Lasting powers of attorney in England and Wales have been around since 1st October 2007 but many still find the topic somewhat complicated and, of course, the process of setting one up and registering it, whilst intended to be straightforward, is far from it. Indeed there seems to be constant Government consultation on improving the process. In addition, many individuals are deterred from making a power given the cost. For a couple to execute two lasting powers ie. one property and affairs and the other personal welfare, the cost will currently be £440. If you add to it any fees charged by professional advisers as well as by certificate providers, this is undoubtedly a deterrent for some.
Recently two particular issues have been highlighted by questions received at MFP. The first relates to the capacity of an attorney to make gifts. In England and Wales the provisions are covered by the Mental Capacity Act 2005 Code of Practice. The capacity of the attorney to make gifts is considerably restricted and very specific. It is a misconception that an attorney can make ‘small gifts’. In fact the MCA Code of Practice specifically provides as follows:-
An attorney can only make gifts of the donor’s money or belongings to people who are related to or connected with the donor (including the attorney) on specific occasions, including:
– births or birthdays,
– weddings or wedding anniversaries,
– civil partnership ceremonies or anniversaries, or
– any other occasion when families, friends or associates usually give presents (such as Christmas etc).
In addition to the above, if the donor previously made donations to any charity regularly or from time to time, the attorney can make donations from the donor’s funds. This also applies if the donor could have been expected to make such payments. The value of any gift or donation must be reasonable and taking into account the size of the donor’s estate. For example, it would not be reasonable to buy expensive gifts at Christmas if the donor was living on modest means and had to do without essential items in order to pay for them.
It should also be noted that, whilst the donor can restrict the authority to make gifts in the power itself (this must be made at the time the power is made), it is not possible to extend this authority, i.e. even if the donor was contemplating allowing the attorney to make more expensive gifts, this is not possible under an LPA.
If the attorney would like to make gifts which are not covered by the above, for example making a gift for inheritance tax planning purposes, the attorney must apply to the Court of Protection for permission to do so.
Another topic that has recently been raised is the question of powers other than LPAs. It is generally understood that enduring powers of attorney executed before 1 October 2007 are still valid ie. there is no need to replace them with an LPA. Of course such powers need to be registered on the onset of the donor’s incapacity. If the donor is still mentally capable, the attorney can still act under an enduring power, although in practice, especially if gifts are involved, you would expect the donor to make gifts himself rather than relying on the attorney.
Finally, it is sometimes forgotten that it is still possible to grant an ordinary (traditional) power of attorney under the Powers of Attorney Act 1971. This can be granted to authorise an attorney to manage the donor’s property and financial affairs or for commercial purposes. However, with these powers, the attorney’s authority comes to an end if the donor ceases to have mental capacity.
The above is all based on English law, as different rules apply in Scotland and in Northern Ireland.
The subject of powers of attorney as well as wills is often a good starting point to discussing clients estate planning. It is also essential for advisers to be familiar with how powers of attorney operate, in order to be able to deal with investments and other transactions effected by attorneys.