In the recent case of Re JMA and others, an application by an attorney to make gifts from the estate of his mother who has dementia, was granted. The gifts amounted to more than £7m and included one of £6m to himself.
JMA gave her son, PBC, responsibility for her property and affairs through a lasting power of attorney (LPA) in August 2010, which was registered by the Office of the Public Guardian in December 2010.
JMA requires considerable care due to her condition. She was 72 years old when the judgment was given, and her estate is estimated to be in the region of £18.6m.
PBC applied to the Court of Protection to authorise various gifts in order to mitigate the amount of inheritance tax (IHT) JMA’s estate would have to pay provided she survived at least three years after making the gifts, thereafter meaning that a reduced level of IHT would be applied. There would be no IHT payable on the gifts if she survived seven years. When a person dies, the balance of their estate over the current nil rate band of £325,000 is taxed at 40% unless an exemption, reduction or other tax free amount (such as a transferrable or residence nil rate band) applies.
The judge authorised the gifts for the following reasons:
- JMA’s Will was made at a time when she had capacity. She left her estate to her immediate family and several charities. The proposed gifts detailed in the application were to the same people and charities as listed in her Will.
- JMA’s financial advisor agreed with the proposed gifts. The authorisation of the gifts (and), would reduce the IHT liability by about £3m upon JMA’s death, providing that she survived at least three years after the gifts were made.
- Following the authorisation of the gifts, JMA would retain a substantial estate, considered sufficient for JMA to live comfortably for the rest of her life.
- The Official Solicitor, an independent body acting on behalf of JMA in the proceedings, also agreed that authorisation of the gifts was in JMA’s best interest.
An attorney can make charitable donations or birthday/religious presents, provided that the sums of money involved are similar to what the donor gave before losing capacity and that they are proportionate to their overall estate. Equally, the donor’s care and quality must not be adversely by allocating such gifts and must, on balance, be in the donor’s best interests.
Whilst IHT planning is not usually a key factor when considering making gifts, the Court considered this in light of JMA’s substantial estate. The judgement in PBC v (1) JMA and others also highlights the fact that cases gift making is considered on its merits.