Lasting Powers of Attorney – a warning about Inheritance Tax planning

In a judgement on 30th October 2014, the Court of Protection has ruled that a Lasting Power of Attorney cannot be used to organise a Donor’s affairs to mitigate inheritance tax without first applying for a court order (the Donor is the person who created the Lasting Power of Attorney). The judgement was made in a hearing between the Public Guardian and AC and JC. The judgement was delivered in private, as is often the case so that the anonymity of the people involved can be protected.

The Court of protection hears a variety of cases, including cases where it appears that Attorneys who have been appointed under a Lasting Power of Attorney have gone further than the mental Capacity Act 2005 (MCA 2005) allows them to.

This case was particularly interesting because Senior Judge Lush took time in his judgement to make a particular comment about inheritance planning for people without the capacity to make decisions for themselves. He reminded the Court that section 12 of the MCA 2005 gives Attorneys a limited power to make gifts from the Donor’s assets of a reasonable amount on customary occasions (this might be birthdays for example). However, he was at pains to point out that if the Attorneys wished to make more extensive gifts to mitigate Inheritance Tax, then they needed to apply to the Court under s. 23(4) of the Act so that the court could decide whether the gifts might be allowed.

Our view is that acting as an Attorney is often a challenging role, with many decisions needing to be balanced against a range of circumstances. Deciding what is in a Donor’s best interest is often very difficult. However, it is clear that where there is any doubt, particularly in relation to inheritance tax planning, then the Court’s approval for a decision should be sought.

The full judgement can be seen here:

http://www.bailii.org/ew/cases/EWCOP/2014/41.html

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