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My sisters and I have Lasting Power of Attorney for our father who recently lost capacity. Our father’s mental health deteriorated very suddenly and before he had time to discuss inheritance tax planning with his solicitor, something we know he was keen to do. Is there anything we can do to ensure that our father’s wishes are followed?

Stephanie Brobbey, a senior solicitor in the private client team at Goodman Derrick, says lifetime gifts are a key part of inheritance tax planning as they can be an effective way of removing value from an estate. Broadly speaking, if an individual survives seven years from the date of making a lifetime gift, the value will not form part of their estate on death for inheritance tax purposes.

There are strict rules governing gifts by attorneys on behalf of an incapacitated person, however. The default position is that you must not make gifts from the estate of a person who lacks mental capacity. There are exceptions such as gifts made for a birthday or wedding to people who are related to the donor. The value of such gifts should be reasonable in relation to the size of the donor’s estate.

If you and your sisters want to make a gift on behalf of your father as part of an estate planning exercise, you will need to submit an application to the court of protection. An assessment of capacity is required to be completed by an appropriate medical professional and filed with the application together with supporting evidence. The court of protection will consider whether or not the proposed gift is in your father’s best interests.

Stephanie Brobbey, a senior solicitor at Goodman Derrick

The best interests test is of overriding importance and is assessed on a case-specific basis. A range of factors will be taken into account such as the size of your father’s estate, the extent to which he was in the habit of making gifts when he had capacity and his likely wishes. You will probably have to prove your father was interested in estate planning or mitigating IHT.

The court of protection will be particularly concerned about whether your father has enough assets after the gift, factoring in costs of care. The official solicitor is normally appointed to act as a “litigation friend” for incapacitated persons, so if you decide to proceed you can almost certainly expect the official solicitor to act on your father’s behalf to represent his interests. 

If you do want to proceed with making an application to the court of protection to authorise a lifetime gift, you will need to complete prescribed forms together with any evidence in support of the application.

The process can be quite cumbersome and protracted and, therefore, it would be prudent to seek professional advice before going ahead. The costs of the application, including those of the official solicitor, are typically assessed by the court and would be paid from your father’s assets.

Abigail Bird, head of the legacy department at Laurus, a law firm, says you will need to undertake a thorough assessment of the current assets, liabilities and their values, as any gifting will need to take the whole value of the estate into consideration. Most importantly, and as is the case for every decision made in your roles as attorneys, you and your sisters should reasonably believe it is in your father’s best interests.

When and to whom you give gifts is subject to certain conditions. Section 12 of the Mental Health Capacity Act 2005 states that family and friends can receive a gift on customary occasions — such as a birthday, wedding or religious holiday — and charity donations are allowed if it is a charity to which your father made donations or might have been expected to. In both cases, it is essential the gift is of reasonable value given the size of your father’s estate and his future needs. By way of example, a gift of £1,000 would be reasonable for an estate worth £100,000 but not for an estate worth £10,000.

Abigail Bird, head of the legacy department at Laurus © Handout

Gifting outside the above specification usually requires an application to the court of protection unless it is covered by the de minimis rule, which allows attorneys to make gifts when: the donor’s life expectancy is under five years; their estate is more than the nil-rate band (currently £325,000); the gift is affordable and won’t negatively affect your father’s quality of care; or there is no evidence your father would oppose this gift. But be aware this rule does not apply when these gifts are being given to attorneys or members of their families.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com.

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