Giving gifts as an attorney: some do's and don'ts for benefiting someone other than the donor

Inherent to the role of an attorney is the requirement, when making decisions of behalf of another (“the donor”), to consider the best interests of that individual. This duty is of particular importance in relation to gift giving. Gifts are sometimes described as “social glue” in that, especially in the position of an attorney, giving gifts on behalf of the donor can be an important way of preserving the donor’s relationships with their family and friends.

The issue 

This can often be met with difficulty as the general rule is that attorneys must not make gifts from the donor’s estate, unless it constitutes one of the limited exceptions under Section 12 of the Mental Capacity Act 2005 (‘Section 12’).

Under Section 12, to count as an exception, the gift must be: given on a customary occasion to family, friends or associates of the donors, e.g. on birthdays, weddings and religious holidays; or to a charity the donor supported or might have supported. In addition, the gift must be of a reasonable value, considering the circumstances in each case and the size of the donor’s estate. “Reasonableness” is not defined by the Act, but the following factors should be considered: the financial impact of the gift to the donor; and whether the gift would be in the donor’s best interests (a full list of “best interest” considerations is listed in Section 4 of the Act).

The strict rules that surround what an attorney can gift, to whom and when, means that often mistakes are made when creating the LPA. Consequently, the OPG, when reviewing applications, will either sever provisions that do not comply with Section 12 or refuse the application altogether. This ultimately means that the wishes of the donor are rendered invalid in whole or in part.

Recognising the difficulties and uncertainty which surround the gift giving provision under Section 12, the Office of the Public Guardian (OPG) recently put a group of test cases before the Court in Re Various Lasting Powers of Attorney. This has resulted in clear guidance to the OPG, those involved in the drafting of LPAs and to attorneys on how to approach gift gifting under an LPA.

Background

The OPG applied to the Court to determine the meaning and effect of words used within 11 applications received for the registration of LPAs.

The common theme among the applications was that each contained provisions which involved an expression of wishes by the donor that the appointed attorney uses the donor’s funds to benefit someone other than the donor, including an appointed attorney themselves.

The OPG felt that the current law was unclear about whether this type of provision would be permitted in accordance with the gifting provisions within Section 12 and therefore requested guidance from the Court.

Conclusions

Reiterating the importance of “best interests” in decision making, the Court came to the following conclusions: 

1. An attorney’s use of the donor’s funds to benefit someone else was not a gift unless linked to a customary occasion, as defined by Section 12(3) of the act. 
   
   Attorneys can make provisions for individuals other than the donor, as such provisions would not constitute a gift. However, any such provision must be made, so far as reasonably ascertainable, with consideration to the donor’s wishes (past and present) and best interests.
    
2. Provisions in LPAs to use the donor’s funds to benefit persons other than the donor may be valid as a written statement of the donor’s wishes, so long as they are expressed in precatory terms. Those expressed mandatory terms would be ineffective.
   
   Donors can include details in their LPA as to whom they wish their attorneys to provide for. Importantly, these guidelines must be expressed as a wish or request rather than a compulsory provision.
    
3. Provisions that provide for attorneys to use the donor’s funds to benefit the attorney themselves were valid. This is because any potential conflict of interest had been authorised by the donor and, in any event, the attorney had to act in accordance with the donor’s best interests.
   
   The court addressed the concern as to whether a conflict of interest can arise if the attorney is providing for himself from the donor’s money or assets, determining that receiving a benefit is not invalidated by their fiduciary obligations. 

The judgment goes further to summarise these conclusions in the form of a decision tree to be applied in the day to day context of acting as a lay attorney.

Comment

Figures published by the OPG for the year to April 2019 show 759,976 applications were made for a friend or family member to be granted a Lasting Power of Attorney. This is a staggering increase from the reported 52,492 applications in the previous ten years.

As more and more people are looking for the protection afforded by a Lasting Power of Attorney, we must hope that the guidance offered in Re Various Lasting Powers of Attorney provides a balance in allowing attorneys to make gifts on behalf of the donor. It also offers a promising way forward for the effective drafting of LPAs, and instils greater confidence in lay attorneys carrying out their duties validly and effectively on behalf of the donor.