What are the facts?
JMA is a 72-year-old lady who suffers from early onset dementia and requires full time care. Since June 2014 she has lived in a care home which she pays for privately.
PBC, her son, was appointed as sole attorney for his mother’s property and financial affairs on 5 August 2010. The Power of Attorney was registered by the Office of the Public Guardian on 16 December 2010.
JMA has two children from her first marriage – PBC and a daughter JA. JA died in January 2009. The circumstances prior to and as a result of her death clearly had a significant impact on family relations across all three generations. JAA, the fourth respondent is JA’s son and JMA’s only grandchild.
PBC made an application to the Court of Protection for authority to make various gifts from JMA’s estate together exceeding £7 million. Around £6 million of the proposed gifts were to himself with the majority of the remainder to a number of different charities. PBC was very open throughout and in response to the question at section 5.3 of Form COP1, namely,
how would the order benefit the person to whom the application relates? he stated that “if the following gifts were made now and [JMA] were to survive at least a further three years, then there would be significant inheritance tax savings on her death”.
At the time of the final hearing, JMA’s estate was worth approximately £18,650,000. When the application was made, the estate included her matrimonial home which had been sold by the time of the final hearing. The estate was entirely held in investments, excluding five paintings of significant value.
In determining whether it was in JMA’s best interests to sanction the gifts, the Court of Protection considered a variety of factors including:
- the existing case law balancing a potential inheritance tax saving as being in the donor’s best interests rather than the interests of the beneficiaries;
- JMA’s family situation;
- JMA’s lifetime gifting;
- the terms of JMA’s late husband’s will;
- JMA’s tax planning;
- the terms of JMA’s will which had been executed 7 years earlier;
- the agreement reached between the parties; and
- the submissions made by the parties.
The factors in favour and against the making of the proposed gifts were summarised as follows:
- The recipients of the proposed gifts were those whom JMA had chosen to benefit in her will.
- The benefit the recipients would receive has a good prospect of being increased by the effect of tax mitigation but would otherwise be much the same overall whether or not the gifts are made.
- Management of JMA’s property and affairs with a view to tax efficiency is consistent with JMA’s beliefs and values as demonstrated by her actions when she had the capacity to manage her financial affairs for herself.
- When she could, JMA took regular financial advice and made decisions in accordance with that advice to minimise her exposure to lifetime taxes, including strategies with incidental inheritance tax benefits.
- Her change of circumstances now made it feasible to consider post-death tax exposure.
- The proposed gifts are amply affordable and will have no discernible impact on her ability to meet her conceivable needs from her remaining funds.
- The proposed gifts reflect an agreement reached between the various recipients and with independent representation of JMA herself (through The Official Solicitor).
- Any further agreement is avoided, thereby reducing potential exposure to costs.
- Giving effect to the agreement may have a beneficial impact on family relationships which have been adversely affected by difficult circumstances.
- JMA had on one occasion expressed a wish that her son should know that the end of financial support from her had come.
- JMA’s tax mitigation whilst she had capacity did not extend to post-death taxes save where that was incidental to lifetime tax planning intended to address her own needs.
- The proposed gifts would reduce JMA’s estate and therefore the funds available to her during her lifetime by approximately 38%.
Interestingly Judge Carolyn Hilder recognised that some might say that PBC’s application was “self-serving” but noted that she was satisfied that the application had not been “improperly brought” and that JMA’s longstanding financial advisor was fully in support.
Judge Carolyn Hilder concluded that “taking all things into consideration, I am satisfied that the factors in favour of the proposed gifts outweigh the factors against. In the context of the wider agreement between the parties, I am satisfied that the proposals are in the best interests of JMA.”
This case highlights that, in appropriate circumstances, the Court of Protection will authorise significant gifts to attorneys and others. Whilst attorneys and deputies take on “fiduciary” duties to act in the best interests of the relevant party, the Court of Protection recognises that often these people are also those who are closest to the relevant party.
The key in these cases is to ensure that:
- any application for approval is made either prior to any gift(s) or as soon as possible following such a gift;
- full and frank disclosure and details of the circumstances are given; and
- where appropriate, professional advice is sought.