Senior Judge Lush has recently given helpful guidance on the circumstances in which a  deputy or the donee of a lasting power of attorney may make gifts out of P’s estate, without  requiring the court’s authorisation, and the circumstances in which the court may authorise  such gifts when the attorney or deputy makes a specific application.

So far as an attorney is concerned, section 12 Mental Capacity Act 2005 (the Act) authorises  him to make gifts on customary occasions to persons including himself, who are related to, or  connected with the donor, or to any charity to whom the donor made or might have been  expected to make gifts if the value of each gift is not unreasonable having regard to all the  circumstances and, in particular, the size of the donor’s estate.  Customary occasions are  defined as including anniversaries of births, marriages or the formation of a civil partnership  or any other occasion on which presents are customarily given within families or among  friends or associates.

So far as deputies are concerned, it is usual for a deputyship order to permit deputies to make  gifts in similar circumstances.

Recent cases have shown just how limited these powers are.  In the case of Re Joan  Treadwell (Deceased) (2013) EWHC 2409 (COP) the joint deputies had made gifts totalling  £59,000 over three years even though P’s income was only £10,000 per year. Senior Judge  Lush required the deputies to repay all but £15,000 of the gifts by enforcing the security bond  to that extent.

The Judge held that with an income of £10,000 per year anything over £100 for a christening  or graduation gift or £50 for a housewarming gift would not be reasonable and that the order  (which was in the usual form) authorised gifts of no more than about £1,000 per annum  above which permission (or in this case ratification) was required.

In Re GM (2013) EWHC 2966 (COP) Senior Judge Lush ordered the repayment of  approximately £205,000 worth of gifts.  He stated that, even in the case of substantial estates, authorisation should be sought whenever gifts over the annual IHT exemptions were  contemplated.

Even if the attorney or deputy considers that a gift can be made without authorisation, within  the guidelines set out above and within the powers of the deputyship order or section 12(3) of  the Act, the attorney or deputy must still be satisfied that the gift is in P’s best interests.   Likewise, that will be the touchstone if the attorney or deputy applies to the court for  authorisation.

Senior Judge Lush gave further guidance in this regard in Re JDS (2012) EWHC 302 (COP).   There P had been awarded damages for clinical negligence and his deputy sought  authorisation of the transfer of £325,000 of the award of over £2 million into a fund to  mitigate the effect of inheritance tax.  It was said that this was in P’s best interests, because it  did not affect his financial security but allowed him to make provision for his parents and  mitigate IHT, and that would give effect to the wishes and feelings that he would have had if  capacitous.

The application was refused.  It was opposed by the Official Solicitor, principally on the  grounds that he did not believe that it was in P’s best interests to dispose of such a large  amount of capital that may be needed in years to come.

The court carried out the usual “balance sheet” exercise and it is clear that little weight was  given to how P might have wished to be a donor or to be remembered after his death, partly,  at least, because of the fact that P had been severely injured at birth and had no  comprehension at all of the meaning of giving.

Before the Act came into force the court could approve gifts to persons or for purposes for  whom or for which the patient might be expected to provide if he were not mentally  disordered (the “substituted judgment” approach).  That allowed the former Court of  Protection to permit gifts, one aim of which at least was tax planning, on the basis that that is  what P would have wanted to do if he had capacity.

The “best interests” test is stretched to its limit when considering gifts from the estate of  patients who have had and will have no capacity to comprehend the nature of gifts.  By  contrast, the old substituted judgment test worked logically and effectively.

In Re G (TJ) (2010) EWHC 3005 (COP) at paragraph 37 Morgan J stated his provisional  view that a court could conclude that it was in P’s best interests for the court to give effect to  wishes which P would have formed if he had capacity . That is encouraging, but begs the  question why is it P’s best interests to give away his property if  P cannot understand the  notion of giving?

Sometimes we make gifts in the hope, or expectation, of receiving an advantage in return. But  what of pure charitable giving, since, strictly applied, the best interests test leaves little room  for such giving in a case where P has no concept of charity.

Re JDS was a case where, perhaps, the application was made too early in P’s life.  It will be  interesting to see how the courts react to a similar application made later in P’s life. In such  circumstances, the court will have to face the issue of how it can be in P’s best interests to  make a gift where P has and had no comprehension of giving.