UK: Gifts For Life: How To Make Sure You Can Keep Making Gifts Even If You Lose Mental Capacity

We always advise our clients to consider lifetime gifts as an integral part of their tax planning strategy. What is not so well known is that when you lose your mental capacity there are severely restricted powers to make such gifts.

The Mental Capacity Act 2005 (MCA) states that for any decision you make you shouid be able to understand relevant information, use it to make a decision, and communicate that decision.

The leading 1978 case of Re Beaney (Deceased) sets out the test of capacity to make a gift and states that the capacity threshold will vary depending on the size, nature and circumstances of the gift.  We always ask you what you are seeking to achieve, who you wish to receive the gift and what types of assets are involved.

If an Attorney acting for you under a Lasting Power of Attorney (LPA) proposes to make a gift which exceeds the limited authority conferred on Attorneys under the MCA, then an application must be made to court for approval.

Under the MCA, your Attorney may make gifts on customary occasions to persons (including himself) who are related or connected to you or charities you might have supported. The proviso is that the value of the gift must not be unreasonable having regard to all of the circumstances and in particular the size of your estate. 

A "customary occasion" means - (a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership or (b) any other occasion on which presents are customarily given within families or among friends or associates.

Although Attorneys are limited in their ability to make gifts on your behalf, it is better to have an Attorney acting for you than none at all.  The court must otherwise appoint a Deputy and you will have no control over who this person is.  With an LPA, you can choose your Attorneys and give guidance, conditions and/or restrictions in the LPA on what they can gift, when and to whom.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.