In the recent judgment of PBC v (1) JMA and others, Judge Hilder authorised an application by an attorney to make gifts from his mother’s estate in excess of £7m, including £6m to himself.
In this case, JMA appointed her son PBC as her property and affairs attorney by way of a lasting power of attorney (“LPA”) in August 2010. This was registered by the Office of the Public Guardian in December 2010.
JMA was diagnosed with dementia and requires considerable care. At the time of the judgement, she was 72 years old. JMA’s estate was valued at £18.6m. When somebody dies, the balance of their estate over the current nil rate band of £325,000 is taxed at 40% unless an exemption applies.
PBC applied to the Court of Protection to authorise various gifts in excess of £7m. The main reason was to mitigate the amount of inheritance tax (“IHT”) PBC’s estate would have to pay provided she survived at least 3 years after making the gifts thereafter causing a reduced rate of IHT to apply. There would be no IHT payable on the gifts if she survived 7 years.
Judge Hilder authorised the gifts for the following reasons:-
- JMA had made a Will when she had capacity leaving her estate to her immediate family and several charities. The proposed gifts were to the same people and charities as listed in her Will.
- JMA’s financial advisor agreed with the proposed gifts. By authorising the gifts (and providing that JMA survived at least 3 years), the IHT liability upon JMA’s death would be reduced by about £3m.
- Even with the £7m gift, JMA would be left with over £10m. This was considered to be sufficient for JMA to live comfortably for the remainder of her life.
- The Official Solicitor, an independent body that acted on JMA’s behalf in the proceedings, agreed that it was in JMA’s best interests for the gifts to be made.
Whilst the sums involved in this case are considerable, the principles of gift making remain the same. An attorney can make charitable donations or family birthday/religious presents. The amount must be similar to what the donor used to give when they had capacity and must be proportionate to their overall estate. The attorney must make sure that the donor’s care and quality of life is not harmed by making such gifts. Overall, the gifts must be in the donor’s best interests.
Normally, IHT planning is not considered a main factor when making gifts, but in PBC the Court considered this in light of PBC’s substantial estate. Attorneys must remember that gift making is fact and person specific. If in doubt and especially when dealing with large amounts, it is recommended that you seek legal advice.
As a final point, many of the clients we act for have received significant awards of compensation, either as the result of a catastrophic head injury or serious medical negligence. This is a very different set of circumstances to that in the case of PBC and, in our view, the Court would be far less likely to agree that significant gifts for tax planning purposes would be in the best interests of the person concerned. As we have already said, every case is fact and person specific.