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Case law: Giving attorneys power under a lasting power of attorney to make gifts could invalidate it

Donors making lasting powers of attorney (LPAs) should take great care when giving powers to their attorney to make gifts out of their estate, because if the power cannot be lawfully exercised the LPA may be invalid.

November 2019

This update was published in Legal Alert - November 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

If a person is acting as an attorney under an LPA, the law limits their power to make gifts on behalf of the person for whom they are acting (the ‘donor’). For example, mental capacity laws say an attorney can only make a gift if it is:

  • for a ‘customary occasion’, such as a birth, birthday, marriage or civil partnership, and the person receiving the gift is related or connected to the donor; or
  • to a charity, and the donor has already made gifts to that charity or could be expected to do so; and
  • the gift is not unreasonable compared to the donor’s estate.

But what if an LPA authorises the giving of gifts, including to the attorney themselves, beyond these exceptions? The Office of the Public Guardian (OPG) recently brought test cases to determine how the rules applied in 11 different LPAs, all of which expressed the intention that the attorney should be able to use funds from the donor’s estate to benefit someone other than the donor themselves.

The OPG is the agency that helps people in England and Wales stay in control of decisions about their health and finance and make important decisions for others who cannot decide for themselves.

The OPG’s ruling clarified that:

  • If the LPA says an attorney can use the donor’s funds to benefit others without limiting the giving of gifts to customary occasions, then gifts can validly be made under the LPA, provided they are not linked to a customary occasion.
  • If a donor has a legal obligation to maintain someone anyway, a clause in the LPA saying the attorney can use funds to benefit that person is not valid.
  • If the LPA cross-refers to a statement setting out who the donor would like to benefit from gifts (often called a ‘letter of wishes’), the attorney may (provided they are complying with their other duties) make a gift to those people. If the clause makes such gifts mandatory, it is invalid.
  • A clause giving a benefit to the attorney themselves does not automatically make the clause invalid:
    • because the attorney owes fiduciary duties to the donor (ie, has a legal duty to act in the donor’s interests); or
    • because there is a conflict between the attorney and the donor’s interests (the inclusion of the clause in the LPA by the donor amounts to authorisation of the conflict – and the attorney must act in the donor’s best interests in any event).

    Operative date

    • Now

    Recommendation

    • Donors making LPAs should take great care when giving powers to the attorney to make gifts out of their estate, because if such powers cannot be lawfully exercised the LPA could be invalid.

    Case law: Re Various Lasting Powers of Attorney [2019] EWCOP 40

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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