam Carvalho or Will Cudmore, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, August 2019